Latin American Telecom behemoth,
) is reportedly expecting the share repurchase program to
continue in 2014. The company has already spent nearly $5.4
billion in 2013 and expects similar level of spending on
repurchase this year.
In an effort to stall share price decline, America Movil
increased its share repurchase fund by 40 billion pesos ($3.2
billion) last year. The increase in share repurchase also helped
the company to safeguard its market value, which was affected by
the proposed regulatory bill in Mexico.
In Mar 2013, Mexican President Enrique Pena Nieto proposed a
new bill highlighting several measures to reform its telecom and
television industry. The main objective of this bill is to bring
more uniformity and transparency into the sector and curb
concentration of power that lies with predominant players, which
dictate market behavior.
However, the proposal has struck the Mexican telecom and
television industry on a discordant note as it unfavorably
targets giant corporations America Movil and
Grupo Televisa S.A.
). The proposal stresses on the implementation of the asymmetric
regulations that faced severe condemnation by America Movil.
Per the proposal, predominant players like America Movil that
control the majority of market share, will have to pay higher
mobile termination rates (MTRs) to smaller peers while receive
lesser amounts from them for network interconnection. Through
Telcel and Telmex, America Movil commands about 70% market share,
while the Spanish wireless operator
) controls nearly 22% of the Mexican market share.
Following this ruling, America Movil experienced a significant
decline in its share price that swept away billions of dollars in
its market valuation. Since then, the company has aggressively
followed a share repurchase policy to mend the loss.
However, we believe share buyback and stake increases by
management and shareholders can be a short-term remedy to improve
market position. But America Movil still has to pass through the
litmus test when the new telecom bill comes into action. How the
company survives in the new regulatory environment of Mexico amid
cutthroat competition from players like Telefonica, Grupo
NII Holdings Inc.
) is something to watch out for.
America Movil has a Zacks Rank #3 (Hold).
AMER MOVIL-ADR (AMX): Free Stock Analysis
NII HLDGS-CL B (NIHD): Free Stock Analysis
TELEFONICA S.A. (TEF): Free Stock Analysis
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