Trust Busting in Mexico Means Opportunities for Outside Investors
- Catalina Osorio
- Jan 8, 2014
- 3 min read
If you ever wanted a glimpse into the US “trust-busting” era that pitted Teddy Roosevelt’s market reforms with industry barons like JP Morgan and the Rockefellers, look no further than what is happening today in the Mexican telecommunications and oil industries.
How Will Carlos Slim's Empire Be Affected by Mexican Reforms?
Last summer, Mexican legislators overwhelmingly passed reforms designed to increase competition in a telecommunications industry that has for decades been dominated by Carlos Slim, the world’s second richest man [see Forbes List] who owns and controls an empire consisting of market dominant companies like Telmex (fixed line) and, more recently, America Movil, which controls a whopping 70% of the wireless market.
The telecom reforms create a new market regulator called IFETEL which is tasked with determining the extent of Slim’s companies’ market dominance and then implementing pro-competitive regulations which economic observers say must bring Slim’s share below 50% to be considered at all effective (still pretty dominant by US standards. See here.
The path for these reforms should be simplified by a related reform that lifted pre-existing Constitutional restrictions on foreign direct investment in telecommunications companies. Several foreign companies eyeing expansion into new markets have already jumped in, including clients of my firm (more below).
The Mexican competition reforms have not stopped with telecommunications. In December, President Enrique Pena Nieto signed legislation that will also open up Mexico’s oil industry – long dominated by state-owned Petroleos Mexicanos (Pemex) -- to foreign investment. Not surprisingly, major oil giants like Exxon Mobil and Chevron have already expressed interest in bidding for oil field rights in what is thought to be a top ten world market for oil reserves.
What do these reforms mean for foreign investors?
Our recent experience advising new foreign entrants seeking to invest in Mexico’s newly liberated telco industry reveals cause for optimism as well as caution. While the constitutional reforms are real and have caught the attention of both potential new entrants as well as Mexican incumbents seeking growth capital or even to sell to potential suitors, it is still unclear how aggressively and quickly entities such as IFETEL will take on major giants such as the Slim-controlled companies. This may result in significant delays in the release of regulations and the approval of larger, market-moving deals. Similarly, the first reports out of the oil sector predict that major foreign bids for oil contracts may not be feasible until the end of next year. See here.
On the other hand, there is reason to believe that less aggressive foreign investments in either mid-tier companies or less developed market segments within telco (or oil for that matter) may be better received by regulators anxious to show their willingness to start down the path of increasing foreign competition.
We will continue to monitor developments and report back on whether these reforms in fact are achieving the goal of increasing competition.
For a printable PDF version, click here
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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Mr. Snaider has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.
Email Andres at : asnaider@nextant.com
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Nextant has extensive experience in assisting leading clients through its Market Expansion and Business Optimization services. For more information on how Nextant can assist your company in socializing a market entry and initiating sales, please visit our website at http://www.nextant.com
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