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Mexico Files Lawsuit Against Telmex

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Telmex, a wholly owned subsidiary of America Movil S.A.B (AMX - Free Report) and the dominant provider of fixed-line telephone services in Mexico is facing a lawsuit filed in the civil court by the federal consumer protection agency in Mexico. Telmex has been accused of charging illegal fees from customers for services deemed free by the agency.

According to market reports, Telmex has been charging illegal fees of about 85 peso cents to about MXN$10.40 from customers who seek privacy by not registering there names on the telephone directory. The agency believes this is one of the many fees that the company charges for services, which are otherwise free for customers. These practices of the company are misleading and result in unfair pricing competition among carriers and undue pressure on consumers.

Beside Telmex, America Movil’s wireless wing, Telcel, is also being observed by the consumer protection agency in Mexico for issues related to the reimbursement of recent service failures. Cases against Telecl were filed in February this year.

Mexico has been tightening its lead against giant telecom and cable service providers after a new bill proposed by Mexican President Enrique Pena Nieto was introduced to reform its telecom and television industry in Mar 2013.

The proposal struck the Mexican telecom and television industry on a discordant note as it is unfavorable for giant corporations – America Movil and Grupo Televisa S.A. (TV - Free Report) . The proposal stresses on the implementation of the asymmetric regulations that faced severe condemnation by America Movil.

The rule implies that predominant players, which control the majority of the market share as in the case of America Movil, will have to pay higher mobile termination rates (MTRs) to smaller peers while receive less from them for network interconnection. Through Telcel and Telmex, America Movil commands about 70% market share, while the Spanish wireless operator Telefonica S.A. (TEF - Free Report) controls nearly 22% of the Mexican market share.

Given the nature of the Mexican telecom and television market, characterized by severe competition and quasi-monopolistic practices, the proposed reform comes as no surprise. The bill, if approved, would mark a pivotal role in shaping the telecom industry in Mexico and decide the prospects for these carriers in Mexico that have so far reaped large profits and grown as market leaders throughout Latin America.

America Movil has a Zacks Rank #3, implying a Hold rating.

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Mobile Telesystems OJSC (MBT - Free Report) , with a Zacks Rank #1 (Strong Buy) is another stock in this sector, which we believe is worth considering.

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