“Crisis” is an almost foreign word for América Móvil. For the Mexican telecommunications company, 2020 was a good year. It closed businesses, increased its presence in the world, benefited from the ‘new normal’, satisfied the connectivity and entertainment needs of users isolated by Covid-19 and tested its resilience.
Industry experts agree that Carlos Slim’s firm was able to overcome the effects of the pandemic. Although it also had its falls. For example, the 0.7% that it presented in the fixed telephony segment –which includes telephony, broadband and television–, but nothing that really affects its future operation, since in this division it continues to be the market leader in different countries, among them, Mexico.
“América Móvil performed favorably, mainly due to the news of its new business in Brazil, but also because the confinement led users to demand services that the company was offering. The connectivity and entertainment needs increased, and the company stood out in this regard, ”says Alberto Arellano, manager of Telecommunications Research in Mexico at IDC Latin America.
A bump in the road
Slim’s company began the year of the health crisis without setbacks, registering a 1.8% increase in its income in the first quarter, despite the fact that the first signs of economic contraction were already appearing in the markets.
However, for the period from April to June, the firm fell into a slump caused by the confinement measures imposed by the governments of the 25 countries where it operates, generating a slowdown in mobile phone revenues.
“We disconnected five million mobile clients in the second half,” the company reported. Of which, 4.6 million were prepaid, that is, those who pay in advance a certain amount of airtime and then use it within a certain period. This segment, which represents 66% of the company’s total mobile users, had its biggest drop in Mexico, Peru and Ecuador.
Erick de la Cruz, manager of the telecommunications consultancy Select, mentions that prepaid revenues were the ones that suffered the most because there was less consumption due to the confinement. Mobility restrictions prevented people from going out to put a balance on their cell phone. Also, many people stayed connected with Wi-Fi.
“That is why we have had more impact on income, because at the beginning of April and May we had many stores closed and people were not away from home, so it was difficult to sell,” said Daniel Hajj, general director of América Móvil, at the conference. with investors from the second quarter of 2020.
In postpaid services, in which the user receives a monthly account statement from the previous month and represents 34% of the company’s total mobile subscribers, the drop was less: 500,000 disconnected lines. “Here, the situation is that consumers began to reduce their plans, so if they had one for 500 pesos, they wanted to go to one for 400 pesos or reduce their consumption. They are taking care of their money ”, detailed the executive.
Despite this downturn, América Móvil closed 2020 with more than 287 million mobile users, a figure higher than the 278 million achieved at the end of the previous year. In total, mobile services generated revenues of 561,552 million pesos, which is equivalent to 55.5% of the company’s consolidated revenues.
“We knew they were going to recover, but we didn’t expect it to be that fast. It is clear that more and more consumers are returning to purchase mobile plans and that will be benefiting the Mexican company ”, adds Gonzalo Rojón, n, director and senior partner of the consulting firm The CIU.
To the regional conquest
América Móvil’s leadership is not questionable. Globally it is one of the largest operators, while in Latin America it is one of the most important. This was demonstrated when, in the midst of a health crisis that made companies think about their future, it decided to increase its participation in the region by acquiring 32% of Grupo Oi’s mobile customers and 4,700 base stations in Brazil.
This transaction, which is expected to be completed in 2021, is one of the most relevant of the COVID-19 year, according to Valentín Mendoza, deputy director of Stock Analysis at Grupo Financiero Banorte.
In mid-2020, the telecommunications group offered together with Vivo – a subsidiary of Telefónica – and Telecom Italia (TIM) 16.5 billion Brazilian reais (approximately $ 3.2 billion) for the mobile business of the fourth operator in Brazil. In December, the consortium was the winner.
“Brazil is very important for América Móvil, the company boasts of having the best network, speed and coverage in the Rio market. Now, with the purchase of Oi’s mobile business, it will grow considerably. Expectations for the company in that country are positive, ”says the financial analyst.
During 2020, the subsidiary of the Mexican firm in the South American country, Claro, generated revenues of more than 39 billion reais, a figure 1.6% higher than that registered the previous year.
