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  • América Móvil's Luck Running Out 0 comments
    Mar 25, 2014 11:09 AM | about stocks: AMX

    Last year, Mexican legislators began taking steps to break down América Móvil's dominance in the telecom sector. According to Bloomberg, the company currently has 70 percent of the country's mobile subscribers and 80 percent of landlines But it wasn't until just a couple of weeks ago that they started to take it seriously, declaring América Móvil, along with broadcasting company Grupo Televiso, dominant in their markets. Both companies were ordered to share their infrastructure with competitors, banned them from obtaining exclusive rights to certain content, and imposed tariffs on América Móvil.

    Today, Congress is scheduled to take up another measure proposed by President Enrique Peña Nieto that would scrap long-distance charges and allow the government to fine América Móvil 5 percent of revenue in Mexico if they do not comply with the government's orders to phase out fees and share their network with competitors. For repeat offenses, the fine can reach up to 10 percent.

    To me, this seems to be a proactive move by the Mexican government, since billionaire owner of América Móvil Carlos Slim has been extremely successful using the legal system in the past to postpone having to comply. But the government is making it harder and harder to postpone the inevitable. At the same time, Slim's talks with the Austrian government about pooling their shares for a takeover of Telekom Austria are hitting some snags.

    Lawmakers are confident that the bill will be passed, although there will most likely be changes during the voting process. In response to the news of the bill, Bank of America dropped their target price from $27.00 to $24.00, although they kept their neutral rating. While they are just the first, be ready for more changes as the bill develops. While the finished product may not be as harsh as President Nieto's proposal, Slim is getting backed into a corner here and his alternatives are decreasing in number.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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