Fitch: IFT Rules Broadly on Mexican Telecom & Media; No Credit Impact for America Movil & Televisa

CHICAGO--()--Fitch Ratings does not expect any material negative impact on the credit profiles of America Movil, S.A.B. de C.V. (AMX, 'A'/Stable) and Grupo Televisa, S.A.B. (Televisa, 'BBB+'/Stable) from the recent rulings by Mexican regulatory body Instituto Federal de Telecomunicaciones (IFT). On March 6, 2014, IFT issued a resolution declaring AMX and Televisa as 'preponderant' players in their respective industries that will be subject to unfavorable asymmetric regulations.

'The recent rulings by IFT and the measures it announced the preponderant players would be subject to were broadly in line with our expectations, and we believe the risk stemming from it should be manageable by both companies,' said Alvin Lim, Fitch Latin America telecom, media, and technology sector analyst.

'We do not expect these measures to be material enough to shift the competitive landscapes of these industries immediately or in the short term. Competitive pressure is likely to increase in the medium to long term, but any short-term significant impact on the credit profiles of AMX and Televisa is unlikely,' added Lim.

The new regulations imposed by IFT are designed to foster market competition and dilute the market dominance of AMX and Televisa by mainly providing smaller or new operators with an easier access to certain operational infrastructure to be able to compete with a less capital requirement. For AMX, the key regulatory measures were network infrastructure sharing, including mobile virtual operators, asymmetric interconnection rates, and elimination of national roaming charges. For Televisa, the key regulations imposed were broadcasting infrastructure sharing, free retransmission of its over-the-air broadcast signals by pay-TV operators, as well as approval of public auction for two new broadcasters.

Fitch forecasts that the outright financial impact from these regulations should be limited as the affected revenue segments only account for a marginal portion of revenues in the consolidated financials of these companies. For AMX, its interconnection fees from its Mexican operations have become smaller, estimated to account for less than 2.5% of total consolidated revenues. For Televisa, the company already has provided free retransmission since September 2013 and guided that it expects only about MXP1.4 billion revenue decline from this, which is less than 2% of the total revenue Fitch forecasts in 2014.

Fitch believes that the competitive pressure in the Mexican telecom and media industries is likely to increase over the medium to long term as smaller/new players become somewhat more competitive, backed by the access to the infrastructure and other regulatory benefits, and try to encroach on the market shares of AMX and Televisa. This could place pressure on AMX's and Televisa's profitability from their Mexico operations to a certain extent.

However, Fitch does not foresee any meaningful deterioration in the credit profiles of both companies. For AMX, the company's entrenched market position is not likely to face any serious decline, despite the regulatory benefit for smaller players, given its well-established operational scale and expertise. In addition, although its operating margins in Mexico could be somewhat eroded, the company's well-diversified operational geographies largely mitigate this risk. For Televisa, its key competitiveness lies in its in-house content production, which is not affected by the regulation. As this ability remains intact, Fitch believes its advertising/content sales revenue will continue to remain solid. In addition, Televisa's Pay-TV and Telecommunications operations could benefit from a more competitive environment promoted by the regulation.

Details on the terms and implementation of these new regulations will be determined after the secondary laws are passed. Fitch will continue to monitor the development of this regulatory issue and assess the impact of credit quality for each company. Telecom secondary laws are expected to be approved by the congress during the ordinary period between February and April of 2014.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:
--'Mexico's Structural Reforms' (Feb. 24, 2014).

Applicable Criteria and Related Research:
Mexico's Structural Reforms
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=734538

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Contacts

Fitch Ratings
Alvin Lim, CFA, +1-312-368-3114
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Sergio Rodriguez, CFA, +52 81 8399 9100
Senior Director
or
Alberto Moreno, +52 81 8399 9100
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Alvin Lim, CFA, +1-312-368-3114
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Sergio Rodriguez, CFA, +52 81 8399 9100
Senior Director
or
Alberto Moreno, +52 81 8399 9100
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com