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Mexico's America Movil Sees 3G Boosting Sales End '08

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MEXICO CITY (Dow Jones) Mexico's America Movil, Latin America's No. 1 mobile operator, expects third generation services such as wireless broadband to start contributing to revenues toward the end of the year, a top executive said Friday.

Daniel Hajj, the company's chief executive, said in a conference call to discuss first-quarter results that third-generation sales should kick in by the end of the year, at the same time deployment costs start to ease.

America Movil launched 3G services during the first-quarter in Mexico, Colombia, Peru, El Salvador, Honduras and Nicaragua, bringing to 14 the number of countries where it operates third-generation, or 3G, networks based on UMTS/HSDPA technology.

3G allows users to access advanced wireless services such as broadband and streaming video.

"We are offering all segment types of handsets so we have high-end, mid-range and low-end handsets. We are not increasing our (handset) subsidies," Hajj said.

The executive declined to disclose capital expenditures for 3G, saying overall capex for the year will probably run at about $3.5 billion, not including payments for wireless licenses in Brazil.

America Movil made capital expenditures for 4.8 billion pesos ($458.3 million) during the quarter.

At around 11:55 a.m. EDT, America Movil's L shares traded on the Mexican Stock Exchange were down 11.8% at MXN29.95 after first-quarter earnings fell well short of expectations.

America Movil said Thursday that its net profit fell 5.5% on the year to MXN13.8 billion or MXN0.40 a share, due to higher financing costs from an accounting change and costs associated with the launch of 3G networks.

Sales grew 20.6% on the year to MXN81.3 billion in the quarter, but margins were pressured by 3G spending.

Earnings before interest, taxes, depreciation and amortization, or Ebitda, a measure of cash flow, increased 17.8% to MXN33.94 billion, while the company's Ebitda margin narrowed to 41.7% from 42.7% a year earlier.

The market had expected net profit of MXN17.02 billion, or MXN0.49 a share, on revenue of MXN84.68 billion and Ebitda margin of 41.9%, according to the median forecast of 11 analysts surveyed by Dow Jones Newswires.

UBS Investment Research in a note Friday morning recommended investors buy America Movil shares due to the temporary impact on margins from 3G, strong free cash flow, and policy of returning excess cash to shareholders.

"We expect America Movil shares to open weak, following a miss on first-quarter earnings, but we think results were better than they appeared, as consensus overlooked key issues. We reiterate our buy rating," UBS said.

America Movil has opted to return increasing amounts of cash to shareholders in recent quarters thanks to limited acquisition opportunities in the region - where it has a presence in nearly every major country - and modest capital expenditure and debt financing needs.

Hajj said the company would continue to return excess cash to shareholders this year, barring an acquisition, through dividends and share buybacks.

America Movil had MXN17.86 billion in cash and securities on its balance sheet at the end of March, after spending MXN6.3 billion in buybacks during the quarter.

America Movil, controlled by Mexican billionaire Carlos Slim, added 5.7 million mobile clients in the quarter, bringing its total wireless subscriber base to 159.2 million in 16 countries at the end of March.

Although Mexico continues to rank as America Movil's largest market in terms of subscribers, 51.5 million, and revenue, its international operations accounted for 67.6% of subscribers and 60.4% of total revenues in the quarter.

In Ecuador, America Movil is negotiating an extension to its concession, which expires in August, with the government. Ecuadorian authorities have threatened to seize America Movil's assets if an agreement cannot be reached.

America Movil's Ecuadorian unit had first-quarter sales of $238 million and 7.2 million subscribers at the end of March.

"In my view the government wants us to stay in Ecuador and develop telecommunications there. I'm very positive we are going to (keep) our concession in Ecuador," Hajj said

Commenting on the U.S. where America Movil has 9.9 million prepaid subscribers, Hajj said the company has no plans at this time to expand its presence in that market through a joint venture or acquisition.

America Movil's Tracfone unit in the U.S. operates as a mobile virtual network operator, or MVNO, which leases spectrum from other carriers.

"We want to maintain our MVNO there at this moment," he said.

-By Ken Parks, Dow Jones Newswires; 52-55-5080-3453; ken.parks@dowjones.com

(END) Dow Jones Newswires

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