It's the newest game in the arcade: Whack-a-Movil! That's right, it's the game where América Móvil (NYSE:AMX) keeps popping up in different places...and gets whacked by the market every time!
América Móvil is headquartered in Mexico, and is controlled by Mexican billionaire Carlos Slim. It's also by far the largest mobile provider in Mexico, with more than 61 million subscribers. By contrast, the No. 2 provider, Spanish company Telefónica (NYSE:TEF), only has about 18.5 million subscribers. So you'd think Mexico would have a soft spot for the telecom giant.
Whack! You'd be wrong.
In fact, the Mexican government changed its constitution in April to allow regulators to crack down on "dominant" companies with more than 50% of market share in their industry. America Movil, with 70% of mobile market share, could be forced to sell assets or submit to increased regulation. As the No. 2 player in this space, Telefónica, stands to benefit big.
América Móvil expanded into Latin America, and has seen a lot of success there. It's the No. 1 mobile provider in countries like Colombia, Ecuador, and Nicaragua, and has a presence in most other Central and South American countries as well.
But in recent years, the Latin American picture has become less rosy for America Movil. Its main rival in this space -- Telefónica again --is besting it in the large South American markets of Brazil, Argentina, Peru, and Chile, and in many of the smaller markets besides. Also, as many people in the region have already acquired cellular service, overall growth in the region has slowed. Whack!
With its prospects for growth in the Americas fading, América Móvil entered the fractured European market in 2012. It took on a lot of debt to finance the purchases of 24% of Telekom Austria and a 30% stake in Dutch provider KPN.
Eager to expand América Móvil's European footprint, Slim offered to buy the rest of KPN outright -- a purchase that would have cemented its position in the lucrative German market, but would have also required racking up even more debt. América Móvil's shareholders weren't too enthused.
Unfortunately for América Móvil, the foundation that oversees KPN wasn't enthused either. It went to the extraordinary measure of issuing itself special shares of stock that gave it 51% control of the company, cutting América Móvil's stake in half. Whack!
On October 16, América Móvil announced it was abandoning the offer for KPN and was considering whether or not to sell its current stake. Last week, it also announced it would not attempt a takeover of Telekom Austria. Double whack!!
And finally, adding insult to injury, expenses related to the debt load from its European obligations nearly halved its overall third-quarter profits, leading to a disappointing earnings report on October 25. Triple whack!!!
Meanwhile, Telefónica is already a big player in Europe and is waiting on regulatory approval to expand its German operations.
After taking a lot of whacks elsewhere in the globe, you might think that Carlos Slim would hunker down for a while and concentrate on his core markets. Not so, according to some recent reports. America Movil may pop up next in India.
As part of its plans to purchase UK-based cellular behemoth Vodafone (NASDAQ:VOD), US-based cellular behemoth AT&T (NYSE:T) is examining what their combined operations might look like. And it doesn't like what it sees in India and Africa.
According to Bloomberg, AT&T is considering selling Vodafone's India and Africa assets in order to concentrate on Europe. The most likely buyers? China Mobile or...América Móvil. However, China and India have had a rocky relationship over the years, so América Móvil may actually have an advantage over China Mobile in securing Vodafone India's 155 million subscribers.
You read that right: 155 million subscribers. América Móvil currently has only 210 million subscribers in North and South America combined! This potential purchase would almost double its operations...but at what cost?
India is a huge market, with more than a dozen cellular providers. Contrast that to the countries of Europe and South/Central America, most of which have four or fewer providers. Obviously, there's a massive market opportunity in India, but there's also massive competition.
Plus, this acquisition would also have to be financed through debt, of course. And América Móvil's shareholders are pretty wary of its debt load already; the stock jumped 4%. Various news outlets have reported between 3.5% and 6%. on the news that its debt-financed bid for KPN was abandoned. Incidentally, I think AT&T's shareholders should likewise be wary of its debt load if it moves to purchase Vodafone.
Which brings me to my next point: All of this is contingent on AT&T's successful purchase of Vodafone, which is looking more and more likely, but as with any purchase involving the government regulators of dozens of countries, will take time.
And it's likely to be an uncomfortable wait for América Móvil shareholders as the stock price continues to hemorrhage and the company continues buying back shares to keep the price afloat. I'd stay out of this one, or the next thing getting Whacked might be your portfolio. Interested in international telecom? Try Telefónica or Vodafone instead.