Latin American telecom giant America Movil S.A.B. (AMX) stated that it will add 3 million addition pay TV customers by the end of 2011, aided by the acquisition of Pay TV firm Net Servicos in January 2011.
Given the acquisition of Net Servicos, the largest multi service cable company in Latin America, America Movil became the flagship pay-TV services company in the region.
The company has 10 million Pay TV customers in Latin America, and the subscriber base is widening even more with almost 250,000 new customers every month. However, the Mexican television market remains completely untapped by the company due to a regulatory ban.
The company faces rivalries from Mexican broadcasters and cable companies, as they try to enter one another’s key business areas. Given the growing competitive pressure in the Mexican telecom market, we expect significant loss of market opportunity in Mexico to adversely affect service revenues for the company in the future.
America Movil currently shares a billing agreement with satellite company DISH Mexico. The company says that this agreement is an attempt to offset the lack of television revenue in Mexico. But its rivals like Grupo Televisa (TV) and TV Azteca see the deal as a strategy to enter the country’s television market.
The two biggest broadcasters in Mexico, Televisa and TV Azteca, which recently started providing telephone services in the country, have emerged as direct competitors to America Movil. These companies have now demanded an approximately 50% of America Movil’s interconnection rate. This is likely to create a potential dent in the company’s revenues.
America Movil is barred from advertising through television channels owned by Televisa and TV Azteca until it implements the cut in interconnection charges.
America Movil remains an undisputed market leader in the telecom industry with 225 million wireless subscribers in Latin America and 51.5 million fixed revenue generating units (RGUs). The company is set to capture a potential market share with key acquisitions of telecom companies like Telefonos de Mexico (TELMEXEL.MX) and Telefonos Internacional (Telint). However, the company’s near future remains challenged by competitive forces in the Mexican market along with competitive threats from Telefonica (TEF), a leading wireless operator in Brazil.
Currently, we maintain a long-term Neutral recommendation on America Movil with a Zacks #3 (Hold) Rank.
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