AMX

Business Context and Reporting Period

Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2015
Business Overview: América Móvil is a leading telecommunications provider operating primarily in Latin America and the United States. As of September 30, 2015, the company reported 368.2 million total access lines, comprising 288.4 million wireless subscribers, 34.9 million landlines, 23.4 million broadband accesses, and 21.6 million PayTV units.

Key Financial Metrics

Liquidity and Debt: Net debt increased by 61.3 billion pesos since December 2014, partly due to the reclassification of the KPN stake. Total debt was approximately $42.2 billion USD equivalent. Cash and securities totaled 71.4 billion pesos. Shareholder distributions (dividends and buybacks) totaled 59.5 billion pesos year-to-date.

Material Changes vs. Prior Period

• Profitability Decline: The company reported a net loss of 2.9 billion pesos in 3Q15 compared to a net income of 12.6 billion pesos in 3Q14. This was primarily driven by a 277.5% increase in comprehensive financing costs to 38.9 billion pesos, largely due to foreign exchange losses from the depreciation of the Mexican peso and Brazilian real against the U.S. dollar.
• Revenue Growth: Total revenues increased 1.2% year-over-year to 223.6 billion pesos. However, service revenues declined 1.0% at constant exchange rates. Data revenue growth accelerated (10.7% mobile, 7.0% fixed), offsetting declines in voice revenues.
• Subscriber Base: Total access lines grew 1.0% year-over-year. Wireless subscribers saw net disconnections of 401,000 in the quarter (0.4% decline), driven by clean-ups in Brazil, Ecuador, and Colombia. Conversely, the postpaid wireless base grew 5.1% to 61.5 million subscribers.
• Regional Performance:
  • Central America: Fastest growing region with 8.3% revenue growth and 14.1% EBITDA growth.
  • Ecuador: Significant contraction with EBITDA down 43.4% due to a new tax levy and economic downturn.
  • Chile: EBITDA declined 23.8% due to regulatory changes and competitive pressures.
  • USA (Tracfone): EBITDA dropped 33.1% due to higher acquisition costs in a competitive market.

Outlook, Risks, and Contingencies

• Regulatory Risks: The Federal Telecommunications Institute (IFT) in Mexico initiated proceedings against subsidiary Telmex regarding alleged violations of concession and must-offer rules related to agreements with Dish México and "Uno TV." Telmex disputes these allegations.
• Currency Volatility: Management highlighted that foreign exchange losses significantly impacted net income but did not affect cash flows. The company maintains a long-term debt profile with limited refinancing requirements.
• Strategic Actions:
  • Telesites Spin-off: Upon the spin-off of Telesites, net debt is expected to be reduced by 21 billion pesos.
  • KPN Bond: Issued a 750 million euro mandatory exchangeable bond (5.5% coupon, 3-year tenor) to be exchanged for KPN shares.
  • Network Expansion: Continued investment in 4G LTE and fiber-optic networks, particularly in Mexico (213,000 km of fiber) and Ecuador.
• Market Conditions: Economic downturns in Brazil and Ecuador, along with intense competition in Mexico (entry of AT&T and Telefónica), are cited as headwinds.

Investor Verification Checklist

• Foreign Exchange Impact: Verify the magnitude of unrealized foreign exchange losses on the income statement versus actual cash flow impacts.
• Debt Structure: Confirm the timeline and accounting treatment for the Telesites spin-off and the resulting reduction in net debt.
• Regulatory Proceedings: Monitor the status of the IFT investigation into Telmex and potential fines or operational restrictions.
• Subscriber Quality: Analyze the impact of the "clean-up" of inactive prepaid subscribers in Brazil, Ecuador, and Colombia on future revenue stability.
• Regional Divergence: Assess the sustainability of growth in Central America versus the contraction in Ecuador and Chile.