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América Móvil

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Home / EOS Case Studies / América Móvil

Jaime Gornsztejn, Hermes EOS
25 April 2016

Latin American telecoms giant is dealing strategically with new anti-monopoly regulation in its biggest market, while improving disclosures to investors, setting an example for other businesses in the region.

América Móvil is a conglomerate of telecommunications providers in Latin America and the US. Its largest market is Mexico, where its landline subsidiary, Telmex, has secured a virtual monopoly. By 2006, it operated 80% of the country’s telephone lines, while its mobile business, Telcel, ran almost 70% of the country’s mobile phones.1

However, the group came under increasing pressure from Mexican regulators in 2014. They sought to encourage competition in the sector after post-recession studies showed that the lack of competition in many of the country’s markets was stunting growth. The OECD singled out Mexico’s telecoms industry in 2012, saying that its near-monopolies cost the country $25 billion a year, nearly 2% of GDP2. Following these reports, the government introduced legislation in 2014 requiring dominant businesses to cut their market share to below 50%. This would have a significant impact on América Móvil’s business, and with some analysts and investors suggesting that it would need to be broken up, it became an important concern for us.

The governance practices at América Móvil also left a lot to be desired. While the company complied with local regulatory requirements for disclosures and reporting, it fell short of global best practices – a significant problem given its international investor base. For example, it failed to disclose board nominees on its AGM notice, forcing many shareholders to reject proposed directors due to the lack of information. We believe that the uncertainty this causes regarding the leadership and future strategy of the business may negatively influence investor perception of the company.

What we did
We began engaging with América Móvil in 2009. This primarily involved rejecting board nominees who were not disclosed before shareholder votes and subsequently informing the company of our reasons.

Despite these concerns being largely rejected by the company, we stepped up our involvement as the regulatory pressures on the business became critical. On shareholder engagement and disclosure, we believed that América Móvil could lead the way for Mexican businesses by adopting international best practices. After extensive discussions with the company alongside other shareholders, the company published its list of board nominees in advance of the 2014 AGM. It did the same for the 2015 meeting, suggesting that this could be a lasting change. We believe that the company is now open to adopting other governance reforms.

As the first major company to do this in Mexico, América Móvil took a decisive step and prompted other businesses to follow suit. One such company was global building materials supplier Cemex, which we have engaged with on this and other issues since 2013. In 2016, Cemex began to disclose all its board nominees, alongside detailed biographical information, in advance of its AGM. This allows foreign investors voting by proxy to make more informed decisions when voting for their election.

We then turned our attention to ensuring that the company had a robust strategy in place for dealing with the new Mexican regulations. From early 2014 to mid-2015, we worked with the business, which planned to offset the forced reduction in its Telmex and Telcel customers by offering bundled services including pay TV, for which it did not yet have a licence, reducing aggregate customer numbers while still growing revenues. The company has begun selling telecoms assets to reduce its overall market position to initiate this transition. It has also started to diversify its business away from Mexico, entering Europe through an investment in Telekom Austria.

We are pleased with the outcomes of our governance objective. América Móvil’s improved disclosure has turned it into a governance leader in the region and has helped fuel governance improvements in other Mexican businesses. It has also made good initial progress on reducing its telecoms market share and diversifying its revenue streams.

Meanwhile, the company is challenging the regulations which force it to allow the two new entrants to the Mexican market, AT&T and Telefonica, to connect to its network and pay them to do so. It also reassured us that allegations of it colluding with Dish, a pay-TV operator, to by-pass the regulations and offer bundles are false. However, we will continue to engage with the company over these allegations and the new regulatory framework. We have recommended that the company puts firmer compliance procedures in place with oversight by the board. We will also encourage the company to ensure that it manages the risks associated with product and geographical diversification effectively.

Moving forward, we still have some concerns about the business, including the composition of its board, remuneration strategy and investor disclosures. These are issues common in businesses in Mexico and across Latin America. We have taken preliminary steps to address these matters by discussing international best practices with the company.

  1. 1 ‘Prodded by the Left, Mexico’s Richest Man Talks Equity’, published by The New York Times on 3 June 2006
  2. 2 ‘OECD Review of Telecommunication Policy and Regulation in Mexico’, 30th January 2012
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Jaime Gornsztejn Hermes EOS Jaime Gornsztejn is responsible for engagements in Latin America and Russia and focuses on the mining, oil and gas, technology and utilities sectors. Prior to joining Hermes EOS, he worked for the Brazilian Development Bank (BNDES), where he held executive positions in Brazil and the UK as banker in its Telecommunications Department, as portfolio manager in its Venture Capital Division and as a project finance manager at the Renewable Energy Department. More recently, as managing director of BNDES UK, he was responsible for setting up the bank's subsidiary in London. Jaime has also held executive positions as portfolio manager at Nortel Networks UK and as an adviser to private finance initiative projects at KPMG Corporate Finance UK. Jaime holds a BSc in Electronics Engineering from IME, the Military Institute of Engineering in Rio de Janeiro, an MSc in Telecommunications Engineering from PUC-Rio, the Catholic University of Rio de Janeiro and an MSc in Finance from Cass Business School in London. He is also chair of the board of the Brazilian Chamber of Commerce in Great Britain and serves on the Senior Advisory Council of the Brazil Institute at King’s College London.
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