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Mexico’s Telecommunications Sector

Essay by   •  January 19, 2016  •  Research Paper  •  2,576 Words (11 Pages)  •  1,032 Views

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Proyecto fianzas corporativas, Grupo Televisa S.A.B. de C.V.

Mtro. José Eduardo Ontiveros

Daniela Álvarez

Juan Mejía

Juan Carlos Fernández Cueto Pérez de Salazar

Universidad Iberoamericana Cd. De México

Grupo Televisa

TLEVISACPO.MX $111.30

Since: At the beginning of 1990’s Televisa was listed in the Mexican stock Exchange and in 1993 the company held its initial public offering in the New York Stock Exchange.

Sector: Telecommunications

The past year was transformative for Televisa. Mexico had a lot of changes in broadcasting and telecommunication industries that had created challenges and opportunities for all participants.

Good perspective

Significant regulatory changes were put in place in Mexico’s telecommunications sector and on preponderant companies. These changes include, among others, price controls for fixed and mobile rates, more efficient number portability, and the elimination of long distance charges. All of these will level the playing field and result in greater competition and opportunities for telecommunication companies. These changes, which are necessary for the development of Mexico’s telecommunications industry, will greatly benefit the end user with better services at lower prices. Over the years Televisa has made substantial investments in this industry that, together with a new regulatory environment, should allow them to create further value for their shareholders.

The diverse media and entertainment businesses of Televisa reduce the company's dependency on a particular media business and promote stable revenues. It also allows the company to balance the portfolio and experiment new products without affecting the revenues. However, intense competition and technology changes may adversely impact the performance of the company.

In Mexico, advertising represents an underdeveloped revenue stream at only around 0.40 percent of GDP, lower than that of Brazil and Argentina. Notably, on a per capita basis, Mexico’s advertising spend represents one tenth of advertising spend in the United States. Further development of the economy in Mexico should lead to greater spending on advertising as many underrepresented categories gain relevance.

In addition, regulation now put in place to increase the degree of competition in many industries, such as the telecommunications and oil and gas industries, should help expand spending on advertising.

Beyond Mexico, the Hispanic population in the United States is among that market’s fastest growing segments, both in terms of size and purchasing power. Distributed through Univision, Televisa’s content represents U.S. Hispanics’ preferred form of audiovisual entertainment. Univision’s extensive reach and following in the United States is unparalleled, and the content licensing agreement between Univision and Televisa is very favorable to both parties.

Economic risk

In March 2014, the authorities designated televisa as a preponderant economic agent in Mexico´s broadcasting industry, resulting in a number of specific measures applicable to the broadcasting business, including the requirement to share their passive broadcast infrastructure with third parties. These measures were on top of the measures that resulted in the loss of their retransmission revenue a year prior. Furthermore, the regulation includes a new broadcast network in order to increase competition in such sector.

In Mexico Televisa and TV Azteca have high profit margins compared with other countries networks where there is more competition.

In terms of market shares, taking into account all the technologies, Grupo Televisa holds approximately 50% of the market share. At the same time, cable television is the dominant technology: two out of three subscriptions are through this technology. In this sub-segment, Televisa, though Cablevision and Cablemas owns 35% of the market, and Megacable, its closest competitor, follows with 31%.

The main objectives on the new rues for Mexico’s Telecom sector are in the first place to increase competition, this is the first time the Mexican Telecom regulator has had the power to regulate the sector, preventing the dominant firms from using their market power and implementing anticompetitive policies. And second to encourage preponderant firms to divest, this means to sell enough assets to reduce their market share. In other words, the Mexican government is trying to increase competition and promote investments in the telecom sector.

To promote investments in the TV industry the government will auction the spectrum for two additional TV networks, and the rights to construct a new broadband network. The reform requires Televisa to allow all telecom firms operating in Mexico to use their infrastructure.  

Back then, it was announced that Televisa and Nextel would participate together, and hence enter into the pre-paid mobile telephony market segment. However six months after the bidding the alliance was dissolved and only Nextel kept the concession to operate.

Competition in the telecomm industry has increased in the interest of consumers, since prices have gone down in the voice, data and video services and the number of fixed lines, Internet connections and restricted TV services have increased. On the other hand, the sector growth has not been even among all the country’s regions. Specifically, there is a significant difference regarding the penetration level of Internet services and broadband between Mexico City, Guadalajara and Monterrey and the rest of the country. Finally, it can be seen that in each one of the market segments there is a leading company and that, in general, the difference in the market share between the leading company and its closest competitor is significant.

Company profile:

Televisa is the largest media company in the Spanish-speaking world based on its market capitalization and a major participant in the international entertainment business. It operates four broadcast channels in Mexico City, produces and distributes 25 pay-TV brands for distribution in Mexico and the rest of the world, and exports its programs and formats to the U.S. through Univision Communications Inc. ("Univision") and to other television networks in over 50 countries.

Televisa is also an active participant in Mexico´s telecommunications industry. It has a majority interest in Sky, a leading direct-to-home satellite television system operating in Mexico, the Dominican Republic and Central America. Televisa also participates in Mexico´s telecommunications industry in many regions of the country where it offers video, voice, and broadband services.

Televisa also has interests in magazine publishing and distribution, radio production and broadcasting, professional sports and live entertainment, feature-film production and distribution, the operation of a horizontal Internet portal, and gaming.

In the United States, Televisa has equity and debentures that, upon conversion and subject to any necessary approval from the Federal Communications Commission ("FCC") in the United States, will represent approximately 38% on a fully diluted, as-converted basis of the equity capital in Broadcasting Media Partners, Inc. ("BMP"), the controlling company of Univision, the leading media company serving the United States Hispanic market.

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