Regulators Revoke Fine on Movil - Analyst Blog


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After a prolonged regulatory battle, America Movil ( AMX ) was finally relieved of the MXN$12 billion ($1 billion) fine charged on it by the Mexican telecom regulators. The Federal Competition Commission (Cofeco) has dismissed the fine against America Movil, which was accused of adhering to 'relative monopolistic practices' in the Mexican market.

In April 2011, Cofeco ordered the fine on America Movil's Mexican wireless division Telcel citing unfair trade practices as its rationale. The company was accused of charging higher to other wireless and wireline carriers on interconnection compared to its charges for connecting its own customers.

Cofeco also confirmed that the interconnection charges levied on rival carriers by Telcel were higher than the total call cost it charges from its subscribers. As a result, competitors were unable to provide similar offers to their subscribers and lost their market position.

We believe that the latest judgment on Telcel, which worked in favor of America Movil, reflects its dominance in the Mexican telecom market. Despite the various regulatory issues surrounding the company, it still remains the undisputed market leader in Latin America with a subscriber base of around 306 million.

The company remains benefited  by its well-known brand, extensive distribution network and nationwide coverage. Additionally, ongoing migration of voice traffic from fixed-lines to wireless and the continued adoption of smartphones has resulted in revenue growth for the company.

However, regulatory issues related to interconnection charges remain an overhang on the company. America Movil reduced its MTRs by 70% to MXN$0.3912 from MXN$0.95 in May 2011, as directed by the Mexican telecom regulator Cofetel or Comisión Federal de Telecomunicaciones. This represented the lowest interconnection charge worldwide.

The company expects to further lower its interconnection charges to MXN $0.3618 in this year, followed by MXN$0.3305 and MSX$0.3094 in 2013 and 2014, respectively. Additionally, the company plans to change the billing scheme to per second from per minute that could in turn have adverse effects on its revenue growth.

Further, competition has intensified in the Mexican wireless market with the entry of the country's largest media company Grupo Televisa. Mexico is preparing for the wireless spectrum auction, which has been designed to open the country's wireless market to more competition.

We expect competition to further intensify with new data offerings by Telefonica SA ( TEF ), restructuring of Grupo Iusacell and 3G launch by NII Holdings Inc. ( NIHD ). 

Despite these headwinds, America Movil continues to focus on its growing presence in Latin America. In January 2011, America Movil acquired the license to operate in Costa Rica. With this, America Movil was among the first companies to invest in the significantly untapped wireless market in Costa Rica. Apart from the Mexican market, the company is looking forward to tap the emerging markets like Puerto Rico, Jamaica and Nicaragua.

America Movil also entered into a partnership with AT&T Inc . ( T ) last November to expand its reach in Asia and the Middle East. America Movil will use AT&T's global network infrastructure to provide Internet services worldwide. In exchange, the company will offer virtual private network services to AT&T's multinational clients operating in Latin America.

The company continues to invest aggressively to expand its cellular networks in Latin America and develops new generation broadband networks, both in the fixed and the mobile platforms. The company expects to spend approximately $8-$9 billion over the next four years on the expansion of data networks.

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 (Hold).

AMER MOVIL-ADR (AMX): Free Stock Analysis Report
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AT&T INC (T): Free Stock Analysis Report
TELEFONICA S.A. (TEF): Free Stock Analysis Report
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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
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