AmericaMovil S.A.B. (AMX), the largest telecom carrier in Latin America has been imposed with landline connection charges by the Mexican telecom regulator, Federal Telecommunications Commission. The regulatory body has issued a legal notice to implement a 50% reduction in fees it charges to connect to its fixed line contender Alestra SA, a jointly owned company by AT&T Inc. (T) and Mexican industrial manufacturer Alfa SAB.
The reduction was set by the commission to settle the interconnection rates dispute between the two telecom carriers.
The company will now have to charge to 39 centavos (approximately 3.2 cents) per minute this year to connect calls from Alestra SA. Currently, the company charges 95 centavos (approximately 7.9 cents) from its fixed-line as well as wireless competitors.
Mexican telecom carriers like Grupo Televisa (TV) and NII Holdings Inc. (NIHD) have also backed the commission’s decision. These carries believe the new fee regulation establishes an initiative for public policies that promote healthy competition between operators.
However, America Movil has a different take on the current scenario. Management believes that reducing connection charges would affect its profitability and investments in networks.
According to Mexican law, carriers can charge as per independent agreements to connect calls to their respective networks. However, in the case of America Movil and Alestra, the commission is acting as intermediary for the settlement of the dispute. We believe the regulatory decision may spark further controversy over interconnection fees between the two companies.
Earlier this year, America Movil together with Telefonica (TEF), agreed on reduced mobile termination rates. Further, the company plans to change the billing scheme to per second from per minute, which we believe will impact the company’s financial performance in future.
Currently, we maintain a long-term Neutral recommendation on America Movil with a Zacks #3 Rank (Hold).
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