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AMX AT A GLANCE

P/E ► 10.8 AVG EV/EBITDA ► 9.01 AVG ROA ► 17% AVG ROE ► 40.8% AVG Debt to Equity ► 1.65 AVG Current Ratio ► 0.735 LOW Interest Coverage Ratio ► 13.2 AVG

 

 

 

 

 

 

America Movil, S.A. de C.V. (AMX) is Latin America's largest wireless provider, with 176 million subscribers in 16 countries in 2008. ^[1] The company's largest subsidiary, Telcel, is the dominant wireless service provider in Mexico, with 73% market share.^[2] In addition, America Movil provides fixed-line services in Central America and the Caribbean, with market share of 66% and 89%, respectively. ^[2]

Throughout Central and South America, America Movil is using its commercial strength in the mobile business to grow its fixed-line telephone and broadband business. ^[3] At the end of 2007, two of every three people in Latin America had a wireless phone.^[4] However, overall wireless penetration in AMX operating regions reached 94% in 2008.^[5] In most countries, America Movil has been decreasing prices to attract customers, depressing the Average Revenue Per User (ARPU). There is a lagging relationship between traffic and subscriber growth, since promotional rates terminate and customers get accustomed to their new carrier. Thus, gains in new customer growth now should cause ARPU to rise in coming years. ^[6]

Most of America Movil's revenues are generated in the Mexican peso and Brazilian real, which must then be converted to US dollars since the company's earnings are in dollars.^[3] The dollar has appreciated against the peso, from 10 pesos/dollar in August 2008 to 15 in March 2009. ^[7] In addition, the Brazilian real gained 10% against the peso from October 2008 to March 2009. ^[7] In the first quarter 2009, the company lost 14 billion pesos due to foreign exchange. ^[7]

55% of America Movil is owned by Carlos Slim and his family. In addition, AT&T (T) owns an additional 23% of the company.^[1]

Company Overview

AMX Income ^{[8] [9][10][11][12]}

America Movil was established in September 2000 as a spin-off from Telmex, the dominant telephone company in Mexico. AMX has expanded using acquisitions to compete in the Latin American wireless market. While most wireless providers have focused on postpaid contract customers (since they generate much higher Average Revenue per User), America Movil's strategy has been to target prepaid users.^[1] This strategy has increased subscriber growth. As markets become saturated, AMX is beginning to target postpaid customers in relatively more developed nations such as Mexico.

55% of America Movil is owned by Carlos Slim and his family. Slim's son, Patrick Slim Domit, became chairman in 2004. In addition, AT&T (T) owns an additional 23% of the company.^[1]

Segment Information

• Mexico: America Movil, through its subsidiary Telcel, is the largest wireless provider in Mexico. From 2007 to 2008, subscriber base in Mexico grew 12.7% to 56.4 million.^[13] Revenue was up 11.8% from 2006 at $11.6 billion, driven by Telcel's commercial plans and promotions, which contributed to lower Average Revenue Per User (ARPU) ^[14]
• Brazil: In Brazil, Claro was a leading contributor to growth, capturing 30% of net subscriber additions. Subscriber base grew 21.6% to 30.2 million. In 2007, revenue increased 34% to $5.2 billion, fed by a 7.0% increase in Average Revenue Per User (ARPU). Claro was the first carrier to offer 3G network services in Brazil, with 37 cities covered in the first phase. The company plans to extend coverage to the entire country. ^[14] With the introduction of 3G services, the average price per minute of voice has declined 25.8% year-over-year in the fourth quarter of 2008. A 30% increase in data ARPU resulted in an overall 11.2% fall in ARPU. ^[6]
• Mercosur: This region covers Argentina, Paraguay, and Uruguay. In 2008, the company increased its subscriber base in this region by 13.5% to 16.6 million subscribers. ^[15] In this region, postpaid subscriber base has been growing more rapidly than prepaid subscribers, perhaps reflecting high existing penetration rates. In particular, Argentina has the highest penetration rate in South America at 98%.^[16] In 2007, the company was the first to introduce 2G services in Chile, with coverage for over 41% of the population. ^[16]
• Andean: This region includes Colombia, Ecuador, and Peru.

