America Movil to Lower MTRs Further - Analyst Blog

By Zacks Equity Research,

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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
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AMX , TEF

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