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: Second Quarter ended June 30, 2013
Business Overview: América Móvil is a leading telecommunications provider in the Americas, offering wireless, fixed-line, broadband, and PayTV services. As of June 30, 2013, the company reported 328.8 million total accesses, comprising 262.0 million wireless subscribers, 30.7 million landlines, 18.2 million broadband accesses, and 17.8 million PayTV units.

Key Financial Metrics

Note: In constant peso terms, service revenue growth was 7.8% and total revenue growth was 10.0%, significantly higher than reported peso figures due to currency depreciation.

Material Changes vs. Prior Period

• Revenue Growth Acceleration: While reported peso revenues grew only 1.6%, constant peso service revenue growth accelerated to 7.8% from 4.6% in the prior quarter. This was driven by a sharp recovery in mobile voice revenues in Mexico, Brazil, Chile, Ecuador, and Colombia.
• Subscriber Base: Total accesses grew 5.0% year-over-year. Wireless subscribers increased 4.1% to 262.0 million, while fixed-line RGUs grew 9.1% to 66.8 million. Postpaid wireless subscribers grew 12.2% year-over-year.
• Profitability: Net income rose 7.9% to 14.2 billion pesos. However, EBITDA in peso terms declined 2.1% due to foreign exchange impacts, though it rose 5.0% at constant exchange rates.
• Financing Costs: Comprehensive financing costs increased 13% to 20.8 billion pesos, primarily due to foreign exchange losses resulting from the depreciation of local currencies (MXN, BRL, COP, PEN, CLP) against the USD and Euro.
• Capital Allocation: Net debt increased by 54.7 billion pesos in the first half of 2013 to fund capital expenditures (49.1 billion pesos), share buybacks (46.2 billion pesos), and acquisitions (16.7 billion pesos).

Outlook, Risks, and Unusual Items

• 4G-LTE Expansion: The company is actively rolling out 4G-LTE networks in Mexico (11 cities), Brazil (18 cities), Chile, and Puerto Rico. Spectrum was recently acquired in Colombia for 4G deployment.
• Strategic Acquisitions:
  • Acquired CMI (media/advertising unit of CIE) in April.
  • Tracfone (US subsidiary) agreed to acquire Start Wireless Group (1.4 million customers) in May.
  • Acquired a 10.8% interest in Shazam Entertainment Limited in July.
• Churn Policy Adjustments: Significant one-time disconnections occurred in Peru (1.9 million) and Ecuador (307 thousand) due to stricter churn policies, impacting reported subscriber counts in those regions.
• Currency Risk: The filing highlights significant volatility in exchange rates, with the Mexican peso depreciating 6.7% and the Brazilian real 10.0% against the USD. Approximately 30% of net debt is exposed to hard currencies, creating ongoing foreign exchange risk.
• Regulatory Environment: New pricing rules in Chile and asymmetric termination rates in Colombia have impacted voice revenue and pricing dynamics.

Investor Verification Checklist

• Constant Currency Performance: Verify the 7.8% constant peso service revenue growth to understand organic business momentum separate from currency headwinds.
• Churn Policy Impact: Assess the long-term effect of the one-time subscriber disconnections in Peru and Ecuador on future revenue bases.
• Debt Servicing Capacity: Review the impact of rising financing costs (up 13%) and foreign exchange losses on future net income stability.
• Postpaid Migration: Confirm the sustainability of the 12.2% postpaid subscriber growth, which is a key driver for ARPU improvement.
• 4G-LTE ROI: Monitor the return on investment for the aggressive 4G-LTE infrastructure rollout and spectrum acquisitions in Colombia.