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AT&T Inc. (T), America Movil SAB de CV (ADR) (AMX): America’s Interest

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America Movil SAB de CV (ADR) (NYSE:AMX)The Mexican government is looking to increase the quality of Mexico’s telecom services after an OECD study found that Mexico is the second most expensive nation in Latin America. America Movil SAB de CV (ADR) (NYSE:AMX) owns the old Telmex monopoly and citizens would like to see better service and decreased prices. At the same time, Mexicans are adopting smartphones with a passion. Some arepredictingthat smartphones will have a 70% market share by 2015, about double the estimated penetration of 2013.



Mexico Telephone Lines data by YCharts

The Mexican government recently passed a law that will allow the government to force asset sales on companies with more than 50% market share and allow foreign companies to own 100% of Mexican telecoms.
This makes the nation even more attractive for foreign investors.



AMX Total Return Price data by YCharts

Monopolist

America Movil SAB de CV (ADR) (NYSE:AMX) is stuck in damage control mode. Mexican telecom reform is mainly targeting America Movil SAB de CV (ADR) (NYSE:AMX) as it is the original Telmex monopoly with a different name. At the end of Q1, 2013 it had 54% of the Mexican postpaid wireless market and 72.8% of the prepaid segment. As of 2011, America Movil had 75.3% of the fixed line market. All of these segments are over the 50% mark set in the new law. In addition to these regulatory difficulties in Mexico, Columbia recently limited the company from bidding from some new spectrum. This will hurt the roll out of its new Colombian 4G network.

All of the company’s news is not negative. In Q1, 2013 its wireless base grew 6.9% year over year (yoy). Its current return on investment (ROI) of 20.2% and profit margin of 11.3% are very strong. With expected 2013 earnings per share (EPS) of $1.98, it trades at forward price to earnings (P/E) ratio around 11. This valuation is very low and shows that the market is started to price in decreases in the company’s margins and revenues.

As the telecom reform law is fleshed out and implemented, America Movil’s stock will be very volatile. There is a good chance that all of this volatility will push the stock down to unreasonable levels. It is a good company to keep an eye on. Politics is a messy business. Carlos Slim has a net worth in the billions and a strong vested interest in America Movil SAB de CV (ADR) (NYSE:AMX). It would be unwise to underestimate the ability of America Movil’s billionaire owner to swing events in his favor.

America’s Interest

AT&T Inc. (NYSE:T) has discussed selling its 9.6% stake in America Movil SAB de CV (ADR) (NYSE:AMX) along with a number of cellphone towers. AT&T Inc. (NYSE:T) is enjoying continued growth in the U.S. and plans to focus its attention on its core market and investors.

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