Mexico might break up Slim’s empire

Officials study U.S. dismantling of Standard Oil

Me X ICO CITy • As Mexico gets ready to unleash a battery of regulations to curb the power of telecom mogul Carlos Slim, the government is sending clear signals that it will not shy away from breaking up his business if necessary.

ever since President enrique Pena Nieto’s government unveiled a landmark antitrust bill in March allowing regulators to make dominant phone and television companies sell off assets, many Mexicans have questioned whether it would go that far.

Increasingly, though, officials say that option is no idle threat against Mr. Slim, who has held sway over the Mexican telecommunications industry for the best part of a generation.

By 2010, that domination had made him the world’s richest man. The 73-year-old Mr. Slim kept that title until last month, when a sell-off in shares of his giant phone company

helped cut his wealth to about uS$70-billion and put him behind Microsoft Corp.’s Bill Gates in the top spot.

The dumping of America Movil stock was fed in part by uncertainty about Mr. Slim’s companies under Mr. Pena Nieto, who took office in december vowing to break the hold that a few families have maintained over key areas of Mexico’s economy.

America Movil’s local fixed-line and mobile phone units, Telmex and Telcel, have for years used legal injunctions and appeals to thwart attempts by the state to cut them down to size.

The reform, approved in Congress and due to be signed into law by Mr. Pena Nieto on Monday, aims to strip away much of that legal cover, create a stronger regulator and set new, tougher rules to help competitors catch up.

To do that, a new regulatory body known as Ifetel is likely to make Mr. Slim’s companies share infrastructure and create a tariff regime that makes the billionaire charge rivals less to access the vast phone network he operates.

Whether that will be enough remains to be seen, said Jose Ignacio Peralta, deputy minister for communications and transport, one of the architects of the reform.

He stressed that the legislation gives authorities the power to totally reshape the industry, from ordering the sale of assets to possibly breaking up companies completely.

“even if it’s true that asymmetric regulation will help improve competition, it’s probably going to do so in a gradual way that needs to be accelerated. The possibility of asset divestment is in the constitutional text,” Mr. Peralta said.

Through America Movil, which has more than 260 million wireless subscribers across the Americas, Mr. Slim controls around 80% of Mexico’s fixed-line market, and some 70% of mobile phone traffic.

Meanwhile Televisa, the broadcaster run by emilio Azcarraga, has over 60% of the TV market. Like Mr. Slim, it has used all legal means to keep the competition at bay, but could also soon feel the bite of a more testing regime.

After years of domination by the few, Mr. Peralta likened Mexico’s telecommunications industry to a building that needed to be “demolished” and rebuilt “brick by brick.”

Ifetel is due to be created in the next three months and will then have another 180 days to rule which companies are “dominant.” America Movil and Televisa are the prime candidates. If the regulator then decided such firms had abused their power to stay on top, their Mexican operations could be broken up.

When asked how that could work, Mr. Peralta said he had recently dis-

Divesting assets means very similar things to what

the U.S. did

cussed the carve-up of phone giant AT&T and oil colossus Standard Oil with a u.S. government official.

“When talking about divesting assets, it means very similar things to what the united States did in these two cases, which, I insist, would depend on the regulator’s decision,” he added.

John d. Rockefeller’s Standard Oil was divided into 34 firms in 1911, while the u.S. government split AT&T, which grew out of the company Alexander Graham Bell created in 1877, into a long-distance provider and seven regional “Baby Bells” in 1984.

Both companies had become bywords for monopolistic power when they were taken apart, with u.S. authorities arguing they were impeding the emergence of new players.

Most experts agree competition increased after the state intervention, though subsequent consolidation of the marketplace means that much of the original companies’ power now resides in their largest successors, exxon Mobil Corp and AT&T Inc.

In Mexico’s case, an argument often cited against breakup is that it is far from certain that anyone will step in to pick up the slack if the biggest players are humbled.

“The one thing we don’t want is to have companies that don’t invest enough,” said Jorge Nicolin, a former head of Mexican telecom regulator Cofetel. “It would be stupid to affect those who are investing if there aren’t others who want to do it.”

devising a way to weaken dominant incumbents while encouraging as much new investment as possible will be an awkward balancing act for the Mexican Congress when it starts to draw up secondary legislation to implement the telecom law this summer.