AMX

Business Context and Reporting Period

Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2007
Accounting Basis: Mexican Financial Reporting Standards (Mexican FRS), with reconciliations to U.S. GAAP provided.

América Móvil is the largest provider of wireless communications services in Latin America, operating in 17 countries. As of December 31, 2007, the company reported approximately 153.4 million wireless subscribers and 3.9 million fixed lines. The company's principal operations are in Mexico (Telcel) and Brazil (Claro), which together accounted for approximately 60% of consolidated revenues in 2007. The reporting period includes the consolidation of significant acquisitions made in 2006 and 2007, including Codetel (Dominican Republic), TELPRI (Puerto Rico), and Oceanic (Jamaica).

Key Financial Metrics (2007)

Note: All peso amounts are in millions of constant pesos as of December 31, 2007, unless otherwise noted. U.S. GAAP figures are reconciled in Note 22 of the filing.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased by 28.2% in 2007 compared to 2006. This growth was driven by a 23.0% increase in the wireless subscriber base (from 124.8 million to 153.4 million) and increased traffic. Acquisitions (Codetel, TELPRI, Oceanic) contributed approximately Ps. 18,999 million to the revenue increase.
• Profitability: Operating income grew by 39.6% to Ps. 85,194 million. The operating margin improved to 27.3% in 2007 from 25.1% in 2006, driven by economies of scale and improved margins in key markets like Argentina, Brazil, Colombia, and Mexico.
• Subscriber Growth: Total wireless subscribers grew by 28.6 million. Growth was primarily organic, with acquisitions accounting for only 0.5% of the increase. Mexico remained the largest market by revenue (40.8%), while Brazil was the second largest (18.7%).
• Cost Structure: Depreciation and amortization increased by 45.0% to Ps. 40,818 million, largely due to the launch of 3G (UMTS/HSDPA) networks and the shortening of useful lives for TDMA equipment in Colombia and Brazil.
• Dividends: The company paid Ps. 41,298 million in dividends in 2007, including an extraordinary dividend of Ps. 1.00 per share paid in November 2007.

Guidance, Outlook, and Risks

Outlook and Capital Expenditures

Management has budgeted capital expenditures of approximately U.S.$4.0 billion for 2008. These expenditures will focus on expanding GSM network capacity and deploying 3G (UMTS/HSDPA) networks across Latin America. Additionally, the company expects to spend approximately U.S.$1.2 billion in 2008 to acquire or renew licenses, including spectrum in Brazil (U.S.$845 million) and concession renewals in Ecuador (U.S.$289 million).

Accounting Changes

Effective January 1, 2008, the company will cease inflation accounting under Mexican FRS, as the Mexican economic environment is no longer considered "inflationary" (cumulative inflation below 26% over three years). This change will eliminate monetary gains/losses from holding monetary assets/liabilities and will alter the presentation of depreciation and foreign currency translation.

Key Risks and Contingencies

• Regulatory Investigations: The Mexican Federal Antitrust Commission (Cofeco) initiated investigations in late 2007 and early 2008 to determine if América Móvil (Telcel) possesses substantial market power in interconnection and local voice services. Adverse determinations could lead to dominant carrier regulations, fines, or restrictions.
• Interconnection Fees: Ongoing disputes with fixed-line operators and regulatory rulings in Mexico and Colombia regarding interconnection rates pose a risk to revenue. In 2008, interconnection rates in Mexico and Colombia are expected to decline by 11% and 50%, respectively.
• Competition: Intense competition in wireless markets, particularly in Brazil and Mexico, continues to pressure prices and increase customer acquisition costs. The introduction of number portability in Mexico (expected Q3 2008) may increase churn.
• Legal Proceedings: Significant litigation includes tax assessments in Ecuador (Conecel) and Brazil (Americel/ATL), as well as a patent infringement case in Brazil regarding caller ID technology (Lune Patent Case) with potential damages estimated at U.S.$270 million.

Important Facts for Investor Verification

• Accounting Standard Transition: Verify the impact of the cessation of inflation accounting in 2008 on future comparability of financial statements, specifically regarding the elimination of monetary gains and changes in depreciation.
• Regulatory Exposure in Mexico: Monitor the outcome of Cofeco's market power investigations and Cofetel's rulings on interconnection fees, as these could materially impact Telcel's revenue model and margins.
• 3G Deployment Costs: Assess the return on investment for the significant capital expenditures allocated to 3G network deployment, which is currently increasing depreciation expenses.
• Debt Profile: Note that approximately 69.3% of total indebtedness is denominated in currencies other than the Mexican peso (primarily U.S. dollars), exposing the company to exchange rate fluctuations.
• Acquisition Integration: Review the integration progress and financial performance of recent major acquisitions (TELPRI, Codetel, Oceanic) to ensure they meet projected synergies.