America Movil: The Future King of the Telecommunications Hill

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Advances in telecommunications delivered by America Movil (NYSE: AMX) have been a major factor in dragging Peru into the ranks of one of the hottest emerging economies this decade.  Colombians and Puerto Ricans can tell similar stories, and successes in troubled areas like Argentina and Ecuador paint a dynamic picture – especially when set against alternatives in Central America or the parts of the Caribbean still lacking an America Movil subsidiary.

As a further nail in the coffin of the OECD’s “erroneous assessment” (as one MIT scholar characterized it) that America Movil was anti-competitive and a monopoly, a close examination of its operations in the Caribbean Basin and the Andean markets shows it to be both highly competitive and far more effective and popular than the local government alternatives, especially in the poorer Latin American countries. 

Data from the independent International Telecommunications Union indicates that markets in which America Movil is active experience faster subscriber growth than similar Latin markets which lack its presence.  Also, in most cases the poorer countries which begin less developed in terms of mobile penetration have gradually outpaced their America Movil-less neighbors in telecommunications development – and this is even excluding the failed state of Haiti and the state of failure that is Cuba which has a unique regulatory environment (as most prisons do).

Up until 2004, non-AMX Andeans (Venezuela and Bolivia which are coincidentally at the high and low end of the region’s economic spectrum) had better penetration (26.1% to 22.1%).  However, as of 2011, it had reversed and the AMX nations (Colombia, Ecuador, and Peru) had not only wider penetration (104.5% to 90.3%) but also higher quality coverage and lower rates.

The Caribbean Basin contrasts have been even more stark, and particularly satisfying for America Movil fans as it has shown the company capable of applying its success in the lower socio-economic segments in Mexico to even more impoverished portions of the wider region.  Initially the seven Caribbean Basin countries American Movil became active in, averaged 13.2% lower mobile penetration rates than the Caribbean Basin average, now they are 15.5% higher than the average.  Moreover, the fourteen other Caribbean Basin countries saw only anemic growth in their subscriber bases (even though they continue to be far from saturated markets) and went from being 6.6% above average to 12.6% below the regional average.

In Ecuador (where America Movil is known as Claro), Claro’s success is a direct refutation of the politically-motivated OECD report that recommended government cartels take over national telecommunications infrastructure.  Even though Ecuador’s president, Rafael Correa, has been a strident and vocal supporter of government control over everything, even his administration has conceded that private carriers are serving the country just fine.  In fact, when asked about the government carrier, Alegro (which accounts for less than 1% of Ecuadorean subscribers), locals either make faces, laugh hysterically, or shrug their shoulders because they’ve never heard of it.  Meanwhile, though Claro has achieved 70% of the market, it is perceived as having higher prices (though better quality) than the other competitor Movistar – Spain’s Telefonica (NYSE: TEF).  As a result, Movistar has been able to spend the year extending its subscriber base beyond Quito and is becoming competitive in the coastal cities and the affluent areas of the south around Cuenca which were once Claro strongholds – so much so that it was even difficult to find places to top up for Movistar customers when they vacationed in one of the country’s beach towns.

Similarly, Sandinista (yes, those retro-80s communists) gave up trying to implement a state telecommunications program (even though they haven’t been deterred in hollowing out other institutions and economic sectors with their brand of socialism since returning to power).  Claro currently holds 65% of the Nicaraguan market, Movistar the remainder.  At the other end of the spectrum (in so many ways), is neighboring Costa Rica.  Since it began privatizing its mobile market a year ago, both Claro and Movistar have each achieved 14% of the market as a steady stream of customers have not only left state-mismanaged Otros, but it appears that subscriber data from the independent International Telecommunications Union indicates that Otros has failed to gain any new ones.

Jamaicans have been lamenting the loss of Claro all year as private Irish-owned, Bermuda-incorporated Digicel has been heavily discriminating against the 20% that still holds on to the island’s number two mobile provider LIME – a subsidiary of C&W Communications (LSE: CWC).  Meanwhile, Claro’s swap for Digicel’s holdings in El Salvador and Honduras has turned what could have been losses in Jamaica into likely gains in Central America. 

In Honduras, the government carrier, Hondutel, has been reduced to 1% as Claro’s entry into the market is part of a Latin America-wide effort to erode Millicom’s (Tigo) (NASDAQOTH: MIICF) hold on the most emerging parts of the hemisphere.  Millicom used to rely on being the only carrier in rougher parts of the region (ranging from El Salvador to Paraguay), but Claro and Movistar’s new ventures offer increasingly better price, quality, and service in every one of Millicom’s markets.  Moreover, while it is attempting to enter the more sophisticated segments of the telecommunications market with its recent acquisition of Cablevision Paraguay, it lags far behind Claro and Movistar in executing and maintaining broadband and next generation telecom activities. 

While India’s Bharti Airtel and China Mobile (NYSE: CHL) may have more subscribers than Mexico-based America Movil, they are primarily or exclusively domestic concerns.  Further handicapping China Mobile is the 75% stake the People’s Republic has directly in the company.  Chinese state-owned enterprises have not done well in competitive situations outside their home market and America Movil’s track record of slaying government-linked enterprises wherever they have encountered them in Latin America bode well for its eventual bid for king of the global telecommunications hill.

[continued from Beware of Bureaucrats Bearing Reports – Debunking the OECD’s Bunk]
[continued in America Movil: The Real Social Network]


Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication.  The Motley Fool owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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