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America Movil to Merge Operations

Zacks Equity Research

In an attempt to consolidate business, America Movil (AMX) is planning to merge its Brazilian wireless operations that comprise fixed phone business, wireless and cable services. We believe that the combined operations of all these businesses will provide significant cost benefits to the company and strengthen its market position in a competitive business environment.

In Brazil, America Movil controls a significant market share through its three subsidiaries Embratel Participacoes SA, Claro and Net Servicos de Comunicacao SA. While Embratel is a fixed phone company, Claro and Net Servicos incorporate the wireless and cable business, respectively.

In Brazil, America Movil’s business operations have been facing stiff competition alongside regulatory issues. These have dampened the company’s performance in the recent past.

The company’s Brazilian wireless operation, Claro remains challenged by Vivo, a unit of Telefonica (TEF), which is the leading wireless operator in Brazil. Additionally, competition has intensified as Telemar Norte Leste, another major telecom company launched its mobile services in Sao Paulo, Brazil’s largest and most lucrative market. Moreover, Oi’s parent company Telemar Participacoes has acquired a controlling stake (61.2%) in Brasil Telecom, providing the joint entity with a nationwide footprint for wireless.

Despite facing these challenges, we believe America Movil continues to dominate the Latin American telecom market with other large players like Grupo Televisa S.A.  (TV) and NII Holdings Inc. (NIHD). It remains focused on expanding its network capabilities as it aggressively invests in developing cellular networks in the geographical zone. America Movil also focuses on building new generation broadband networks, both in the fixed and mobile platforms. This will require an investment of approximately $8 billion over the next three years, as it will require the expansion of data networks.

America Movil has a Zacks Rank #3, implying a Hold rating.

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