EXECUTIVE SUMMARY

this month ’ s series : April 2010

Telmex on the slippery slope

Mexican market, version 2.0:

One of the most belligerent forces
against Telmex is Telefónica, which
in February this year accused
Telmex of using its financial strength
- propped up by AMX and TII - to
absorb the recently mandated 3%
service tax, while mobile operators
felt obliged to cover the tax by
raising prices.
A taste of its own medecine
Televisa is positioning itself as a
giant not only in triple play but also
in quadruple play, by creating a
close relationship with Nextel. The
media group has also partnered with
Telefónica and Megacable to make a
joint bid for CFE’s dark fiber, and is
virtually guaranteed to win.
All change..
Two decades after the privatization of
Telmex, Mexico’s telecommunications
sector is finally entering a new and
dramatically dynamic phase. The regulatory
changes of the last few years and the rapid
rate of change in technology, such as the
explosion of mobile telephony and the
upcoming auction of 3G spectrum, have
reshuffled the deck, finally giving some
groups an advantage over Telmex and its
sister company Telcel (América Móvil).
This sea-change is being led by Mexican
broadcasting group Televisa - the largest
Spanish-language media group in the world
- which announced mid-February that it will
acquire a 30% stake in mobile trunking firm
Nextel de México for US$1.44 billion.
In 2006 and 2007 Telmex became aware of
threats on several fronts in Mexico, such as
a 2007 pledge by the antitrust commission
Cofeco that it would evaluate whether Telmex
and Telcel should be declared dominant; the
October 2006 “Convergence Agreement” that
lumbered Telmex with number portability,
interoperability and interconnection
obligations as prerequisites for launching
television services; and increasing government
support for abolishing laws that limit foreign
ownership of fixed line operators to 49%.
In this report BNamericas highlights the
importance of television operations for
Telmex’s future and questions whether
consumers will really benefit from the
market changes afoot.

Declining growth rate of Telmex local telephony and ADSL businesses

Sequential change:
15%

12%

9%

6%

3%

0%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
ADSL adds
Internet revenue

Sequential change:
2%

0%

-2%

-4%

-6%

-8%

-10%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
Local tel revenue
Local tel lines
*4Q09 - Telmex changed its line reporting methodology and no
longer includes lines with payment more than 2 months overdue

Source: BNamericas, based on Telmex quarterly results

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 Written and researched by
Phil Anderson

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