Slim's Telmex ordered to stop asset spinoff

Reuters

By Elinor Comlay

MEXICO CITY, Jan 16 (Reuters) - A judge has ordered billionaire Carlos Slim's fixed-line phone company Telmex to stop divesting assets, which rivals and analysts believe is part of a strategy that could allow him to circumvent regulation.

Analysts believe Telmex is spinning off a unit that holds assets such as fiber optic and telephone poles to get them off the books of Telmex parent America Movil.

Once the assets are outside of America Movil, they could be factored out of regulation that might force Slim to give up some of the power he wields in the local phone market, they say.

America Movil has around 70 percent of the mobile market and 80 percent of the fixed line business in Mexico. Weakening the company's hold on the market was one of the principal aims of a sweeping telecom reform the government passed in June.

The law includes provisions that could make America Movil share its network at cost or even sell assets.

Under a court order issued on Jan. 7, first reported by local newspaper El Financiero and seen by Reuters, Telmex must now halt plans announced in July to divest certain assets. A court spokeswoman declined to comment on the order.

Shareholders in Telmex, which is part of Slim-controlled America Movil, agreed to spin off a new company made up of three units that company spokespeople said then were real estate businesses and not related to its phone network.

But Bestphone, owned by broadcaster Grupo Televisa , believes the assets are vital to Slim's network and the spin-off should have been reported to regulators.

"The divestitures, as far as we are aware, were not reported to telecom authorities and that should have been done by law," said a Bestphone spokesman.

"Bestphone is very concerned that the spin-offs are a ploy to avoid the telecom reform, in particular an effort to avoid important aspects such as interconnection (between phone companies), which would reduce costs to consumers' benefit."

A spokeswoman for Mexico's Federal Telecomunications Institute (IFT), the country's telecoms watchdog, did not immediately respond to a request for comment.

When asked about the spin-off in July, America Movil Chief Executive Daniel Hajj told a conference call: "These are businesses focused more on real estate and leasing... this proposal is not connected with the telecom business of Telmex."

Gerardo Soria, president of legal consultancy the Institute of Telecommunications Law, said he believes that what now seems like a bizarre corporate transaction is in fact a cleverly thought-out effort to avoid regulation.

"The next step, once the market has assimilated the idea that Telmex is creating a real estate business, is to transfer those assets - that is, cabling, fibre optics, copper wiring - to a Real Estate Investment Trust (REIT)," Soria said.

A REIT could then rent out the network in its entirety or in part to third-parties including Telmex, Soria believes.

"Then, when the regulator tries to unbundle the network, Telmex will be able to say it doesn't have it, the network is part of a REIT, and Telmex is paying market-value for the REIT's assets," Soria said.

A spokesman for Telmex, which in July informed Mexico's stock exchange that the divestitures included three companies called ALDECA, CTBR and RESA whose businesses include real estate and equipment rental, said the company confirmed this disclosure and had no comment on the court order.

He also declined to comment on the REIT idea.

Televisa is owned by Slim rival Emilio Azcarraga. The billionaires have frequently fought in courts in recent years.

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