Telmex Internacional's H1 Revenues Up 15.3% Y/Y

Telmex Internacional has posted revenues for the first half of the year of 48.9 billion Mexican pesos (US$3.9 billion), 15.3% more than in the previous year. Chile and Colombia registered the highest revenue increases for the six months with 16% and 10.7% year-on-year (y/y) respectively; Argentina (8.8%), Brazil (6.8%), and Peru (2.9%) also saw substantial increases in sales. Consolidated subscribers to its phone, internet, and cable TV services increased by 17% y/y to 20.1 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) stood at 13.4 billion pesos, 35.3% more than in 2009, while operating income increased by 33.5% y/y to 6.3 billion pesos. Accumulated, consolidated majority income for the period totalled 3.5 billion pesos, a y/y decrease of 19.9%.

Outlook and Implications

• Business Consolidation: Telmex Internacional’s sister company, América Móvil, recently concluded a deal that will grant it ownership of a 99.9% stake in Carso Global Telecom, the holding company that has a majority stake in Telmex Internacional, thus gaining control (directly and indirectly) of a 94.6% stake in Telmex Internacional and a 59.4% share of Telmex’s outstanding shares. The move aims to combine the operations of América Móvil and Telmex Internacional, both controlled by Mexican billionaire Carlos Slim, in order to reduce administrative and network costs. The consolidation would also be in line with the company's strategy of offering multiple-play packages of wireless, fixed-line, internet, and cable TV services in countries such as Brazil; Telmex Internacional operates phone and cable TV networks in Brazil, Colombia, and five other South American countries. The consolidation will not affect Mexican mobile operators Telcel and Telmex, and, according to América Móvil’s chief executive Daniel Hajj, is expected to be finalised during the second half of 2010. The move still has to be approved by local regulators, which are not expected to throw up any hurdles as most already view the companies as a single entity because of Slim's overall control. The only country that could hinder the process is Colombia where América Móvil-backed Comcel has a 67.5% market share and Telmex Hogar controls 58.1% of the total internet cable market.

• Merger in Brazil: Brazil could be one of the first countries to make effective the integration of mobile unit Claro (América Móvil) with Telmex Internacional’s fixed-line carrier, Embratel (see Brazil: 27 May 2010: América Móvil Prepares Embratel-Claro Merger in Brazil). The merger will allow América Móvil to offer triple- and quadruple-play services in Brazil as competition heats up with the entry of new players and the implementation of important regulatory changes (see Brazil: 18 May 2010: Brazilian Government to Award Three Broadband Licences Before Year-End and 13 May 2010: Brazilian Government Approves New Rules for Cable TV Operators). The recent entry into the fixed-line market of French media group Vivendi through its acquisition of GVT has added extra pressure in the fixed-line segment, currently dominated by Oi and Telefónica's Telesp. After the acquisition, Vivendi announced plans to continue expanding its operations in the country, and launch mobile and TV operations to commercialise multiple-play packages (see Brazil: 3 March 2010: Vivendi Confirms Pay-TV Launch in Brazil). Spanish operator Telefónica is also attempting to secure its position in the market by combining the operations of its fixed-line unit, Telesp, with those of operator Vivo, controlled by joint venture Brasicel (50/50-owned by Portugal Telecom and Telefónica). The Spanish giant, which has so far failed to gain full control over Brasicel, has not yet given up its fight and is exploring all available options to this end (see Brazil: 22 July 2010: Telefónica Prepares Legal Artillery in Brasicel Case).