America Movil To Offer Mobile Roaming To Telefonica Mexico
Zacks Investment Research | Dec 06, 2016 03:17AM ET
Mexican telecom behemoth America Movil SAB (NYSE:AMX) has entered into an agreement with its closest rival Telefonica (MC:TEF) SA (NYSE:T) to offer nationwide mobile roaming service to the latter. Notably, America Movil currently commands more than 66% share of Mexico’s wireless market while Telefonica comes second with over 20% market share.
On Sep 2015, Telefonica announced that its Mexican unit (Movistar) is open to enter into a wireless network sharing agreement with its rival operators. Moreover, Telefonica has decided to access wireless towers of Telesites, which was spun-off by America Movil, in a bid to strengthen its Mexico business.
Importantly, the regulatory body in the country, the Federal Telecommunications Institute, popularly known as IFT, seeks to restrict the maximum hold of a company in the market to 50%. Last year, leading U.S. telecom operator AT&T Inc. (NYSE:T) entered the Mexican telecom industry with the acquisition of Gurpo Iusacell and Nextel de Mexico.
In addition, Mexican cable MSO (multi-service operator) Grupo Televisa S.A. (NYSE:T) has also received a go-ahead from the IFT to foray into the wireless space. However, Grupo Televisa is yet to take any decision in this regard.
Notably, Telefonica did not take part in Mexico’s auction of 80 MHz of spectrum in the AWS band (1.7-2.1 GHz) earlier this year. The driving reason behind Telefonica’s decision to opt out of the auction is Mexican telecom regulator, the IFT’s instruction that these spectrum bands will not be operational for the next two years.
In Dec 2015, the IFT had approved the swapping of frequency blocks and a spectrum rental deal between AT&T and Telefonica valued at $168 million. Per the deal, AT&T will use spectrum in the range of frequencies in the 1.7-2.1 GHz band in some regions, while Telefonica will use frequencies of the 1.9 GHz band.
Mexico is the largest economy in the Latin American region with a growing middle class population that is eager to spend more on high-speed mobile networks for optimal use of smartphones and tablets. Further, the wireless penetration rate is still relatively low in the country. Considering the opportunities, business agreements with formidable rivals like America Movil and AT&T are likely to bode well for Telefonica before the market saturates.
Both America Movil and Telefonica currently carry a Zacks Rank #3 (Hold). You can see .
Price Performance of America Movil and Telefonica
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So far, 2016 remains unimpressive for the Zacks categorized Non-US Wireless Service Provider Industry. Year-to-date, this industry has registered a negative growth of 6.68%. Importantly, both America Movil and Telefonica have performed even worse in the same time frame. Year-to-date, the stock price of America Movil lost 14.72% while Telefonica lost 25.14%.
Nevertheless, Mexico’s telecom industry is currently enjoying a bull run. This sector has witnessed 13.3% growth in revenues year-over-year in the third quarter of 2016. This growth rate is highest among all the other sectors of the economy. Remarkably, the telecom sector’s growth rate is more than six times higher than the 2.04% overall growth rate of Mexico’s GDP in the same time frame.
Moreover, Mexico has been witnessing massive investment in its telecom sector. In Jun 2016, the country’s Secretariat of Communications and Transport (SCT) declared that a total of more than $6.5 billion has been invested in the last three years. Additionally, around $13.5 billion has been invested recently in the telecom sector. Furthermore, the upcoming nationwide shared broadband network will further attract around $7 billion worth of investment.
All these developments will bode well with large incumbent firms like America Movil and Telefonica. We believe this is the primary reason that both stocks are currently carrying a Zacks Rank #3.
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