Another of the countries where the telecommunications operator dominates is Colombia. Here, Carlos Slim’s company had revenues of over 13,000 million Colombian pesos, that is, 5.1% more than those achieved in 2019.
In addition, in the first quarter of 2021 the award was taken to the nation with the best financial performance for the Mexican group by reporting an operating flow (Ebitda) 10.3% higher than the previous year. Claro also increased its revenues 9.8% and tripled the number of mobile subscribers between January and March to reach 452,000 prepaid and postpaid users. But not everything here is honey on flakes.
With a marketing strategy based on frontal attack and an aggressive price offer, in November 2020 the new mobile operator Wom announced its arrival in the Colombian market. The arrival of the firm led by British Chris Bannister would have gone unnoticed, but the experience it has had in other markets raised doubts in the Mexican.
Five years ago, Wom landed in Chile in the same way it did in Colombia, and in 2020 it already had almost five million lines, a figure very close to the 6.5 million that the América Móvil subsidiary has. “In Colombia, the competitive climate has increased with the entry of a new operator. Despite this, América Móvil has given good results and continues to be the largest in the market, its growth in net additions proves it ”, mentions Jorge Bravo, president of the Mexican Association for the Right to Information (Amedi).
Reconfigure the business
In the covid-19 pandemic, América Móvil had to forget about some businesses, but always with a focus on profitability. In September 2020 he said goodbye to TracFone in the United States. Verizon was the one that got its subsidiary for 6.250 million dollars. This virtual mobile operator (MVNO), which serves 20.9 million users, is one of the most representative in North America. So why sell it?
“América Móvil will lose a unit that gave it, quarter after quarter, 15% of the consolidated group’s sales and over 5% of Ebitda. But they obtained a payment that is equivalent to 10 years of utility from that business unit ”, calculates Jesús Romo, director of the consulting firm Telconomía.
According to analysts who closely followed the transaction, the 6.250 million dollars that América Móvil received, compared to the 750 million it generated in Ebitda in the last 12 months, implies a valuation of the company on operating cash flow of 8.1 times .
A few days before this announcement, Carlos Slim’s company had suffered a disappointment when it gave up buying 99.3% of Telefónica in El Salvador. Since January 2019, it showed its intention to acquire the local business of the Spanish company, but the Superintendency of Competition of the Central American country refused. Five months later, América Móvil insisted again and once again its proposal was rejected. In both cases the lack of information was the cause of the failure.
But more than a blow to América Móvil, giving up the purchase of Telefónica is nothing more than an opportunity to evaluate the businesses in which it could obtain higher returns, says Juan Sadurní, CEO of the consulting firm Nae in Mexico. “If they decided that it was not convenient to re-evaluate the purchase, it was precisely because they have another plan in hand.”
For Jorge Bravo, the two markets that could generate complications for the company are Colombia and Mexico. The first, because the local government has been making decisions that do not favor the telecommunications industry, in addition to the fact that Claro has been declared the dominant operator in the country, as it prevents investment and competition from being promoted. “This does not allow it to make 5G deployments, for example, something the company has already experienced,” says the president of Amedi.
In Mexico, the story is not very different. Since 2013, when the telecommunications reform came into force, every two years the sector’s regulator, the Federal Telecommunications Institute (IFT), is in charge of reviewing the participation quotas of operators to avoid anti-competitive practices.
In December, the IFT adjusted the asymmetric measures and confirmed that Slim’s company still dominates the market, so it is necessary to stop its dominance. The Mexican group assured that it will challenge this resolution, because “it does not consider the profound changes that have occurred in the telecommunications sector six years after the imposition of asymmetric measures,” according to a bulletin sent to the BMV. The Supreme Court ruled in favor of the regulator.
América Móvil closed 2020 with a 30.8% drop in its annual net profit, to 46,853 million pesos, and a 5% increase in its operating cash flow. Despite the drawbacks, the company is looking to the future. “If they close the door in one place, there will always be another country to settle in,” says Alberto Arellano. “A very promising 2021 is coming,” he adds.
