America Movil Puts European Carriers to Shame
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Popular economist Tyler Cowen points out that Mexico is neither undercapitalized nor as developing as most other Latin countries. Nor is it so lacking in infrastructure that is goes directly and totally for mobile. Although, unlike its fellow North Americans, Mexico cannot afford to be lazy and rest on its fixed lines longer than is reasonable.
America Movil (Claro) (NYSE: AMX) has achieved 70% of the Mexican market because it has had to carry the entire industry itself. Its competitors are the bumbling Three Amigos when it comes to complaining and politically sabotaging AMX. NII Holdings (Nextel) (NASDAQ: NIHD), Telefoncia (Movistar) (NYSE: TEF), and Iusacel – 50% owned by Latin America’s biggest media company Televisa (NYSE: TV), are either out of touch or incompetent when it comes to Mexican telephony. NII (with 4% of the market) isn't pre-paid in a market that is largely uncomfortable or unable to the go the contract route – though most people in the world (developing or developed) are not so keen on the long, indentured servitude demanded by mobile carriers. Iusacell (7%) has gone broke a few times, even when Verizon (NYSE: VZ) owned it, and they still have no cash to expand. Telefonica (19%), despite having global operations with cash that could rival AMX, has chosen to invest exclusively in population centers and is no where to be found in rural Mexico, effectively conceding the heavy-lifting and over a fifth of the population outright to AMX.
As a final piece of the Mexico puzzle that may explain why the OECD is quick to disparage America Movil, is that the OECD was the architect of Mexico’s regulatory framework for the last decade. A framework that has handicapped Mexico with a bureaucracy that even Western nations would have a hard time managing, while at the same time exacerbating the burdens an emerging economy’s less affluent consumers impose.
Yet, the Bank of America-Merrill Lynch Global Wireless Matrix analyses indicate the major European OECD members should be learning from Mexico. As Mexico’s mobile penetration rate has gone from 30% to 90% prices have dropped 80% (and are 43.1% of Mexico’s economic peers), whereas rates in the UK, Spain, and Italy, which were double those of Mexico, only saw material declines after passing a 100% penetration (when the market begins to reach saturation and competition intensifies). In the study, the UK had achieved 128% penetration, Spain 139%, and Italy 157%. Even now the three Europeans’ prices are twice that of Mexico, despite Mexico being far from saturated.
Beyond Mexico, America Movil’s strategy of reaching urban and rural customers (which are usually ignored by their cherry-picking, less sophisticated, under capitalized rivals) brought mobile to people at an impressive rate since entering Latin America’s principal markets. The company embodies the Buffett adage to, “Be fearful when others are greedy and greedy when others are fearful,” and their recent growth in market share since late September 2010 reflects that. In large and complex Brazil, its 20% increase brought it into near market parity (25%) with the two other majors, Telefonica (29%) and Telecom Italia Mobilia (26%) – TIM’s recent Brazilian fraud scandal indicates it misunderstood the translation of Buffett’s “greedy” to mean avaricious rather than bold. In Argentina, its 17% growth has given it the market’s dominate share (35%) and the momentum to likely dominate the country over the next two years. In Colombia, its 21% increase in subscribers resulted in the company solidifying its dominance with 67% of the market – which is particularly promising as Colombia has one of the most aggressive growth economies in the world currently.
America Movil’s success in other markets not undermined by the OECD’s “help” is the best revenge on the OECD study that has maligned and distorted one of the globe’s most dynamic champions for investors, consumers, and economic development.
[continued from America Movil: The Real Social Network]
[continued in Carlos Slim Better Than Buffett: Global Entrepreneur Yes, Local Monopolist Hardly]
Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool has no positions in the stocks mentioned above. 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!