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Don’t Buy Telmex (TMX)! Buy Telmex Internacional!

Posted June 11, 2008

“Unless Telmex gets the triple-play permission, it could see little to no, or even negative (with more and more customers trading in their landlines for cell phones), growth in coming years.” — Stephanie Grimmett

by Stephanie Grimmett

Baltimore – (TFN): Shares of Telefonos de Mexico (Telmex) (TMX: NYSE) crashed today after it spun off its subsidiary Telmex Internacional (TELINTL: Mexico). The stock fell from its 52-week high of $41.30 to $24.25, as of noon today.

The spin off limits Telmex’s growth potential. The company already dominates Mexico’s fixed-line phone industry.

Telmex has been chomping at the bit to offer a triple play, which would provide customers with phone, Internet and cable services through its phone lines. But Telmex running television services down phone lines is currently illegal under Mexico’s anti-trust laws (although running phone down cable lines is not). And Telmex’s constant petitions to the government have yet to bring about any legal changes. It’s starting to look personal at this point.

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Unless Telmex gets the triple-play permission, it could see little to no, or even negative (with more and more customers trading in their landlines for cell phones), growth in coming years.

If you’re willing to bet that Mexico’s government will become more friendly to Telmex, you could see gains from an investment at today’s cheap share price. But the gamble would be a long shot.

An investment in the spin off, Telmex Internacional, would be a much safer idea. Telmex Internacional includes all of Telmex’s South American and European ambitions.

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Telmex owner Carlos Slim is attempting to dominate the Brazillian telecom market through buyouts and the competitive triple play he can’t offer in his home country. The company already has a strong foothold in Colombia and is buying up subsidiaries in Argentina, Chile, Equador, Peru and Uraguay. And it has plans to take on Spain’s Telefonica (TEF: NYSE) and Telecom Italia (TI: NYSE).

You can buy shares in Telmex Internacional on the Bolsa Mexicana de Valores (Mexican Stock Exchange) under the ticker symbol TELINTL. It’s currently trading around 8.90 pesos (about $0.85, don’t you love that exchange rate?), but give it some time to settle down after its IPO.

Keep reading here at TFN, and I’ll let you know when the stock hits a good entry price.

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Posted by Stephanie Grimmett · Filed Under International Investing 

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