  Contents 1 Company Overview 1.1 Segment Information 1.2 America Movil Subsidiaries 1.3 Statistics by Region 2 Trends and Forces 2.1 Expansion Opportunities in Latin America 2.2 Exchange Rates and Currency Fluctuation 2.3 Antitrust Regulatory Issues 2.4 iPhone distribution rights in Latin America 2.5 Carlos Slim has the controlling stake in AMX and ability to overpower all minority shareholders 3 Competition 3.1 Competitors 3.2 Market Share 4 References

  • Colombia: In 2008, the company expanded its Colombian subscriber base 22.6% to 27.4 million. In Colombia, costs associated with the introduction of 3G decreased margins and decreased voice ARPU 30.3%. ^[17]
  • Ecuador: In Ecuador, the company increased its subscriber base 19.7% to 8.3 million. ^[18] Revenue in Ecuador climbed 22.3% in 2008 to $1.1 billion. ^[18]
  • Peru: Claro's subscriber base grew 31.6% in 2008 to 7.2 million, driven by a 53.3% gain in postpaid subscribers. ^[19] Prices per minute of usage dropped 36.6%, increasing usage 45.6% in the fourth quarter of 2008. ^[19]
• Central America: In 2008, wireless subscriber base in Central America increased 12.3% to 9.2 million. Wired subcribers increased 1.9% to 2.2 million. Growth in this region is slowing. In 2007, the company's subscriber base increased 38.8%. ^[20] Revenue fell from $1.495 billion to $1.444 billion in 2008, reflecting a trend of customers switching from fixed to wireless service. ^[19]
• Caribbean: In 2008, America Movil increased its Caribbean subscriber base 37.6% to 4.8 million subscribers. Revenue fell 1.1% to $1.16 billion in 2008, reflecting customer switchings from fixed-line to mobile services. ^[21]
• United States: In the United States, AMX owns Tracfone, a fast growing prepaid wireless service provider based in Miami. AMX generates revenue primarily from subscribers in the form of usage charges (more than half of total revenue), monthly rental (approximately 15%), and long distance (9%). The remaining revenue is derived from sales of handsets and accessories, as well as other value-added services. The company increased its customer base 17.6% to 11.2 million in 2008. In the face of tough wireless competition and slumping demand, Tracfone reported a 5.7% increase in revenue to $1.5 billion. ^[22]

America Movil Subsidiaries

Statistics by Region

AMX Operating Revenue by Geographical Segment [23]

AMX Operating Income by Geographical Segment [23]

Wireless subscribers by region [24]

Trends and Forces

Expansion Opportunities in Latin America

Privatization of telecommunication in most Latin American countries had lead to rapid growth in mobile and long distance telephone services. ^[25] Throughout Central and South America, America Movil is using its commercial strength in the mobile business to grow its fixed-line telephone and broadband business. ^[3] At the end of 2007, two of every three people in Latin America had a wireless phone.^[4] One of every three was a customer of America Movil. ^[4]

However, increasing wireless penetration rates in Latin America mean that the company in the long run must shift focus towards increasing Average Revenue Per User (ARPU). Overall wireless penetration in AMX operating regions reached 94% in 2008.^[5] In most countries, America Movil has been decreasing prices to attract customers, depressing ARPU. There is a lagging relationship between traffic and subscriber growth, since promotional rates terminate and customers get accustomed to their new carrier. Thus, gains in new customer growth now should cause ARPU to rise in coming years. ^[6]

AMX Projected Penetration in coverage areas ^[5]

Exchange Rates and Currency Fluctuation

America Movil has 57% of its debt denominated in US dollars, but most of its revenues are generated in the Mexican peso and Brazilian real, which must then be converted to US dollars since the company's earnings are in dollars.^[3] An appreciation of the US dollar relative to America Movil's operating currencies would hurt the company, since the value of pesos and reals in dollars would decrease. The dollar has appreciated against the peso, from 10 pesos/dollar in August 2008 to 15 in March 2009. ^[7] In addition, the Brazilian real gained 10% against the peso from October 2008 to March 2009. ^[7] In the first quarter 2009, the company lost 14 billion pesos due to foreign exchange. ^[7] However, the downward trend of the peso has begun to reverse in April 2009, strengthening against both the dollar and the real. If such a trend continues, America Movil's dollar-denominated financial performance stands to benefit. ^[7]

Antitrust Regulatory Issues

Because of the breadth of the company in both the wireless and fixed-line markets, America Movil is subject to regulation by the antitrust authorities in each of the countries in which it operates. On November 14, 2008 the Mexican Antitrust Commission issued preliminary findings in which the Commission deemed Telcel to be dominant in the end-user segment of the wireless market. The findings are being disputed by Telcel. ^[26]

In September 2008, the Colombian antitrust agency fined America Movil and competitor Telefonica SA (TEF) $448,100 each. The agency charged the two companies with charging higher costs for customers who make phone calls from fixed to mobile networks, allegedly to boost the usage of revenue-generating cell phones. ^[27]

iPhone distribution rights in Latin America

In 2008, America Movil announced it would distribute the iPhone to its Latin American customers later in the year.^[28] On July 11, America Movil launched the IPhone 3G in Mexico.^[29] In August 2008, the company began selling the iPhone in Argentina, Chile, Colombia, Ecuador, El Salvador, Guatemala, Honduras, Paraguay, Peru, and Uruguay. ^[30] Meanwhile, the company has been working to expand its 3G infrastructure in many South American countries However, the company must compete with Telefonica SA (TEF) for iPhone customers in Latin America. ^[31] The IPhone has been quite lucrative to AT&T (T) in the United States, generating 1.6 activations and almost 80% of new contracts in 2008. ^[32]

