Mexican telecom giant America Movil’s (AMX) shares continue to plunge as the company remains exposed to current regulatory whirlwind surrounding the Mexican telecom market.
After the closing bell on June 3, the carrier’s share prices fell approximately 4% to MXN$28.67, representing the biggest loss in a single day in the last 17 months. Share trading at New York Stock Exchange closed at approximately $49.09, nearing its 52 weeks low $46.00.
In the beginning of April, the company’s shares were consistently higher and traded in the range of $58.10-$59.00 per share. As the news of the regulatory fiasco between the company and the Federal Competition Commission (Cofeco) over the interconnection charges broke on April 15, the stock plunged approximately 3% to $ 56.71, after market closed on April 18. Consequently, the stock failed to pull back its position and continued to slump.
The highly competitive Mexican market, where America Movil possesses more than 70% market share, remains clouded with regulatory hurdles, which in turn temper the company’s policies and practices.
America Movil has constantly faced litigations over its interconnection charges. The company has been already forced to reduce its mobile termination rates (MTRs) by 50% to 39 Mexican peso (approximately 3.2 cents) per minute, on being allegedly charging more fees to its operators compared to other telecom providers like Grupo Televisa(TV) andNII Holdings Inc. (NIHD).
Further, the company’s wireless subsidiary, Telcel was once again scrutinized by Cofeco for charging lower MTRs to its existing clients (on internet calls) compared to MTRs charged to other carriers, thereby preventing these companies from providing similar offers to their clients.
Although the company’s stock has apparently responded to these regulatory upheavals, we believe revenues would not be significantly hurt by the current market uncertainties over interconnection charges.
Interconnection revenues received from the company’s wireless operator, Telcel remains marginal (MTRs represent approximately 0.7 to 0.8% of Telcel revenue) as fee received from wireless operators is mostly offset by the charges paid to operators. Hence, the reduction will represent only 0.3% of AMX service revenues or 0.1% of consolidated revenues. However, it is the revenue from the company’s fixed-line operation, Telmex (TMX), which will be significantly impacted in the event of any rate cut imposed on its interconnection charges.
We estimate that such charges will contribute approximately 7% to 8% toward Telmex service revenues and comprise approximately 90.0% of the Company’s total interconnection fees.
Hence, we currently reaffirm our long term Neutral recommendation on America Movil. Besides, the company holds a Zacks #3 Rank (short-term Hold rating).
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