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Telmex International Becomes a Listed Company

By Fernanda Veiga, senior analyst at Ovum

On 11 June 2008, Telmex International’s shares began trading on the New York and Mexican stock exchanges. Mexican group Telmex spun off its international subsidiaries (Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay and the US) into a new company called Telmex International in December 2007. Telmex shareholders received one share in Telmex International for each Telmex share.

“The parent company claims that the spin-off will improve customer service as well as the performance of the parent company. We know that it is not necessary to spin off subsidiaries in order to make these improvements. Nevertheless, this is a great financial ‘solution’ for the group to reduce its debt. Note that Telmex group’s total debt reached $8.6 billion on 31 March 2008. It seems that Telmex group transferred $1.5 billion of its total debt to Telmex International.”

Struggling Mexican operations
“Over recent years Telmex has been involved in many interconnection disputes with other telcos and pay-TV operators in Mexico. We believe that Telmex’s management has spent lot of time focusing on these disputes and on its international acquisitions, with the result being that the management team forgot to concentrate on its Mexican business. Telmex’s Mexican operations revenues decreased by 5.5% year-on-year in the first quarter of 2008, mainly driven by revenue falls in its local, long-distance (domestic and international) and interconnection businesses.”

“The company believes that the solution for reversing its declining revenues is to offer a triple-play service. Why didn’t Telmex enter the pay-TV market earlier? The answer is that due to regulatory restrictions the company has not been allowed to enter the pay-TV market. It seems the long wait will soon be over, as on 5 July 2008 number portability regulation comes into effect. Implementing number portability is the last of three requirements established in the convergence agreement signed in October 2006. Following the completion of these requirements, Telmex will be able to enter the pay-TV market and offer triple-play services in Mexico, as it is already doing in some of its subsidiaries (such as Colombia and Peru).”

Growing international operations
“Telmex International’s revenues totalled peso18.4 billion ($1.7 billion) in the first quarter of 2008, representing 37.2% of Telmex’s total revenues. In addition, Telmex International grew by 11.5% year-on-year in the first quarter of 2008, mainly due to growth in its local, Internet and cable TV businesses.”

“Telmex’s international businesses differ from its Mexican business because in all other markets Telmex is not the incumbent. Therefore, it is focusing on offering triple-play offers to consumers and SMEs.”

“In the short term, Telmex International will be focusing on its Brazilian and Colombian operations. Why these two countries? Because of their scale. Brazil and Colombia are the largest international markets that Telmex is investing in. Brazil represented 78.4% of Telmex International’s revenues in the first quarter of 2008, while Colombia represented 6.6% of its revenues in the same period.”

“In Brazil, Telmex International owns Embratel Participacoes (a local, long-distance and data service provider) and a stake in the largest pay-TV operator Net Servicos. Telmex is interested in fully integrating Net Servicos, and the remaining stake price has already been agreed according to Telmex’s CFO Adolfo Cerezo. However, the current Brazilian telecoms law does not allow foreign companies to have majority ownership of Brazilian cable companies. The Brazilian regulator Anatel is currently analysing changes to the telecommunications law, although no details concerning foreign ownership of pay-TV companies have yet been disclosed.”

“In Colombia, Telmex is offering voice, data and cable TV services to consumers and SMEs. Over the past two years Telmex has acquired five cable TV companies (Superview, Cablecentro, Cablepacífico, Satelcaribe and TV Cable) in Colombia and since February has been offering triple-play bundles under the Telmex brand. In the near term Telmex aims to increase its data revenues through its recently opened data centre, and increase its cable TV subscriber base.” /PR

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