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Morningstar | With Mexico on the Mend, We Think America Movil’s Performance Will Continue to Improve

With broad diversification across Latin America and a solid competitive position in many markets it services, we view America Movil as an attractive way to gain exposure to the region. That exposure comes with significant volatility, stemming from political, regulatory, and economic uncertainty, but we expect Movil will create value for shareholders over the long term. Movil serves 30% more customers across Latin America than its closest rival Telefonica, providing scale to ride out bumps in the road. The Mexican business is Movil’s most important, accounting for about 30% of revenue and profits. The Mexican telecom landscape has shifted dramatically over the past five years, but Movil remains dominant, with nearly 65% wireless market share. The firm also serves more than half of the Internet access market at Telmex, its fixed-line subsidiary. Lawmakers took aim at Movil’s position in 2014, creating a new regulatory framework and placing numerous conditions on the firm’s operations. That change prompted AT&T to enter the market in 2015, via two acquisitions, creating a wireless price war. Movil’s market share has fallen modestly as a result, but revenue and profitability have taken more sizable hits. Fortunately, after enduring heavy losses in the country, AT&T appears to be backing off competitively. Wireless pricing is rising again, and we think the worst of the impact from AT&T is over.Still, Movil and its primary shareholders, the Slim family, will likely garner regulatory scrutiny in Mexico from time to time as officials seek to increase network investment and service adoption. We expect the firm will be able to weather these storms thanks to its scale and management expertise, but predicting the future political environment is difficult, at best.In Brazil, Movil’s second largest market, the firm has assembled a solid set of assets as the second largest wireless carrier and largest cable company in the country. Economic weakness and a challenging competitive environment have limited the firm’s ability to earn attractive returns on these assets. Eventually, we expect conditions will improve, enabling Movil to drive solid cash flow growth in the country.