America Movil to Reduce Fixed Line to Mobile Call Rates

Telmex, the fixed-line telephone subsidiary of the Mexican telecom giant America Movil SAB AMX has decided to gradually lower its rates for calls from land lines to mobile phones by about half by 2018. Telmex will reduce its call rates by 30% on Aug 1, 2016, followed by an additional 15% reduction on Jan 1, 2017 and a 15% cut on Jan 1, 2018. Ultimately, the pre-tax call rate from landline to mobile phones will come down to MXN 0.342 ($0.0185) per minute in 2018 from the current rate of MXN 0.6763 per minute.

In 2014, the government of Mexico introduced major reforms within its telecommunications sector. Mexican telecom regulator – Federal Telecommunications Institute IFT – identified America Movil as the dominant player in this market. Both the company's wireline division Telmex and wireless division Telcel control a respective 70% of the Mexican market. Per the IFT's reformed norms, the maximum hold of a company in the market has been restricted to 50%.

As part of these reforms, the IFT banned America Movil from charging national roaming fees. Further, the company will now have to share its infrastructure with other operators particularly in the local loop (last mileage) segment. Interconnection fees levied by the company were under close scrutiny as well.

In order to avoid the stringent regulatory measures, America Movil has taken several steps over last couple of years. In Dec 2015, the company spun-off the wireless tower division Telesites and is likely to divest some non-core wireless and fixed-line assets in the future. Last November, America Movil received approval from the IFT regarding the prices it can charge as interconnection fees. The company's decision of the company to reduce its fixed-line-to-mobile call rates in phased manner reflects its compliance with the regulations.

Zacks Rank and Stock to Consider

America Movil currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same space include NTT DOCOMO Inc. DCM, Mobile TeleSystems PJSC MBT and Vodafone group Plc. VOD. While both NTT DOCOMO and, Mobile TeleSystems sport a Zacks Rank #1 (Strong Buy), Vodafone holds a Zacks Rank #2 (Buy).

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