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Despite facing severe regulatory challenges, America Movil (AMX - Analyst Report) — the largest wireless company in Latin America with over 318 million subscribers across 20 countries — continues to dominate the Mexican wireless market through its largest subsidiary Telcel. The company remains benefited byits well-known brand, extensive distribution network, nationwide coverage and increasing subscriber base.

The company also continues to benefit from the ongoing migration of voice traffic from fixed-lines to wireless and consistent adoption of smartphones that is contributing to revenue growth.

We expect the company to focus more on a strategy of acquisitions in a highly competitive telecom market in order to tap opportunities in wireless services and pay-TV business. The company acquired Pay-TV firm Net Servicos, the largest multi-service cable company in Latin America. In January 2012, the company collaborated with Claxson Interactive Group to acquire DLA Inc. that adds video-on-demand service on cable-TV channels in Latin America.

America Movil also entered into a partnership with AT&T Inc. (T - Analyst Report) in November last year. America Movil uses AT&T's global network infrastructure to provide Internet services worldwide. America Movil’s Tracfone acquired prepaid carrier, Simple Mobile Inc. in June 2012.

Further, the company proposed to increase its minority stake in Koninklijke KPN NV (a Dutch telecom company) to 28% from the existing 4.8% at EUR 8.0 per share worth up to EUR 2.64 billion. The company also assimilated a 22% stake in Telekom Austria AG, intensifying its foray into the European market.

America Movil remains committed to improve its service offerings as it continues to invest aggressively in expanding its cellular networks in Latin America and develop new generation broadband networks, both in fixed and mobile platforms. The company projects approximately $8–$9 billion in spending over the next four years for the expansion of data networks.

Despite the company’s continued earnings growth and accelerated market share gain, we remain concerned about regulatory pressures in Mexico, along with lower interconnection charges that are expected to limit earnings growth. We believe wireless sales in Brazil, the second largest market for the company, are a drag on its profits as competitors reduce prices and the economy slows.

Apart from declining growth rates in the company’s two largest markets, Mexico and Brazil, we believe factors like acquisition expenses, operating costs on network investment, and undisclosed pension costs will also weigh on near-term profitability.

Further, the company faces stiff competition from rivals like Telefonica and Grupo Televisa, S.A.B. (TV - Analyst Report) in Latin America.

Thus, we currently maintain a long-term Neutral recommendation on America Movil. For the short-term (1-3 months) the stock has a Zacks #3 Rank, implying a Hold rating.

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