Amerca Movil (AMX): Regulatory & Competition Woes Persist

On Mar 21, we issued an updated research report on Mexican telecom behemoth America Movil S.A.B. de C.V. AMX.

America Movil reported mixed financial results in the fourth quarter of 2015 wherein earnings missed the Zacks Consensus Estimate while revenues surpassed the same. For the first time, the company's profit margin in Mexico, its biggest market, fell below 40% (to 36.7%) in the quarter. Stringent regulatory measures and intensifying competition in Mexico were the primary reasons responsible for the dismal performance.

Notably, regulatory concerns continue to mount which may hurt the company's top and bottom line. In 2014, the government of Mexico introduced reforms within its telecommunications sector, seeking to restrict the maximum hold of a company in the market to 50%.

Moreover, America Movil's wireline division, Telmex, faced a major blow when Mexico's telecom regulator Federal Telecommunications Institute IFT decided to allow access to the "last mile" of Telmex telephone networks to rivals. Further, the company has been facing another IFT probe relating to a business agreement between Telmex and satellite TV operator Dish Mexico.

Additionally, undertaking of the massive wholesale shared mobile network project by the government of Mexico could impede growth for America Movil and weaken its market position.

Further, 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 has intensified competition, and is a major cause of concern for America Movil. Moreover, AT&T's acquisition of DIRECTV may impact America Movil's market position as DIRECTV is a competitor in Mexico and other Latin American countries.

Notably, America Movil bought the largest chunk of wireless spectrum in the auction for 80 MHz of wireless spectrum across various Advanced Wireless Services (AWS) bands that took place last month in Mexico. America Movil paid 2.1 billion Mexican Pesos (approximately $117 million) and got licenses for the 1710-1730, 1760-1780, 2110-2130 and 2160-2180 MHz bands. Notably, AWS spectrums are high in demand for the deployment of 4G LTE networks.

Meanwhile, America Movil's decision to invest $6 billion over the next three years in the Mexican telecom market should somewhat aid in countering the intensifying competition in Mexico, especially in the wireless segment.

Zacks Rank & Stocks to Consider

Currently, America Movil has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in this sector are Fairpoint Communications, Inc. FRP and NTT DOCOMO, Inc. DCM. Both the stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>