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: First Quarter ended March 31, 2011
Business Overview: América Móvil is a leading telecommunications provider in Latin America and the United States, operating wireless, fixed-line, broadband, and PayTV services. As of March 31, 2011, the company reported a total of 284 million accesses, comprising 231 million wireless subscribers, 28.7 million landlines, 13.6 million broadband accesses, and 10.8 million PayTV clients.

Key Financial Metrics

Material Changes vs. Prior Period

• Subscriber Growth: Added nearly 6 million wireless subscribers and 1.5 million fixed-line RGUs. Total accesses grew 12.1% year-over-year. Brazil led wireless additions with 1.8 million new subs (+52.3% YoY), followed by Mexico with 1.5 million (+38.2% YoY).
• Revenue Drivers: Wireless service revenues increased 11.1% YoY, driven by mobile data services which grew 37.8% at constant exchange rates. PayTV revenues surged 66.0% YoY. Conversely, fixed voice revenues declined 4.3%.
• Profitability: EBITDA remained flat due to a 10.3% decline in Telmex (Mexico fixed-line) EBITDA, which offset an 8.8% gain in other operations. Operating profit declined 4.9% primarily due to an 8.6% increase in depreciation and amortization charges.
• Net Income: Increased 12.1% to 23.5 billion pesos, aided by a 52.7% reduction in comprehensive financing costs (down to 1.9 billion pesos) and lower tax expenses.
• Regional Performance:
  • Chile: Strongest growth with revenues up 27.9% and EBITDA up 85.6%.
  • Brazil: Revenues up 5.7%, but EBITDA declined 11.2% due to high subscriber acquisition costs.
  • USA (Tracfone): Revenues jumped 43.3% due to StraightTalk growth, though EBITDA margin compressed to 7.3%.

Outlook, Risks, and Contingencies

• Regulatory Risks: On April 15, 2011, the Mexican competition authority (Cofeco) imposed a fine of 11.989 billion pesos on Telcel for alleged monopolistic practices regarding on-net call rates. The company disputes the fine as illegal and arbitrary and intends to challenge it legally.
• M&A Activity:
  • Agreement to acquire Digicel's operations in Honduras and El Salvador (selling Jamaica operations to Digicel); expected completion in Q2 2011.
  • Agreement to acquire 20% of StarOne S.A. (Brazilian satellite services); expected completion in Q3 2011.
• Liquidity: In May 2011, the company closed two syndicated revolving-loan facilities totaling $4 billion (one USD-denominated, one EUR-denominated) to support liquidity.
• Operational Risks: In Peru, regulatory measures requiring prepaid subscriber registration led to the disconnection of 83,000 lines in March. In Mexico, Telcel incurred costs related to airtime bonuses for service interruptions in the Mexico City metropolitan area.

Investor Verification Checklist

• Verify the legal outcome and potential financial impact of the 11.989 billion peso fine imposed by Cofeco on Telcel.
• Monitor the completion status and regulatory approvals for the Digicel (Honduras/El Salvador) and StarOne (Brazil) acquisitions.
• Assess the sustainability of EBITDA margins in Brazil and the USA, where high subscriber acquisition costs and low-margin prepaid plans (StraightTalk) are pressuring profitability despite revenue growth.
• Review the trajectory of fixed-line voice revenue decline in Mexico and Central America versus the growth in data and PayTV segments.
• Confirm the impact of currency fluctuations on consolidated results, given the company's exposure to multiple Latin American currencies.