(Recasts with regulatory background)
By Christine Murray
MEXICO CITY, July 21 Carlos Slim's America
Movil, Latin America's biggest telecoms company, said on Monday
that new regulation in its core Mexico market was beginning to
weigh on its performance.
Lower exchange rate and financing costs helped the company
increase its profit by 32.7 percent to 18.83
billion pesos ($1.45 billion) in the second quarter. Revenue
also rose 4 percent to 202.63 billion pesos.
But the results were below expectations forecast in a
Reuters poll of five analysts of a net profit of 20.74 billion
pesos ($1.6 billion).
In Mexico, where the company makes almost two-thirds of its
core profit, tough new regulations that force it to share
infrastructure, stop national roaming charges and slash what it
charges competitors to use its network, began to take effect.
Mobile voice revenues in Mexico were down 8.7 percent year-
on-year due to the new rules, the company said, though data
revenue growth on mobile and fixed-line slightly outweighed the
fall in fixed-line and voice revenue.
The telecoms sector overhaul was initiated by President
Enrique Pena Nieto to drive competition in the sector where Slim
controls around 70 percent of the mobile market and more than 60
percent of landlines.
Earlier this month, as the new regulations were being
finalized, America Movil surprised the market by saying it aimed
to avoid the new rules by selling a chunk of Mexico assets to a
new, probably foreign, competitor.
It aims to drop below 50 percent market share in Mexican
telecoms by selling an attractive cross section of the company,
Slim told Reuters in an interview this month.
Slim must now present a plan to the new regulator the
Federal Telecommunications Institute (IFT) which, if accepted
and executed successfully, will allow Slim to avoid the tough
antitrust rules and entry into Mexico's pay TV market.
Since the announcement on July 8, shares in America Movil
have jumped 12 percent, increasing the company's market value by
more than $8 billion and, according to Forbes, making Carlos
Slim the world's richest man once again.
But after the share price rally, Morgan Stanley analysts
said in a note published early on Monday that it thought the
market was "overly optimistic" about the potential sale and it
struggled to see how it could unlock value for the company.
"It's going to be a very flat year with the impact of the
tariffs," Monex brokerage analyst Valeria Romo said. "We're not
going to see the asset sale from one day to the next."
Some investors have hoped other markets, such as Brazil,
where America Movil has around 25 percent of the wireless market
and 54 percent of pay TV, can offset some of the regulatory
pressure in Mexico.
Brazil earnings before interest, tax, depreciation and
amortization (EBITDA) rose 18.9 percent in the second quarter.
It also added half a million new pay TV subscribers.
In Europe, America Movil is still saddled with a
multimililon dollar paper loss after it tried and failed to take
control of former state-owned Dutch telecoms firm KPN.
It the statement on Monday, America Movil said it had
reduced its stake in KPN to 22.6 percent, from 25.7 percent in
The company also said it now owned 50.8 percent of Telekom
Austria after a $1 billion buyout offer to minority
shareholders. It plans to use the former state monopoly as a
basis for expansion into Eastern Europe.
($1 at end of June = 12.9865 pesos)
(Additional reporting by Gabriel Stargardter and Joanna
Zuckerman Bernstein in Mexico City and Brad Haynes in Brasilia;
Editing by Simon Gardner and Lisa Shumaker)