The sharp slump was triggered by new debt America Movil took
on to complete acquisitions as it tries to keep pace with peers
and improve the speed and performance of its networks.

It was the second quarterly fall in net profits in a row for
billionaire Carlos Slim’s flagship company, which has been hurt
by a regulatory clampdown on fees charged to rivals for use of
its network and is also battling a $1 billion fine for abuse of
market power.

America Movil took on more debt in the quarter to finance
its purchase of sister company Telmex and two smaller deals,
which also weighed on quarterly earnings.

It was also hit by an 11 percent fall in the peso against
the dollar in the fourth quarter, compared to the year-earlier
period. About 80 percent of America Movil’s $28.9 billion debt
is in foreign currencies, mostly U.S. dollars, although it earns
more than 1/3 of its revenue in Mexican pesos.

“The results are not favorable for the company’s share price
tomorrow,” said Santander analyst Gregorio Tomassi.

Before the results were released, America Movil shares
closed up 0.13 percent at 15.56 pesos in local trading. The
company’s shares, which make up almost one quarter of Mexico’s
benchmark IPC index, have lost about 10 percent in the last 12
months, partly due to the tougher stance by regulators.

Still, despite the big shortfall for the second consecutive
quarter, other analysts took comfort in the company’s jump in
revenues in the face of renewed concerns over consumer spending
in the region during the quarter.

“In terms of sales, the company is in a good position,” said
Valeria Romo, analyst with brokerage Monex in Mexico City.

Revenue rose 15 percent to 181.963 billion pesos, above
analysts’ expectations of 177 billion pesos.

MOBILE DATA BOOST

The sales increase was mostly powered by a 27 percent jump
in quarterly revenue from mobile data services, as well as a
12.3 percent rise in wireless revenues, the company said.

America Movil, like others in the industry, is trying to
convince customers to trade up, swapping basic phone plans for
mobile data packages as fixed-line business dies away.

The company’s business in Brazil continues to grow and
Mexico remains a solid base of subscribers, but the company will
have to ramp up investment to remain competitive, said Romo.

“The challenges will be to improve (broadband) speeds and
invest in infrastructure, as well as consolidate its position in
Brazil,” she said.

Buying Telmex – which will help America Movil offer better
packages of Internet and mobile services in Mexico – was a
start, but now the company has to show it can squeeze more
profits from its broader network, she said.

America Movil subscriber numbers rose just 304,000 in the
fourth quarter, far below analysts’ estimates of 7.25 million
net new clients.

This was in part because of a change to how subscriber
numbers are calculated to exclude users of prepaid mobiles who
did not spend money on their phones during the period.

America Movil has roughly 80 percent of Mexico’s fixed-line
market and close to that share in cell phones. The Organisation
for Economic Co-operation and Development said in a report last
month that Mexican customers had been overcharged $13.4 billion
a year for phone and Internet services.

The company earned 16.278 billion pesos ($1.165
billion) in the October-December period, down from 25.287
billion pesos in the same quarter of 2010, according to its
statement filed with the stock exchange.

Analysts had expected the company to report a profit of
24.279 billion pesos, according to average results from a
Reuters survey of five analysts.

The company said earnings before interest, taxes,
depreciation and amortization (EBITDA) rose to 65.5 billion
pesos, with a rise in profitability in the Andes making up for a
drop in EBITDA from Mexico and Brazil.

America Movil is seen posting a fourth-quarter
profit increase of just 0.2 percent on Thursday, partly due to
tougher regulation crimping margins.

Shares in the company, which posted a steep earnings decline
in the third quarter, have lost more than 10 percent in the last
12 months as Slim battles a $1 billion fine and lower fees for
allowing competitors to use his vast network.

“The market’s not expecting any surprises (from this report)
precisely because of the lack of aggressiveness that America
Movil has shown lately,” said Julio Zetina, analyst at Vector
Casa de Bolsa in Mexico City.

Analysts often recommend America Movil shares to investors
as a so-called “defensive play” in part because Slim, the
world’s richest man, favors returning cash to shareholders –
after all, his own family is the company’s biggest stakeholder.

The company’s biggest purchase in 2011 was the chunk of
fixed-line operator Telefonos de Mexico (Telmex) that it did not
already own and analysts do not see a large boost to the
bottomline.

“There will be a bit of pressure on margins from the lower
profitability of its Mexico fixed-line business,” said Manuel
Jimenez, analyst at Banorte-Ixe in Mexico City.

STAGNATING GROWTH

Although lower taxes drove Telmex’s net profit up 21 percent
in Q4, the $292 million result was just 17 percent of the profit
analysts expect for America Movil, which operates in 18
countries in the Americas.

Still, Telmex revenue from data services rose 26 percent, a
positive sign that America Movil, the world’s third-largest
cellphone company by subscribers, may be taking advantage of its
Telmex ownership to sell packages bundling Internet and mobile
use to existing customers.

“Those are the challenges: the company needs to migrate a
good quantity of users from just voice packages and increase the
penetration of data services,” said Jimenez.

That will require America Movil to invest in marketing as
well as improving its networks and require Slim to cultivate a
better relationship with Mexican regulators, who last year
crushed his plans to enter the local television market, slapped
America Movil with a record fine and forced the company to slash
the fees charged to telecom rivals.

Acquisitions may also be on the cards in an effort to turn
slowing growth around, said Vector’s Zetina.

While the company controls roughly 80 percent of Mexico’s
fixed-line market, 70 percent of its mobile market and about 25
percent of Brazil’s mobile market, growth has stagnated.

America Movil’s earnings before interest, tax, depreciation
and amortization (EBITDA) margins shrank to 38 percent in Q3,
from more than 40 percent in 2010.

Annual growth in quarterly EBITDA has shrunk from 51 percent
in the first quarter of 2007 to 1 percent in the quarter ending
in September. Net profit over the period went from growth of
52.5 percent to a decline of 21 percent.

“With a falling or flat EBITDA it is difficult to generate
much enthusiasm (for the stock),” said Gregorio Tomassi, analyst
at Santander in Mexico City.