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, 2015
Business Overview: América Móvil is a leading telecommunications provider in Latin America and the United States, offering wireless, wireline, broadband, and PayTV services. As of June 30, 2015, the company reported 367.7 million total access lines, comprising 288.8 million wireless subscribers, 34.6 million landlines, 22.8 million broadband accesses, and 21.5 million PayTV units.

Key Financial Metrics

Material Changes vs. Prior Period

• Subscriber Base: Total access lines grew 1.4% year-over-year. Wireless subscribers increased 0.8% despite net disconnections of 850,000 lines (primarily in Brazil, Ecuador, Colombia, and Argentina). Fixed Revenue Generating Units (RGUs) grew 3.7% annually.
• Revenue Trends: Consolidated revenues were flat (-0.1%). Service revenues declined 1.6% while equipment revenues rose 12.6%. At constant exchange rates, service revenues were down 0.5% and EBITDA down 3.1%.
• Profitability: Operating profit increased 2.2% driven by an 11.9% reduction in depreciation and amortization (due to a prior-year impairment at Telekom Austria). However, Net Income fell 16.0% due to higher comprehensive financing costs (driven by foreign exchange losses) and increased tax expenses.
• Regional Performance:
  • Mexico: Revenues down 2.4%; EBITDA down 7.3%. Significant decline in voice revenues (-19.2% fixed, -14.6% mobile) offset partially by data growth.
  • Brazil: Revenues up 2.5%; EBITDA up 10.4%. Strong fixed-line growth and data revenue expansion offset voice declines.
  • Chile: Revenues up 9.5% but EBITDA dropped 25.1% to 5.3% margin due to regulatory accounting changes and high equipment revenue recognition.
  • Peru: EBITDA plummeted 33.1% due to termination rate cuts and currency depreciation.
  • Telekom Austria: EBITDA up 7.0% with improved margins (32.0%) driven by cost controls.

Guidance, Outlook, and Risks

• Strategic Initiatives: Launched the "Sin Fronteras" (No Borders) plan in Mexico, allowing postpaid customers to use minutes, SMS, and data in the U.S. without roaming charges for 50 pesos/month. Successfully launched the Star One C4 satellite to expand coverage across the Americas.
• Capital Markets: Issued a €3 billion bond exchangeable into KPN shares (maturity 5 years, no interest). Reclassified KPN investment from long-term to "available for sale," impacting net debt calculations.
• Macro Risks: Management noted mixed economic indicators in Latin America, including Brazil's economic contraction, Colombia's exposure to oil price drops, and currency volatility (e.g., Peruvian sol, Brazilian real). The U.S. Federal Reserve's potential interest rate hike in 2015 was also noted as a factor.
• Competitive Landscape: Increased competition in Mexico following telecom reforms and the entry of new mobile operators. Regulatory changes in Colombia and Peru regarding contract terms and termination rates continue to pressure voice revenues.

Key Investor Verification Points

• Subscriber Quality: Verify the impact of net disconnections (850k wireless) in key markets like Brazil and Ecuador on future revenue stability.
• Currency Exposure: Assess the sensitivity of consolidated results to exchange rate fluctuations, particularly the Mexican peso, Brazilian real, and Peruvian sol, which significantly impacted reported EBITDA and Net Income.
• Regulatory Impact: Monitor the long-term effects of termination rate cuts in Peru and Colombia, and contract regulation changes in Colombia on service revenue growth.
• Debt Structure: Review the reclassification of the KPN investment and its effect on the reported net debt figure and liquidity position.
• Margin Pressure: Analyze the sustainability of EBITDA margins in Chile and Peru given the sharp declines reported in the quarter.