Telmex drops on Morgan Stanley downgrade

US investment bank Morgan Stanley cut its rating on Mexican telco Telmex (NYSE: TMX) to underweight from equal-weight, prompting a 2.5% share price drop in Friday afternoon trading on the New York Stock Exchange. Telmex shares also dropped 2% on Mexico's Bolsa de Valores as a result. The downgrade was prompted by the slowing of the fixed line business in Mexico and the rapid rise of mobile telephony. "While in the past we used to look at mobile substitution as a future threat, the improved growth of wireless traffic leaves Telmex much more vulnerable," Reuters quoted Morgan Stanley analyst Mario Epelbaum as saying. "New line adds are of lower quality than existing lines, adding little measured service revenue. Wireless and DSL are also cannibalizing traffic, leading to accelerating year-over-year declines, in our view," he said.