Mexico slaps conditions on Televisa-Iusacell tie-up

MEXICO CITY (Reuters) - Mexico said on Thursday it approved broadcaster Televisa's bid to buy half of cell phone company Iusacell, seen as crucial to helping them challenge tycoon Carlos Slim's telecoms empire, but imposed "harsh" conditions, one of the partners said.

Televisa, the world's biggest producer of Spanish-language shows, has been fighting for 14 months to push through its $1.6 billion bid for 50 percent of Iusacell.

Mexico's federal competition commission, Cofeco, slapped several conditions on both companies for approval, and said they would face fines of up to 10 percent of annual revenue if they fail to meet them.

"From a first glance at the conditions I can say they are extremely harsh, costly and difficult to meet," Luis Nino de Rivera, spokesman for Iusacell's parent Grupo Salinas, told Reuters.

The group plans to ask the regulator to clarify some points, he added. "The Cofeco document consists of 600 pages, has an extraordinary level of detail and while we do not fully understand what they imply we won't be able to evaluate the real impact these conditions have."

Televisa said it will contemplate whether to accept the conditions on the proposed merger.

The survival of the companies' venture was also tightly linked to an upcoming auction by the Mexican government of new television frequencies that could potentially threaten the lead of Televisa and TV Azteca, a sister company of Iusacell.

The government plans to auction frequencies that could create at least one additional television network in Mexico.

"If after 24 months the auction of a third television network has not been made successfully, it will automatically trigger a mechanism to dissolve the partnership between Televisa and Grupo Salinas in Iusacell," Cofeco said in a statement.

It did not elaborate on what it would consider a successful outcome. One source close to Cofeco's decision, who requested anonymity, said it could mean that bidders must refrain from filing any legal challenges to the process.

Grupo Salinas, owned by one of Mexico's richest investors, Ricardo Salinas Pliego, is a unit of Iusacell.

Imposing a time frame on the auction is meant to discourage a possible landslide of legal appeals that could end up delaying the process for months or years.

Chief telecom regulator Mony de Swaan has estimated that the auction process could take 18 months. But Mexicans will not be able to watch new channels until late 2014 or 2015.

Entrepreneur Salinas is well-known for vigorously contesting regulators, government agencies and rivals in courtrooms when he feels his businesses are threatened.

Market-watchers say Salinas effectively derailed Televisa's bid to team with NII Holdings' Nextel two years ago after some of his group's companies filed a barrage of more than 70 court appeals, which tied up the process in red tape. The companies then parted ways.

BUMPY ROAD

Televisa, the country's top television company, in April 2011 bid for Iusacell, a company with less than 5 percent of the mobile phone market in Mexico. Slim's America Movil controls close to 70 percent of the cell phone market and around 80 percent of the country's landline market.

Cofeco blocked the tie-up in a 3-to-2 vote in January because of concerns about an alliance between Televisa's boss, Emilio Azcarraga, and fellow TV mogul Salinas, who owns No. 2 broadcaster TV Azteca, as well as Iusacell.

Regulators argued the deal would create an incentive for the pair to fix advertising prices in a host of media ranging from television commercials to content downloaded on smartphones.

But Televisa and Grupo Salinas proposed alternatives to ease regulators' concerns, Cofeco said in Thursday's release.

Televisa and TV Azteca will also have to refrain from forcing would-be TV advertisers to become Iusacell customers, the regulatory agency added.

Another condition is that Televisa and Iusacell must offer all cable and satellite TV customers a new pay TV package that includes all four of Televisa's free public channels, Televisa said. Open channels are difficult to pick up in some areas of Mexico, where customers can access them only by subscribing to cable. Televisa currently charges cable operators a fee to receive the free channels.

Additionally, Televisa must offer the sale of advertising time to participants in the Mexican telecommunications industry.

This stipulation means that Televisa may once again have to sell advertising to businesses owned by Slim. The tycoon stopped buying ads from Televisa last year. His office declined to comment on Thursday.

Analysts were divided over the potential effectiveness of the conditions imposed by Cofeco.

To Ernesto Piedras, head of telecom consultancy Competitive Intelligence Unit, the conditions are reasonable.

"This is heading towards important changes in the telecoms market by 2015 where we could have (America Movil's) Telcel with a 50 percent stake in the mobile market," the analyst said.

But to other market-watchers, the outlook is less rosy.

"Conditions are not sufficient. I think this concentration should not have been accepted. We are witnessing the emergence of a content monopoly," said Jorge Fernando Negrete, head of telecom think tank Mediatelecom in Mexico City.

Televisa shares ended 2 percent higher at 56.15 pesos ($4.04) on Thursday.

(Additional reporting by Tomas Sarmiento; Editing by Simon Gardner and Matthew Lewis)

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