Ever since President Enrique Pena Nieto's government unveiled a landmark antitrust bill in March allowing regulators to make dominant phone and television companies sell off assets, many Mexicans have questioned whether it would go that far.

Increasingly, though, officials say that option is no idle threat against Slim, who has held sway over the Mexican telecommunications industry for the best part of a generation.

By 2010, that domination had made him the world's richest man. The 73-year-old Slim kept that title until last month, when a sell-off in shares of his giant phone company America Movil helped cut his wealth to about $70 billion and put him behind Microsoft's Bill Gates in the top spot.

The dumping of America Movil stock was fed in part by uncertainty about Slim's companies under Pena Nieto, who took office in December vowing to break the hold that a few families have maintained over key areas of Mexico's economy.

America Movil's local fixed-line and mobile phone units, Telmex and Telcel, have for years used legal injunctions and appeals to thwart attempts by the state to cut them down to size.

The reform, approved in Congress and due to be signed into law by Pena Nieto on Monday, aims to strip away much of that legal cover, create a stronger regulator and set new, tougher rules to help competitors catch up.

To do that, a new regulatory body known as Ifetel is likely to make Slim's companies share infrastructure and create a tariff regime that makes the billionaire charge rivals less to access the vast phone network he operates.

Whether that will be enough remains to be seen, said Jose Ignacio Peralta, deputy minister for communications and transport, one of the architects of the reform.

He stressed that the legislation gives authorities the power to totally reshape the industry, from ordering the sale of assets to possibly breaking up companies completely.

"Even if it's true that asymmetric regulation will help improve competition, it's probably going to do so in a gradual way that needs to be accelerated. The possibility of asset divestment is in the constitutional text," Peralta told Reuters.

Through America Movil, which has more than 260 million wireless subscribers across the Americas, Slim controls around 80 percent of Mexico's fixed-line market, and some 70 percent of mobile phone traffic.

Meanwhile Televisa, the broadcaster run by Emilio Azcarraga, has over 60 percent of the TV market. Like Slim, it has used all legal means to keep the competition at bay, but could also soon feel the bite of a more testing regime.

BALANCING ACT

After years of domination by the few, Peralta likened Mexico's telecommunications industry to a building that needed to be "demolished" and rebuilt "brick by brick".

Ifetel is due to be created in the next three months and will then have another 180 days to rule which companies are "dominant." America Movil and Televisa are the prime candidates. If the regulator then decided such firms had abused their power to stay on top, their Mexican operations could be broken up.

When asked how that could work, Peralta said he had recently discussed the carve-up of phone giant AT&T and oil colossus Standard Oil with a U.S. government official.

"When talking about divesting assets, it means very similar things to what the United States did in these two cases, which, I insist, would depend on the regulator's decision," he added.

John D. Rockefeller's Standard Oil was divided into 34 firms in 1911, while the U.S. government split AT&T, which grew out of the company Alexander Graham Bell created in 1877, into a long distance provider and seven regional "Baby Bells" in 1984.

Both companies had become bywords for monopolistic power when they were taken apart, with U.S. authorities arguing they were impeding the emergence of new players.

Most experts agree competition increased after the state intervention, though subsequent consolidation of the marketplace means that much of the original companies' power now resides in their largest successors, Exxon Mobil Corp and AT&T Inc.

In Mexico's case, an argument often cited against break-up is that it is far from certain that anyone will step in to pick up the slack if the biggest players are humbled.

"The one thing we don't want is to have companies that don't invest enough," said Jorge Nicolin, a former head of Mexican telecoms regulator Cofetel. "It would be stupid to affect those who are investing if there aren't others who want to do it."

Devising a way to weaken dominant incumbents while encouraging as much new investment as possible will be an awkward balancing act for Congress when it starts to draw up secondary legislation to implement the telecoms law this summer.

America Movil has said it expects to be materially affected by the anti-trust bill and Chief Executive Daniel Hajj stated in April that the company was likely to be declared "dominant."

Speaking on condition of anonymity, another Slim executive said the government was serious about allowing regulators to make full use of the new powers the law had created.

Slim's closest telephone rival, Spain's Telefonica, is optimistic the new measures will quickly enable Mexico to weaken America Movil's hold on the market.

