America Movil Dominates the Latin American Landscape
This carrier is the best positioned to outperform its peers against a difficult backdrop.
From an investment perspective, Brazil and Mexico continue to dominate the Latin America landscape, and the telecom sector is no exception. Within this sector, we believe America Movil (AMX) offers the most balanced and attractive investment profile because of its massive scale, considerable financial resources, and bundling capabilities. Over the past few years, the sector has been characterized by the acquisitions and integration of fixed-line networks with wireless infrastructure. We believe 2012 will be defined by how efficiently and effectively the carriers will monetize these moves. As we analyze the regulatory, competitive, and economic landscape, it's clear that America Movil is the best-positioned telecommunications company in the region.
Regulatory changes in both countries continue to apply pressure. In Mexico, telecom regulator Cofetel made a major cut in mobile termination rates to try to make these services more affordable, level the playing field, and promote competition. However, the rate cut backfired, as it only widened the profitability gap between America Movil and its peers. While rectifying this could be a painful process, we'd expect Cofetel to either raise mobile termination rates again (by changing the assumptions in its underlying pricing model) or promise no further cuts for the foreseeable future. It could also try to set specific prices for each carrier's network, although we doubt that approach would ever be able to satisfy the entire sector.
Imari Love does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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