On Oct 4, 2013 we maintained our Neutral recommendation on
Latin America's largest wireless carrier
America Movil S.A.B. de C.V.
). Over the long term, we expect the company to benefit from the
increased penetration of fourth-generation (4G) mobile services
and expansion of its PayTV platform, which is one of its highest
However, regulatory issues, a stiff competitive scenario, huge
customer churn and high promotional spending could damage the
company's prospect. The company currently carries a Zacks Rank #3
America Movil continues to rule the Latin American wireless
market with predominance in Mexico, Brazil and Columbia. The
company remains committed to improve service offerings to its
customers with aggressive investments in expansion of cellular
networks in Latin America.
The company has also launched 4G mobile services in 11 cities
across Mexico and recently acquired spectrum in Colombia. Going
forward, the company intends to expand its LTE network and
aggressively follow promotional activities to increase its
penetration in the smartphone market. We expect the company to
perform well in Brazil and Mexico where it focuses on winning
contract subscribers, thereby minimizing churn.
The company has also diversified from its traditional wireless
and wireline services and has ventured into pay-TV service, which
remains one of the main growth drivers. The company even
surpassed the market leader in PayTV services,
) and established its leadership across Latin America.
However, regulatory concerns in Mexico remain the biggest
challenge for America Movil. The new telecom bill in Mexico
implies that dominant players like America Movil will have to pay
higher mobile termination rates (MTRs) to smaller peers while
receive lesser from them for network interconnection. This will
impact the company's performance in Mexico.
High competition in Mexico and Brazil is also affecting
America Movil's market share in those countries. Strict switching
policy in Peru and Ecuador is also not helping its cause as the
company is facing massive customer churn in these markets.
Additionally, the expansion of Pay-TV and TracFone business
remains detrimental to the company's earnings growth as these are
low margin businesses. So we prefer to remain on the sidelines.
Among other stocks
Portugal Telecom SGPS S.A.
) with a Zacks Rank #2 (Buy) look attractive for the short
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