Some competitors believe Slim and Televisa are so strong that it will not be possible unless they have to give up assets. However, the prospect of forced divestitures has fanned concerns that the state could be accruing too much power.

Enrique Yamuni, chief executive of cable TV operator Megacable, said making more room for the competition, not expropriating the biggest players, should be the government's aim.

"The main objective of the law is for the market to grow. And the second is that the forces are evened out," he said.

Ermilo Vazquez, head of regulation at Slim's fixed-line rival Axtel, said ordering a break-up would be a tough call - but one that could help to make the sector more competitive.

"They did it in the United States with AT&T and the Baby Bells. It's definitely a tool the government is recognizing can be used to unlock the potential of the market," he said.

ARRESTED DEVELOPMENT

Since Slim took control of former state phone monopoly Telmex at the start of the 1990s he has gone from strength to strength, building an empire from the Americas to Europe that spans mining, department stores, banking and television.

By 2013, Forbes estimated his personal fortune to be worth $73 billion - equivalent to about 6 percent of Mexico's gross domestic product (GDP). But his hold on strategic sectors gives him even more clout in how the economy operates.

Mexico has long talked about reining in Slim. But the conservative administrations in office between 2000 and 2012, when the full extent of his influence was unfolding, had no majority in Congress and struggled to pass strong legislation.

Pena Nieto also took power without a majority, but he did so at the head of a party with a point to prove.

Having ruled continuously between 1929 and 2000, the Institutional Revolutionary Party, or PRI, was written off as a corrupt, tired relic by critics during its years in opposition.

Eager to show that the PRI alone could break the political deadlock, Pena Nieto immediately struck a deal with the main opposition parties to shake up Mexico in areas where there was broad consensus for change. Slim was soon in their sights.

If the government did break up his phone business, history would have come full circle: it was the PRI's then-president Carlos Salinas who oversaw Telmex's privatization in 1990.

When Slim took on the company, he built up the national phone network and helped put Mexico ahead of Brazil in the race to modernize information technology in Latin America.

To begin with, his firm was protected from competition, and it quickly took a firm hold of the marketplace. Major wireless investors Verizon and Vodafone turned their back on Mexico in 2003 and the industry's development began to lag.

By 2011, the number of mobile phone subscriptions per 100 people had fallen far behind Brazil - and much poorer countries like Paraguay, Honduras, and Bolivia, World Bank figures show.

Last year, the Organisation for Economic Co-operation and Development (OECD) published a study that argued Slim had overcharged Mexicans by $13.4 billion year between 2005 and 2009 for phone and internet services due to a lack of competition.

The OECD also found that Slim's profit margins were nearly double the average in the 34-nation organization. America Movil vigorously rejected the report, saying it distorted the facts.

What is certain is that Slim's profits are not what they were. The EBITDA (earnings before interest, taxes, depreciation and amortization) margin at America Movil has fallen every year since 2009, when it peaked at 41.2 percent, according to the company's annual reports. Last year it stood at 33.7 percent.

DENTING DOMINANCE

Televisa, meanwhile, has long been the commanding presence in Mexican television. However, it has lost about a third of its market share to rival TV Azteca since Azteca's owner Ricardo Salinas, chairman of conglomerate Grupo Salinas, bought a network of government-owned TV stations in 1993.

To take on Slim, Salinas and Televisa formed a partnership in cell phone operator Iusacell last year. But Iusacell has so far struggled to make a dent in Slim's dominance, and losses at the company hurt Televisa's latest results.

Worryingly for Televisa, the telecoms shake-up may also present Slim with the chance to move into Mexican television, which the government has kept him out of so far.

To fight Slim on his own turf, Televisa needs to exploit the space created by the government with the telecoms law.

To improve network coverage, the bill aims to free up wireless spectrum from the 700 MHz band, which could let smaller players enter into or extend operations in mobile telephony.

Yet the greater part of the spectrum is due to remain under state control, which has raised fears that investment in the network will be weak, holding back growth in competition.

That could raise pressure for a break-up.

But some senior lawmakers are wary about going that far.

"I think we're better off regulating the firms energetically than breaking them up," said Federico Gonzalez Luna, head of the radio and television committee in the lower house of Congress. "(A break-up) will be very complex and could take a long time."

(Additional reporting by Tomas Sarmiento; Editing by Kieran Murray and Paul Simao)

By Dave Graham