The Latin American telecom giant,
America Movil
(
AMX
), has planned to further lower its interconnection charges through
2013. Next year, Mobile Termination Rates (MTRs) are likely to be
lowered by 3 Mexican cents to 36.18 Mexican cents from 39.12
Mexican cents. Further, it plans to reduce MTRs to 33.05 Mexican
cents and 30.94 Mexican cents in 2013 and 2014, respectively.
As a reminder, America
Movil already reduced its MTRs by 70% to 39.12 Mexican cents from
95.00 Mexican cents in May, as directed by Mexican telecom
regulator Cofetel. This represented the lowest interconnection
charges across the globe.
Apart from strong competitive pressure from Brazilian and
Mexican rivals like
Telefonica
(
TEF
) and Grupo Televisa, America Movil remains significantly
challenged by low interconnection charges. This is evident by the
company's last quarterly performance. Despite the steadily growing
wireless data and smartphone market, the company failed to impress
in the recently concluded third quarter given lower interconnection
charges.
Over the year, America Movil has persistently been affected by
serious regulatory issues. Apart from the company's home turf,
Mexico, its Brazilian operations are also expected to register
reduced MTRs given regulatory pressures.
Further, in May, Cofeco fined Telcel, (Movil's Mexican wireless
subsidiary) by MXN$12 million for charging lower MTRs to its own
clients (on Internet calls) compared to MTRs charged to other
carriers preventing them from providing similar offers to their
clients. Going forward, Mexican regulators have also denied America
Movil the right to provide PayTV services in Mexico.
Several regulatory confinements remain, but the company is
confident about its business prospects in Latin American. America
Movil expects revenue growth in its core markets like Brazil and
Mexico to remain long-term growth drivers given favorable demand in
the wireless segment backed by huge capital investments in these
regions. Further, business consolidations and acquisitions are also
vital to profitability going forward.
Thus, we currently maintain a long-term Neutral recommendation
on America Movil supported by a Zacks #3 Rank (Hold).
AMER MOVIL-ADR (
AMX
): Free Stock Analysis Report
TELEFONICA S.A. (
TEF
): Free Stock Analysis Report
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