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WIKI ANALYSIS
Telefonos de Mexico (TMX or Telmex), headquartered in Mexico City, operates in Mexico, the U.S., Puerto Rico, Brazil, Chile, Argentina, Peru, and Columbia. Most of the South American operations were acquired through the company's purchase of AT&T Latin America, which was closed in February 2004. Telmex increased its Brazilian presence in July 2004 with the purchase of a controlling (72%) stake in Embratel. The company, along with its subsidiaries, offers a wide range of telecommunications, data and video services, Internet access, and integrated telecom solutions to corporate customers. Apart from basic fixed-line telephone services, TMX provides Internet access services telecom and telecom-related services, such as directory, data transmission, and paging and interconnection services to other carriers in Mexico. Approximately 40% of the company's infrastructure and telephony lines are in Mexico City, Monterrey, and Guadalajara metropolitan areas. Over 73% of TMX's revenue continues to be derived from its subscribers in Mexico.
Company Overview
TELMEX has kept basic rates fixed over the last 9 years because it has been able to pass along the benefits of its technology and efficicency.The company is the price leader in providing computers largely because of their installment plans and multi-service packages
TELMEX has 83% of the fixed line market.
Telefonos de Mexico met the “Acuerdo de Convergencia” (Convergence Agreement) requirements: Interconnection, Network Interoperability and Number Portability set out over 3 years ago. It is focused on providing competitive pricing for telecommunications services. Overall strategy has been to continue the previously laid out plans and promote the penetration of broad band services.[1]
Business and Financial Metrics
- In 3Q09 lines in service declined by 69K including mobile phone lines and other fixed operators though this was a favorable number compared to previous quarters. This brought the total number of lines operated by TELMEX to 17.3MM. Since mid-2009 TELMEX added 403K Infinitum (broadband) accounts. The number of internet customers rose to 6.4MM, 40% ahead of 2008.
- Capital expenditures in 3Q09 reached $147MM bringing the total investment on infrastructure to $537MM conserving a conservative position in operations
- Net Projected Assets increased in September 2009 by 5.6BB MXN due to a large contribution to the pension fund and Mexican accounting rules.[2]
- Income on the third quarter of 2009 reached 29.5BB MXN, a decline of 5% due to decrease in revenues from local, long-distance and interconnection services.
- 13.921BB MXN in revenue comes from service lines located in areas that are unattractive for competitors which means a steady source of revenue for TELMEX
- COGS in 3Q09 were 21.66BB MXN, a level that was similar to 2008’s. This was due mainly to optimization strategies in the use of resources as well as lower interconnection costs (9.9% less).
- Debt became $7.063BB of which only 5.3% is exposed to exchange rates. In August of 2009 TELMEX prepaid $1.355BB.[3]
- Total Income in 2008 was 124.105BB MXN, a decrease of 5.1% from 2007 numbers due to a decline in income from local phone service, the program “el que llama paga” (caller pays) and the long distance phone service. This was slightly offset by the increase in revenue from Internet/Broadband services and sales in Tiendas TELMEX (Company-branded stores).
- COGS increased in 2007 and 2008 by 1 and 1.4% respectively due to increased computer hardware sales, price increase in internally consumed goods, and maintenance costs in corporate client telecommunication grids.
- In 2008 investments were $879MM which was a 25% decrease from 2007’s. Investment in 2009 will be focused on the data grid, connectivity, and transfer as well as some acquisitions. Further investments are highly dependent on the changing regulations.
- Interests gained went down 34.6% in 2008 because of a reduced number of interest generating financial instruments. Interest payments went up 15.7% because of a net loss in interest rate swaps.[4]
Business Segments
- Local phone service (39.5% of Operations Income)
- National long-distance phone service (12.7% of Operations Income)
- International long-distance phone service (7.1% of Operations Income)
- Interconnection (15.4% of Operations Income)
- Corporate Intranets (9.8% of Operations Income)
- Internet Services (10.6% of Operations Income)
Subsidiary companies: Integracion de Servicios TMX S.A. de C.V., Alquiladora de Casas S.A. de C.V., Compania de Telefonos y Bienes Raices S.A. de C.V., Consorcio Red Uno S.A. de C.V., Telefonos del Noroeste S.A. de C.V., Uninet S.A. de C.V., and Telmex USA LLC. [5]
Trends and Forces
Government Regulation
The “Ley Federal de Telecomunicaciones” in Mexico establishes that if a company gains substantial market control, the Communications and Transport Ministry has the right to impose regulations regarding fees, service quality and information release. Further, the Federal Competition Commission has begun 7 investigations to determine companies that have gained substantial market control and has the right to begin new ones at any point in time.
Single majority share-holder
Carso Global Telecom (TELECOMA1-MX) owns 71.5% of all outstanding shares and has the capacity of naming most of the Board Members and can sway shareholder votes.
Synergies in Carso owned companies
Operations and joint ventures between Carso owned companies (directed by Carlos Slim Helu: Telmex International, Grupo Financiero Inbursa, S.A.B. de C.V., America Movil and Carso Global Telecom.[6]
Fixed line reduction
Worldwide Trend towards fewer fixed lines in service is apparent in Mexico because of cellular telephony competition and the economic situation.
Broadband demand increasing
Broadband demand continues to show the growth of the previous five years increasing both the customer base as well as market share. Annual Average growth rate of 70.5%
Technical Convergence
Mexico is the only country in the OECD that does not have technical convergence despite having set out the requirements required for it over 3 years ago.[7]
Competition
Competition derives from VoIP providers, cellular telephony, over 28 cable companies acting through over 60 subsidiaries, and wireless data plan providers. The competition can be summarized by the following companies:
- Alestra – in long-distance service
- Axtel – competition in local fixed line markets.
- Maxcom – competition in local fixed line markets.
- Megacable, Cablevision and Cablemas – in the cable provider market.
- Radiomovil DIPSA S.A. de C.V. and Movistar – in the mobile phone market
References
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