Credit: Shutterstock photoOn Dec 27, we issued an updated research report on Mexican telecom giant America Movil SABAMX .
What's Driving America Movil?
America Movil continues to participate in spectrum auctions in order to deploy 4G LTE services and expand its 3G footprint. Moreover, Telmex, the fixed-line telephone subsidiary of America Movil, has decided to gradually lower its rates by about half for calls from land lines to mobile phones by 2018. The company's decision to reduce its fixed-line-to-mobile call rates in phased manner reflects its efforts to comply with regulations.
Increased penetration of 3G data services in Mexico continues to drive data revenues. The company's iPhone has enabled America Movil to counter competition in a more effective manner while boosting customer adoption of 3G services, thereby stimulating ARPU (average revenue per user) growth. The company launched fourth-generation (4G) mobile services in 11 cities across Mexico. Furthermore, the company has introduced LTE services in Brazil where it currently covers 18 cities. We expect the company to perform well in Brazil and Mexico as it continues to focus on winning more contract subscribers, which in turn will minimize churn.
Recently, America Movil signed an agreement with its closest rival Telefonica SA TEF to offer nationwide mobile roaming services. Notably, America Movil currently commands more than 66% of Mexico's wireless market while Telefonica comes second with over 20% share.
Meanwhile, on Dec 13, Mexican telecom regulator, Federal Telecommunications Institute (IFT) recently agreed to extend the validity of Telmex's concession to build, install, maintain, operate and exploit a public telephone network for another 30 years starting Mar 11, 2026.
Troubles
Shares of America Movil have underperformed the Zacks categorized Wireless Non-US market on a year-to-date basis. The stock has lost 11.59%, much wider than the industry's decline of 7.61% over the same period.
Also, America Movil's Brazilian operation, Claro, faces competitive threat from Vivo - which is owned by Telefonica Brazil SA VIV . Meanwhile, U.S. telecom behemoth AT&T Inc.'s T entry into the Mexican telecom industry with the acquisition of Gurpo Iusacell and Nextel de Mexico was a major setback for America Movil.
America Movil is also focused on shifting its base from Mexico to Brazil through the purchase of Oi S.A. in the wake of declining profits. America Movil's cash and liquidity position also seems to be a major concern. The accumulating debt and decreasing cash flow in the last reported third quarter of 2016 may also affect its credit ratings going ahead.
To Conclude
We believe the company's decision to participate in spectrum auctions to deploy 4G LTE services and expand its 3G footprint bode well for long-term growth. However, multiple headwinds have been hurting the stock of late, which may have resulted in America Movil's Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
