Telefónica looking to merge with Mexican operator Iusacell
What: Telefónica is trying to merge with Mexican operator Iusacell to fight América Móvil dominance in Mexico .
Why it matters: Law reforms to fight the lack of competitiveness in the country are about to be implemented. Telefónica is planning to increase its share in Mexico's mobile sector following the reforms.
Lack of investment and competition in the Mexican market are mainly due to América Móvil’s strong market position, as the company controls around 70% of the country's mobile lines and 80% of the fixed line telephony market. This involves a low penetration of telecommunications services forcing Mexicans to overpay for telecommunications services. Between 2005-09 telecommunications services spending reached over US $13 billion.
Widespread reforms to the telecoms industry were signed last year by President Enrique Peña Nieto so as to fight the lack of competitiveness in Mexico's telephony and television sectors.
These reforms aim to strengthen regulatory institutions to combat monopolies, among other things.They may also allow investment in the Mexican telecoms market to increase to US $55 billion in 2018 compared to US$35 billion in 2012.
Telefónica is planning to increase its share in Mexico's mobile sector following the reforms. The company had a share of 18.5% of the country's mobile market with 19.1mn clients at the end of third quarter 2013, while Iusacell's had a mobile customer base of around 7.4mn as of the end of 2012.However, telefonica has already started to strenghten its position in the country by providing data and voice coverage for NII Holdings' Nextel .
Telefonica-Iusacell merger's dilemma
Despite América Móvil's dominant share in Mexico's telephony market, the company has failed to enter the country's TV sector.
TV sector is already dominated by Televisa and TV Azteca which have a combined 95% share of the country's broadcast TV market. In addition, Televisa owns half the pay TV segment and has recently acquired a 50% stake in Iusacell. The remaining 50% stake is retained by TV Azteca owner Grupo Salinas.
A Telefonica and Iusacell merger could result in a strong player across the mobile and pay TV segment , if Televisa or Grupo Salinas were to retain any minority stake in the telecoms operator.This may cause something of a dilemma, as many investments from competitors will be required to reduce América Móvil's position on the Mexican market. In this regard, regulators may not be willing to allow further market consolidation, given that the aim of the reforms is to provide more options to consumers, rather than less.
Most players will be looking forward the release of the secondary telecoms reform proposals, which will include details that allow companies to meet the terms of the telecoms reform, such as type of penalties and fines to be faced by companies for monopolistic practices.