With free long distance calls and mobile phone penetration rising, the fixed-line phone is all but dead. Fixed-line operators such as Carlos Slim’s Telefonos de Mexico (TMX), known as Telmex, are losing subscribers by the handful. So when Slim saw the chance to fold Telmex into his wireless phone-service provider, America Movil (AMX), he pounced.
Slim bought control of Telmex from Mexico’s government in 1990 and spun off its wireless unit to form America Movil in 2001. Now the billionaire is putting the pieces back together.
America Movil controls 70 percent of the nation’s mobile phone market. It acquired a majority stake in Telmex last year in a $23 billion transaction that also gave it ownership of Slim’s fixed-line networks in South America.
Under a new deal announced in August, America Movil will buy the 40 percent of Telmex it doesn’t already own for about 90 cents a share and, if successful, will delist it.
Telmex said its board reviewed the terms and, based on Morgan Stanley’s recommendation, concluded the proposed price is fair to shareholders. AT&T (T), which holds an 8.5 percent stake in Telmex, has already said it will accept the offer.
Slim has not explained his reasons for the deal, but analysts say he may be eyeing Telmex's low share price, which has tumbled from a year-high reached in May.
This new deal, worth $6.5 billion, would let America Movil fully combine its operations with Telmex and compete against rival Grupo Televisa (TV), which is also introducing phone services.
The timing couldn’t be better for Telmex, which is losing subscribers. It lost 308,000 phone lines to competitors in the second quarter, ending the period with a total 15.3 million, representing about 78 percent of Mexico’s fixed phone lines.
But Telmex’s Internet business is growing, with 7.7 million subscriptions at the end of last quarter, up 10 percent from a year earlier.
Plans on hold
Telmex has also faced a number of regulatory hurdles this year. First the government denied its request to expand into the pay television market and then, in August, Mexico’s antitrust agency declared the company dominant in the fixed-line sector.
As a result, Mexico’s telecom watchdog Cofetel has proposed new rules to curb Telmex’s power and increase competition in the sector. An attempt by Cofetel to enforce tighter rules more than a decade ago went into legal limbo after Telmex filed an appeal, but analysts say that is not likely to happen this time.
Telmex reported a second quarter net profit of $229 million, down 11.8 percent from a year ago, as a charge related to interest rate swaps offset better-than-expected operating results.
Telmex next reports on or about Oct.19.
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