After a prolonged regulatory battle,
) 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
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
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
We expect competition to further intensify with new data
), restructuring of Grupo Iusacell and 3G launch by
NII Holdings Inc.
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
) 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
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