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America Movil faces challenges as Latin America's telecoms sector evolves

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The evolving environment for Latin American telecom companies is straining America Movil's business model, says Moody's Investors Service. While cutting debt and reducing capital spending will help offset pressure on its credit profile, intense competition and slower industry growth are a threat.

Latin American telecom companies are adjusting to a landscape of more competitive pricing, as consumer habits shift and technology develops. America Movil is also facing some incremental challenges because regulators consider it to be a dominant company in two of its key markets - Mexico and Colombia.

America Movil's adjusted EBITDA margins declined to around 33% in 2015 from over 40% in 2010, reflecting the same trend that most Latin American telecom operators are experiencing.

Demand for highly-profitable voice services is declining and consumers want more of lower-margin services such as cable TV and broadband instead.

"The weaker economic environment in Latin America, coupled with changes in the telecom industry, have curbed the growth prospects for the sector," said Nymia Almeida, a Vice President and Senior Credit Officer at Moody's. "However, America Movil still generates a lot of cash, providing it with the flexibility to reduce its debt."

America Movil's competitive position in Mexico will likely weaken slightly through at least mid-2018, as smaller operators gain market share. Nonetheless, the company will use its strong position to continue to compete effectively.

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Tags: america movil  Mexico