Monday, August 21, 2017

América Móvil sees ARPU rising as 4G smartphones take hold in Latin America

América Móvil, the Mexican telecommunications carrier with interests across Latin America and fourth largest mobile operator worldwide in terms of subscriber count, continues to travel along a familiar path – new subscribers in many markets are harder to find but surging demand for always-connected smartphones presents an opportunity to increase ARPU, which lags the consumer spend of developed markets. Competition across Latin America is fierce as reflected in the high subscriber churn rates.

Carlos Slim Helú (77), who at times has been ranked as the world's richest person but who now holds the No.6 position on the 2017 Forbes Billionaires list ahead of No.7 Larry Ellison but behind No.5 Mark Zuckerberg, still sits on América Móvil's board of directors, but his son Carlos Slim Domit (50) now serves as chairman of the board. In recent years, the company has faced regulatory challenges in its home market, where it continues to hold the leading share, built new bases through its Claro brand throughout Latin America, and completed deep investments in Europe (a 51% stake Telekom Austria and a 21% stake in KPN Netherlands).

In 2013/14, Mexico undertook a structural reform of its telecommunications sector, forcing América Móvil to sell off some or all of its Telmex wired assets in a process that is still underway. Discussions with the Mexican regulatory authority, IFETEL, on the legal separation of Telmex appear to be ongoing. The full effect of this reform perhaps will be felt next year, when a new wholesale, nationwide infrastructure provider known as Red Compartida (shared network) begins commercial 4G service.

In late July, América Móvil published financial results and operational metrics for Q2. These provide insight not only into the company but also the Latin American telecommunications sector in general. Several macroeconomic issues, however, continue to impact the sector, including the tense situation and declining economy in Brasil, and the wildly fluctuating value of the Mexican peso (declining 28% versus the real, 20% versus the Colombian peso, and 8% versus the dollar with respect to the entire year).

Highlights for Q2 2017

Total accesses of 362,593,00 as of June 30, 2017, including 77% wireless, 9.2% fixed line, 7.6% broadband and 6.0% TV, as below (millions):

                                                  2017                                        2016

Wireless subscribers                  280                                          283

Revenue Generating Units         83                                            82

Revenues (US$)                         13.4bn                                    12.9bn

EBITDA (US$)                         3.7bn                                      3.4bn

Capex (US$)                             1.2bn                                      1.8bn

The company reports continued disconnection of prepaid subscribers in many countries, but a 5.1% net increase in postpaid subscribers, with Chile's increasing 17.8%, Brazil’s 10.0%, Colombia's 7.7% and Mexico's 6.4%l. On the fixed-line platform RGUs rose 1.1% from the prior year, with broadband accesses up 5.7% year-on-year after connecting 209,000 new accesses in the quarter, mainly in Central America, Colombia and Brazil. Colombia, Argentina, Chile and Peru were the main forces behind the strong expansion of service revenues.

Outstanding debt declined from MXP 629.7 billion (approx. $35.2 billion) in December to MXP 550.8 billion pesos ($30.8 billion) in June, a 12.5% decrease, reflecting the company’s debt reduction efforts and the appreciation of the Mexican peso versus other currencies in the period. Approximately 21.6% of company revenues are U.S. dollar-based.

ARPU in Mexico was MXP 137 pesos ($7.69), up 7.5% over last year, with churn at 4.1%; ARPU in Chile was CLP 5,826 ($8.96), up 6.9% over last year, with churn of 5.3%; ARPU in Colombia was COP 16,815 ($5.6), up 1.6% over last year, with churn of 4.3%.

Major spectrum acquisition in Mexico

Earlier this year, América Móvil acquired 60 MHz of wireless spectrum in the 2.5 GHz band from Grupo MVS on undisclosed terms. The deal was approved in May 2017 by Mexico's telecom regulator. The 2.5 GHz spectrum gives América Móvil a similar spectrum position as Sprint, which recently published the results of a field trial using massive MIMO with 8T8R (8 transmit, 8 receive) radios in a 20 MHz channel in the 2.5 GHz band. The trial was conducted with Samsung and reportedly delivered peak speeds of 330 Mbit/s. Capacity per channel increased approximately four-fold, cell edge performance increased three times and the overall coverage area expanded compared with current radios. América Móvil may now be looking for a similar outcome for its newly acquired spectrum in Mexico.

Pact with Samsung Electronics

Coincidentally, in July, Samsung Electronics reached a framework agreement with América Móvil to supply 4.5G networking gear in Mexico and other Latin American markets. The deal also covers the development of IoT solutions and the use of Samsung devices such as the Galaxy S7Edge, the Galaxy S8 and the Galaxy S8+.

Massive fine in Colombia

In late July, a Colombian arbitration panel ordered América Móvil's Colombian affiliate, Comunicación Celular (COMCEL, operating under the Claro brand) to pay $1 billion in a dispute over ownership of network architecture. The case dates back to a contract signed in 1994 by COMCEL under which it was bound to return certain infrastructure to the state after a period of ten years. Movistar, the local affiliate of Telefonica, has also been hit with a $529 million fine for the same reason. The operators argue that they have continually upgraded the infrastructure over time and that new contracts and conditions have superseded the outdated agreement. Both carriers are expected to appeal. América Móvil has sought the intervention of the Mexican government, arguing that such a massive fine for such a dubious case will have negative repercussions between the countries.