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America Movil Renews Criticism of OECD Report on Mexico

Date : 12/07/2012 @ 2:02AM
Source : Dow Jones News

America Movil Renews Criticism of OECD Report on Mexico

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--Company says OECD's report overstates real costs

--Plans to call attention of Mexican regulators to objections

--Mexican regulators considering asymmetric regulation for Telcel

By Anthony Harrup

MEXICO CITY--Mexican telecommunications company America Movil SAB (AMX, AMX.MX) renewed its criticism Thursday of a report by the Organization for Economic Cooperation and Development, which it said overstated actual cost of services to consumers and used a separate methodology to evaluate America Movil's unit Telcel.

America Movil's chief financial officer, Carlos Garcia Moreno, said in a webcast presentation that the company has received dozens of calls from investors about the OECD report, which was released in January 2012.

America Movil, controlled by billionaire Carlos Slim, called the report flawed and in May asked for it to be withdrawn. The OECD said it stood by the report and its findings, in which it estimated that high telecommunications prices cost Mexican consumers over $25 billion a year in overcharges and foregone services, and also recommended asymmetric regulation.

The report was commissioned by Mexico's telecommunications regulator Cofetel, which is currently considering whether to apply asymmetric regulation, such as forcing Telcel to pay more than it charges to complete calls on competing networks.

Telcel has about a 70% share of Mexico's wireless phone subscribers with 69 million at the end of September. Its competitors are Spain's Telefonica SA (TEF), Iusacell, a joint-venture of Grupo Televisa SAB (TV, TLEVISA.MX) and Grupo Salinas, and NII Holdings Inc. (NIHD) unit Nextel Mexico.

Mr. Garcia Moreno said Thursday that the company will bring its findings to the attention of Cofetel. "I would think that Cofetel had wanted an adequate diagnosis of the sector," he said.

America Movil has long objected the OECD's use of purchasing-power parity, or PPP, to compare telecommunications prices. In the case of Mexico, it shows prices 40% higher in dollar terms than they would be at market prices, Mr. Garcia Moreno said.

The official said the basket of services the OECD used to compare Mexico with other countries wasn't the most representative of Telcel's mostly prepaid customers, that the price data excluded bonuses granted to prepaid customers who, for example, buy 500 Mexican pesos of air time and receive MXN900 in credit. It also ignored the effect on average prices of free "on-net" calls to prespecified numbers.

"Our analysis revealed that for Telcel, alone among 68 operators, a unique methodology had been devised," Mr. Garcia Moreno said.

America Movil's shares have languished this year, down 6.4% from the end of 2011 as the local market's benchmark IPC index has risen 14%. Increasing competition, heightened regulatory pressure and the economic slowdown, particularly in Brazil, have contributed to holding the shares back.

Analysts have offered differing views on the impact that asymmetric regulation in Mexico would have on America Movil.

Citi unit Banamex last month downgraded America Movil to neutral from buy, citing the possibility of asymmetric interconnection rates among challenges for 2013. Barclays Capital, meanwhile, maintained its overweight rating and played down the importance of asymmetric regulation.

"Wireless voice prices and MTRs (mobile termination rates) in Mexico are the lowest in Latin America. As a result, we believe a potential implementation of asymmetric interconnection rates would have very limited impact," Barclays said, adding that the increasing shift from voice to data will further limit any effect.

Write to Anthony Harrup at anthony.harrup@dowjones.com

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