Despite facing severe regulatory challenges,
) - the largest wireless company in Latin America with over 318
million subscribers across 20 countries - continues to dominate
the Mexican wireless market through its largest subsidiary
Telcel. The company remains benefited byits well-known brand,
extensive distribution network, nationwide coverage and
increasing subscriber base.
The company also continues to benefit from the ongoing
migration of voice traffic from fixed-lines to wireless and
consistent adoption of smartphones that is contributing to
We expect the company to focus more on a strategy of
acquisitions in a highly competitive telecom market in order to
tap opportunities in wireless services and pay-TV business. The
company acquired Pay-TV firm Net Servicos, the largest
multi-service cable company in Latin America. In January 2012,
the company collaborated with Claxson Interactive Group to
acquire DLA Inc. that adds video-on-demand service on cable-TV
channels in Latin America.
America Movil also entered into a partnership with
) in November last year. America Movil uses AT&T's global
network infrastructure to provide Internet services worldwide.
America Movil's Tracfone acquired prepaid carrier, Simple Mobile
Inc. in June 2012.
Further, the company proposed to increase its minority stake
in Koninklijke KPN NV (a Dutch telecom company) to 28% from the
existing 4.8% at EUR 8.0 per share worth up to EUR 2.64 billion.
The company also assimilated a 22% stake in Telekom Austria AG,
intensifying its foray into the European market.
America Movil remains committed to improve its service
offerings as it continues to invest aggressively in expanding its
cellular networks in Latin America and develop new generation
broadband networks, both in fixed and mobile platforms. The
company projects approximately $8-$9 billion in spending over the
next four years for the expansion of data networks.
Despite the company's continued earnings growth and
accelerated market share gain, we remain concerned about
regulatory pressures in Mexico, along with lower interconnection
charges that are expected to limit earnings growth. We believe
wireless sales in Brazil, the second largest market for the
company, are a drag on its profits as competitors reduce prices
and the economy slows.
Apart from declining growth rates in the company's two largest
markets, Mexico and Brazil, we believe factors like acquisition
expenses, operating costs on network investment, and undisclosed
pension costs will also weigh on near-term profitability.
Further, the company faces stiff competition from rivals like
Grupo Televisa, S.A.B
) in Latin America.
Thus, we currently maintain a long-term Neutral recommendation
on America Movil. For the short-term (1-3 months) the stock has a
Zacks #3 Rank, implying a Hold rating.
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