If you've ever been to Mexico, then Carlos Slim owes you a
gracias. It's almost impossible to go a day in this country without
spending a peso in one of his business.
Slim is the third richest person in the world, behind Bill Gates
and Warren Buffett, and his fortune is estimated to be equal to
5.5% of Mexico's GDP. Among other businesses, he owns restaurants,
retail stores, hospitals, utilities, properties and banks.
Slim also controls almost all of the telecom industry -- fixed-line
Since being spun out of Telmex, Mexico's largest fixed-line and
internet provider, in 2000, wireless telecom
America Movil (
has been on a tear, up almost +500% in the past decade. The company
pioneered the use of prepaid phones, which made cell phones
financially viable for more Mexicans. America Movil controls about
70% of the Mexican wireless market. And Slim controls America
Movil, with 54% of the outstanding shares.
Slim has turned Movil into the largest mobile operator -- and the
fourth largest company -- in Latin America. Movil's revenue has
grown at an impressive rate of +55% annually from 2000 to 2008.
Aside from controlling the Mexican wireless telecom market, the
company is expanding into other parts of Latin America. Movil is
the largest mobile operator in Columbia, from where it derives 10%
of its revenue.
Movil's pricing power in Columbia and Mexico has allowed it to
generate one of the highest operating margins in the industry,
27.4% -- compared with 17.5% for
Movil's fastest growing segment is its Brazilian operations. It is
the second-largest cell phone operator in Brazil and derives 20% of
its revenue from the rapidly emerging country. Movil added 2.1
million subscribers in Brazil in the fourth quarter ended December
31, 2009, a +14.6% increase year-over-year.
Movil's operations in the Caribbean, Central America, Ecuador and
Peru account for the balance of its Latin America revenue.
Movil has $400 million of cash on hand, money that can be used to
expand its network across Latin America. It is one of the few
wireless telecom companies to offer next-generation services across
the region, which should attract customers over time. Movil's
Apple Inc. (Nasdaq: AAPL)
to sell iPhones in its Latin American operations should continue to
drive new subscriptions.
Movil's fourth-quarter revenue jumped +13.1% to $8.2 billion,
year-over-year. The company's subscriber base increased +10% in
2009 and data revenue jumped +48.7%, compared with the year-ago
period. Data plans enable phones to surf the Internet and use other
Even the United States is part of Movil's expansion. Tracfone
Wireless, a unit of America Movil, is the fifth-largest U.S. mobile
operator, and the number one provider of prepaid cell phones in the
United States. In terms of subscribers, Tracfone is the
second-fastest growing segment for America Movil.
Movil teamed up with
Wal-Mart Stores, Inc. (
to distribute the Tracfone at Wal-Mart's retail stores, in October
2009. Tracfone is the fastest growing prepaid phone provider, and
the Wal-Mart deal will make the phone more accessible to potential
customers. Movil added 1.2 million subscribers in the fourth
quarter, bringing the U.S. total to 14.4 million.
Only one company is more dominant than America Movil in Mexico's
telecom market, and that company is Telmex. The company is
practically a monopoly in Mexico, with about 80% market share of
the fixed-line business. While Telmex operates in Mexico, its
sister company, Telmex Internacional, operates in the rest of Latin
America. Both companies offer internet, cable TV and fixed-line
And guess who controls these companies?
Telmex (Mexico: TELMEXL.MX)
Telmex Internacional (Mexico: TELINTL.MX)
are controlled by Carlos Slim through
Carso Global Telecom (Mexico: TELECOMA1.MX)
, a holding company. Slim recently announced a plan to combine his
telecom operations by purchasing Carso Global Telecom through
America Movil plans to pay for the acquisition with its own shares.
If the plan is approved by regulators, America Movil would
indirectly acquire 59.4% of Telmex and 60.7% of Telmex
In Mexico, the acquisition must be approved by Cofeco, the
country's telecom regulator. Slim said he does not plan to bundle
services there, which should help Movil get the deal approved. The
plan is expected to be more easily approved in Brazil and other
South American countries.
The deal should improve profitability through cost-cutting
synergies. It will also enable Movil to offer wireless, fixed-line,
cable TV and internet services across Latin America and put it in a
stronger competitive position against Spain's
, Movil's primary rival in South America.
America Movil's subscribers topped the 200 million mark in the
fourth quarter, which compares with AT&T's 85 million
subscribers. It still has plenty of room to grow in Latin America,
and the Carso Global Telecom deal could act as a catalyst to expand
its subscriber base. Slim has a solid record of creating
shareholder value, and that's exactly what the acquisition should
do in the long term.
The shares are trading at an earnings multiple of 14, an -18.7%
discount to its five-year average multiple. This may be the best
time for growth investors to pick up shares of America Movil at a
Francisco E. Bermea
Disclosure: Francisco Bermea does not own shares of any security
mentioned in this article.
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