Carlos Slim has the controlling stake in AMX and ability to overpower all minority shareholders

55% of America Movil is owned by Carlos Slim and his family (the third wealthiest person in the world).^[33][34] Since an additional 23% of the company is owned by AT&T (T),^[1] common stockholders account for only 22% of America Movil. Slim's son, Patrick Slim Domit, became chairman in 2004.^[1]

Competition

Competitors

The company dominates Mexico's wireless service market with more than 70% market share. ^[35] In Latin America, America Movil's biggest competitor is world wireless giant Telefonica SA (TEF).

|- | America Movil (AMX)||€41.7*^[36]||153.4^[37]||22.9%^[37] || -|| -||- |- | Vodafone (VOD) ^[38]||€35.5||260.5||26.20%||$53.90 ||14.7%^[39]||0.66% ^[40] |- | Telefonica (TEF)^[41]||€56.4||169.2||16.6%||$39.4* ^[42]||1.8%-3.7%**^[43][44]||1.05%^[45] |}

*Currency conversions based on FRB reported exchange rates for Dec 2007 ^{[46] [47]}

**Telefonica churn rate is the range reported over all countries

Market Share

*Prepaid market only in the United States

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5} Morningstar Analyst Report, AMX, page 3
2. ↑ ^{2.0 2.1 2.2} AMX 2007 Annual Report, page 15
3. ↑ ^{3.0 3.1 3.2 3.3} Morningstar Analyst Report, AMX, page 2
4. ↑ ^{4.0 4.1 4.2} AMX 2007 Annual Report, page 12
5. ↑ ^{5.0 5.1 5.2} AMX 2007 Annual Report, page 13
6. ↑ ^{6.0 6.1 6.2} AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 8
7. ↑ ^{7.0 7.1 7.2 7.3 7.4 7.5 7.6} SeekingAlpha, "Resurgence"
8. ↑ AMX 2007 Annual Report, "Financial Summary," page 31
9. ↑ AMX 2006 Annual Report, "Financial Summary," page 34
10. ↑ AMX 2005 Annual Report, "Financial Summary," page 27
11. ↑ AMX 2004 Annual Report, "Financial Summary," page 29
12. ↑ AMX 2003 Annual Report, "Financial Summary," page 31
13. ↑ AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 6
14. ↑ ^{14.0 14.1} AMX 2007 Annual Report, page 19
15. ↑ AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 7
16. ↑ ^{16.0 16.1} AMX 2007 Annual Report, page 20
17. ↑ AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 10
18. ↑ ^{18.0 18.1} AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 11
19. ↑ ^{19.0 19.1 19.2} AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 12
20. ↑ AMX 2007 Annual Report, page 21
21. ↑ AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 13
22. ↑ AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 14
23. ↑ ^{23.0 23.1} AMX 2007 Annual Report, "Note 20 to the Consolidated Financial Statements," page 66
24. ↑ AMX 2007 Annual Report, page 5
25. ↑ Reuters Latin America - Telecom Market Regulatory Overview & Infrastructure
26. ↑ AMÉRICA MÓVIL’S FOURTH QUARTER OF 2008 FINANCIAL AND OPERATING REPORT, page 2
27. ↑ Colombian antitrust agency fines America Movil and Telefonica Spain (Colombia)
28. ↑ MacWorld, "América Móvil to bring iPhone to Latin America"
29. ↑ "América Móvil and Apple to Bring iPhone 3G to Mexico on July 11"
30. ↑ "America Movil to Offer iPhone in Ten More Countries this Month"
31. ↑ DMW Daily, "Telefonica to Sell iPhone in 16 Countries; Much of Latin America"
32. ↑ ComputerWorld, "AT&T reports declining profit, iPhone-fueled wireless growth"
33. ↑
34. ↑ Forbes, "The World's Billionaire's"
35. ↑ Morningstar Analyst report, 10 Nov 2008
36. ↑ AMX 2007 Annual Report, "Relevant Financial Data," page 4
37. ↑ ^{37.0 37.1} AMX 2007 Annual Report, page 22
38. ↑ Vodafone 2008 Annual Report
39. ↑ 2008 Annual Report, "2008 Financial Year Compared to the 2007 Financial Year"
40. ↑ Vodafone 2008 Annual Report, page 98
41. ↑ TEF 2007 Annual Report, “Letter from the Chairman,” page 5
42. ↑ TEF 2007 Annual Report, page 86
43. ↑ TEF 2007 Annual Report, page 99
44. ↑ TEF 2007 Annual Report, page 85
45. ↑ TEF 2007 Annual Report, page 3
46. ↑ Federal Reserve Board
47. ↑ Federal Reserve Board