Regulation worries to overshadow America Movil's weaker profit

Thu Apr 18, 2013 11:14am EDT

By Elinor Comlay
    MEXICO CITY, April 18 (Reuters) - Worries about a regulatory
reform plan that seeks to curb America Movil's  
dominance in Mexico are more likely to weigh on the company's
share price than the weaker quarterly profit it is expected to
report on Thursday.
    Even if Latin America's biggest phone company beats
expectations of a 25 percent drop in first-quarter profit, its
share price, which has sunk almost 17 percent since the start of
the year, will remain under pressure, analysts said.
     Lawmakers in Mexico's upper house are currently discussing
a bill that seeks to dilute the dominance of billionaire Carlos
Slim's America Movil in the mobile and fixed-line markets and
encourage competition.
    "That's definitely a bigger deal than whatever the quarterly
results are going to show," said Imari Love, analyst at
Morningstar in Chicago.America Movil, controlled by Slim, the world's richest man,
has spent more than $1.6 billion this year buying back stock to
support its share price, but it has barely stemmed the slide.
    The value of Slim's stake in America Movil has lost more
than $5 billion as the shares have tumbled 17 percent since the
start of the year, while the Dow Jones Telecommunications Titans
 index is up 5.5 percent.
    Slim's flagship company plans to increase its buyback fund
by 40 billion pesos ($3.27 billion) this year but the level of
uncertainty over the content and implementation of the reform
plan will limit the success of the company's buyback plan,
according to analyst Christopher King at Stifel in Baltimore.
    "There's simply an issue with the overhang that's out
there," said Christopher King, analyst at Stifel in Baltimore.
    It is not just worry over America Movil's future in Mexico,
regulators in Colombia have also recently moved to curb the fees
the company can charge rivals to connect to its network, King
noted.
    America Movil is also facing increased competition in Brazil
that is hurting the company's core profit margin as providers
there fight for customers by offering subsidies for
internet-enabled handsets.
    An additional drag on the company is its investments in
European phone companies Telekom Austria and KPN
, analysts said.
    America Movil last year spent 84.9 billion pesos
accumulating shares in the companies. It holds almost 30 percent
of Dutch company KPN and Telekom Austria.
    Shares in KPN and Telekom Austria are down 26 percent and 13
percent this year.
    "They spent a lot of money in Europe with these minority
investments that I don't think they've done a good job of
explaining," said King.
    "I think there's a general sense they would have been far
better off using that cash to buy back stock as well."