The following article focuses primarily on the effects that the regulations placed on the telecommunication industry in Mexico have had on the America Movil SAB market and profit margins. It concentrates on the company’s effort to help maintain their dominant market share and how the competitors took advantage of these regulations to rise within the industry leaving the America Movil SAB company to suffer losses. The article points out some of the regulations at the same time explaining how consumer preference change has affected the company operations.
The Mexico-based America Movil SAB Telecommunications Company is a wireless communications service provider in Latin America. The company mostly focused on Brazil and Mexico operates in Mexico through a subsidiary company under the name Telcel. Also, the Company owns the Telmex telecommunications company which not only offers broadband services but also fixed telephony services in Mexico. For the longest time, the company has been a dominant operation within the Mexican telecommunication market. However, the performance of the company has been affected in the recent past due to the change in demand curve by the Mexican people.
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The Mexican consumer has over the years shown a preference towards cheaper telecommunication offers against the company. Due to this reason, the company has slowly lost its hold on the market even having a reduction of profits earned. The regulatory measures put across by the Mexican regulators on the company’s local operations have contributed to the reduced profits as well. The regulations saw the company loselots of market share that they had previously held. While the regulations were introduced after the IFT that is the Federal Telecommunications Institute did reforms on the country’s telecommunication sector.
In 2014, according to (Madrazo, 2014), additional measures were imposed on the company’s two major divisions. Namely: the Telmex, which controls up to 70 percent of the market as the wireless division, and the Telcel which covers 68 percent of the market share. The measures suffered by America Movil SAB include a ban from charging roaming fees at the national level. In addition, the Company was then expected to share its infrastructure with other Companies, therefore, increasing competition, thus giving the company’s competitors a greater margin by reducing the profits earned by America Movil SAB.
According to the article by (MONTES & Harrup, 2017),the company’s ability to provide wholesale services to other operators was also prohibited by the Federal Telecommunications Institute adding more restrictions to the mobile and fixed line services. With the sharing of last mileage infrastructure, the company was then expected to create a company away from its wireless provider Telmex. The new corporation’s intention would be to provide the wholesale services within the last mileage infrastructure for the competitors. More to this, the interconnection charges offered by the company would then be closely monitored by the IFT. With the Telmex branch having both retail and wholesale services, the regulations also asked for a separation on the two.
Nevertheless, even with the regulations put in place, especially one limiting the amount of market share to no more than 50 percent, the company was ready to challenge the IFT. The challenge was based on the fact that the new regulations did not put into consideration the growth experienced within the telecommunication sector in the past three years According to the article by (MONTES & Harrup, 2017). By the end of the next year, after the regulations were imposed, the company introduced a new wireless tower, Telesites, which was brought into the stock market. With this move, the company was able to maintain a 50 percent hold on the market share as per the limit put across by the IFT.
The move by Billionaire Carlos Slim to separate the wireless towers from the business was a calculated move. With the company diverting some assets to the now independent company a subsidiary of the larger company, they maintain their 50 percent control. The planned breakup of the company helps Slim avoid the increasing profit losses while at the same time sticking to the regulations hence breaking no rules. The move by the company is a strategic one to help continue the growth of one larger company with several subsidiaries.
Mexico is the first biggest market for the America Movil SAB company, however, with the regulations put in place, that market margin has become slim. The government regulations have been developedto reduce the power that one company has in the industry. In any case, regulations allow the government to either protect its citizens from fluctuating and unstable prices. When a company experiences a monopoly power that is it is the ruling one within the said industry, their prices rise due to the increased need for their product.
As mentioned earlier, the Mexican customer has a preference to cheaper telecommunication services offered within the market. Therefore it would be safe to say that regulations were long overdue. The company’s dominance could only be threatened by a set of regulations to help reduce its market share without collapsing its system According to the article by (MONTES & Harrup, 2017). With the demands put on the America Movil SAB company, Billionaire Carlos Slim had to come up with ways to help maintain their level of market share at a reasonable percent. Hence the breakup plan that was executed a year after the regulations were put in place, within the annual deadline put across by the IFT.
Even with continued purchases of their products, the company was bound to experience losses. Not only attributed to the fact that its competitors were now at a better advantage to taking up some of this profit but due to the change in the customer preference. The company was exposed to losses which were experienced with greater intensity than previously expected. The company moved from making 4 billion dollars in profits to making a record three hundred billion dollar loss within the Mexican market. Part of this loss is because prices have had to be cut to help the company keep up with the increasing competition.
Competition in any market is an important aspect to help balance out the market; competition helps regulate prices hence protecting the consumer. Competition allows a market within a certain industry to grow, the Telecommunication industry in Mexico has several companies seeking to serve. Large corporations such as America Movil SAB appreciate competition, according to the company, there is adequate competition in the market. The competition has helped develop the telecommunication industry in Mexico creating profound changes in the process. In this case, the regulations set up provided America Movil SAB company’s competitor's, even more, areason to be aggressive.
Competitors such as Telefonica SA a company based in Spain and AT & T Inc. headquartered in the United States are among the rival enterprises that have invested in the Mexican market. The AT & T Company has not only purchased mobile phone companies within the industry at 4.4 billion dollars, but it has also committed to investing 3 billion dollars in the market. It owns up to 10 percent of the market share a number that is yet to increase seeing as to how their advertising campaign focuses on criticizing Telcel services.On top of that, the company is fighting to increase the regulations imposed on America Movil saying that the regulations already in place do not help in curbing the company’s dominance. As mentioned earlier, a monopolistic market allows the consumer to suffer, hence the request to further regulate America Movil.
According to regulators, competitors such as AT & T and Telefonica have increased their market share hence reducing the monopolistic market. The increase has also seen to the growth of investments within the industry. However, America Movil still holds a dominant position in the telecommunication market in Mexico, with over 50 percent of the market share. The high percent market share is the reason why the new companies are investing want, even more, regulatory measures put in place because it is evident those already in place are not working.
With the market share being higher than the allowed 50 percent, America Movil will continue to suffer the cost. They have to allow the competition to access their network at low prices. The must also pay the connections made to these competitor networks, while at the same time allowing free calls from other networks to their own. The regulation helps the competitors have a better fighting ground in regards to the prices within the market.
In conclusion, whether these regulations are within reason or not depends on one’s standpoint. From an economic view, the idea of abolishing a monopoly market share holder is crucial to the consumer protection. However, the regulations could collapse the company by considerably cutting down their profits. Without profits, a company such as America Movil might shift its focus elsewhere which intern affects the Mexican economy (Madrazo, 2014). In this case, however, the company remains dominant despite the regulations set in place. With several subsidiaries within the same company, it can maintain a considerable market share hence maintaining dominance. Even with losses, the purchasing power of the America Movil SAB remains at an all-time high.
References
MONTES, J. & Harrup, A. (2017). Carlos Slim’s Phone Companies to Face Tougher Regulation in Mexico: América Móvil intends to challenge the new regulations. Retrieved from https://www.wsj.com/articles/carlos-slims-phone-companies-to-face-tougher-regulation-in-mexico-1489033407
Madrazo, A. (2014). Telecommunications: Mexico's New Reform. Americas Quarterly . Retrieved from http://www.americasquarterly.org/content/telecommunications-mexicos-new-reform
