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Mexico Approves America Movil's Interconnection Prices

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America Movil SAB (AMX - Free Report) , the undisputed leader of the Mexican telecom market, recently won approval from Mexican telecom regulator Federal Telecommunications Institute (popularly known as IFT), regarding the prices the company can charge as its interconnection fees.

Notably, interconnection fees are the prices that a carrier is allowed to charge other telecom operators or mobile virtual network operators (MVNO) with, to connect to its network. Large telecom operators generally have vast networks across the nation. Smaller operators or MVNOs, at times, share this network to offer their services without deploying their own network. For this, these small-sized service providers need to pay certain stipulated fees to their larger peers.

In 2014, the government of Mexico introduced reforms within its telecommunications sector. The IFT identified America Movil as the dominant player in this market. The company’s wireless division, Telcel, holds about 70% of the market share. Notably, per the reformed norms, the IFT restricts the maximum hold of a company in the market to 50%.

As part of these reforms, the IFT also banned America Movil from charging national roaming fees. Further, the company will have to share its infrastructure with other operators particularly in the local loop (last mileage) segment. Interconnection fees levied by the company had been under close scrutiny as well.

America Movil recently spun off its wireless tower division as a strategic move to restrict its market share within the 50% limit imposed by the IFT. The company may also divest some non-core wireless and fixed-line assets in the future in order to comply with the regulatory norms.

Earlier this year, U.S. telecom behemoth AT&T Inc. (T - Free Report) forayed into the Mexican wireless market following its acquisition of Grupo Iusacell and Nextel Mexico. Telefonica SA (TEF - Free Report) already boasts a strong presence in the Mexican wireless industry commanding nearly 20% market share. Mexico’s leading TV broadcaster Grupo Televisa SA (TV - Free Report) has also got regulatory approval to enter the wireless market although it is yet to take any decision in this regard.

Mexico is the largest economy in the Latin American region with a growing middle class population that is eager to spend more on high-speed wireless networks for optimal use of smartphones and tablets. Also the wireless penetration rate is relatively lower in the country compared to the U.S. We, therefore, expect increased competition in this market going forward.

America Movil currently carries a Zacks Rank #3 (Hold).

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