Brazilian subscriber chase comes at a price for América Móvil

28 Jul 2004

Latin America’s largest wireless operator in terms of subscribers, América Móvil, says that its net income for the second quarter of 2004 fell by 36% year-on-year to MXP3.05 billion (USD270 million) as it slashed prices to win more customers in Brazil – the region’s fastest growing mobile market. Sales in the period climbed sharply to MXP30.56 billion, up 49% from MXP20.55 billion a year ago, buoyed by a rapid expansion in the company’s total subscriber base which stood at over 50 million by the end of June. However, efforts by Carlos Slim, the billionaire founder of the Mexico-based operator, to drive expansion in the region by using América Móvil’s Mexican earnings to fund acquisitions, coupled with the enactment of discount schemes in Brazil, have hit the company’s bottom line. Mobile operators in the country are forecast to collectively add a million subscribers a month over the course of the year, expanding the total number of mobile phone users by 25% in the process. But the pace of expansion is making it impossible for them to keep profits high. In addition, the weakening of the Mexican peso and the Brazilian real against the dollar in the second quarter has also had an adverse impact on profitability, by raising the cost of paying foreign currency debt. In May 2004 América Móvil announced it was entering the Uruguayan mobile market when it purchased a number of cellular licences for USD30 million. A month later it struck a deal to acquire Megatel de Honduras and bought an additional 50% of Empresa Nicaraguense de Telecomunicaciones, both for an undisclosed price.