América M

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América Móvil, S.A. de C.V.

Lago Alberto 366
Mexico City, D.F. 11320
Mexico
Telephone: (52) (55) 2581-4411
Fax: (52) (55) 2581-4423
Web site: http://www.americamovil.com.mx

Public Company
Incorporated: 2000
Employees: 23,303
Sales: MXN 182.15 billion ($16.71 billion) (2005)
Stock Exchanges: Mexico City New York NASDAQ
Ticker Symbol: AMXA AMX AMOV
NAIC: 517110 Wired Telecommunications Carrier; 517212 Cellular and Other Wireless Telecommunications; 555112 Offices of Other Holding Companies

América Móvil, S.A. de C.V., is the largest provider of wireless communications services in Latin America, based on equity subscribers (that is, based on the company's economic interest in its subsidiaries' subscribers) and is also the largest fixed-line operator in Central America. A Mexican corporation, América Móvil receives about half of its annual revenues from its activities in Mexico, where it operates under the name Telcel, but it also does business in most other Latin American countries and the United States. Carlos Slim Helú, the richest man in Latin America, and certain members of his immediate family, together hold a majority interest in América Móvil through a holding company, América Telecom, S.A. de C.V., which also holds a controlling interest in Mexico's leading fixed-line telecommunications company, Teléfonos de México, S.A. de C.V. (Telmex). Next to Wal-Mart de México, S.A. de C.V., América Móvil and Telmex are the largest privately held (that is, nongovernment) companies in Mexico, in terms of annual revenue. América Móvil places its subsidiaries under a holding company named Sercotel, S.A. de C.V.

TELCEL BEFORE 2000

América Móvil traces its history, through Telcel, back to the establishment in 1956 of Publicidad Turística, S.A., an affiliate of Telmex—which was then owned by the Mexican government—that published telephone directories. In 1981 the government granted this firm a concession for the installation and operation of a wireless telephone system in Mexico. Publicidad Turística changed its name in 1984 to Radiomóvil Dipsa, S.A. de C.V., and in 1989 this company began operation under the Telcel trademark. Between 1988 and 1990 Telcel expanded its cellular network on its concession, Band B of the frequency spectrum, to cover the Mexico City metropolitan area and the cities of Cuernavaca, Guadalajara, Monterrey, Tijuana, and Toluca, and in 1990, when Telmex was privatized, Telcel began offering cellular services in all regions of Mexico. At the end of 1995 it held 57 percent of the market—a growing market because of frustration with poor service and installation delays by Telmex for fixed-line phones.

Telcel pioneered in the use of prepaid phone cards—called Amigo cards—in 1996 for economically minded customers. Parents, for example, were reluctant to give access to mobile phones to children who could not be trusted to ration the time they spent chatting with their friends. These cards were heavily promoted, even by unorthodox means such as vendors in yellow jumpsuits at major road intersections. Telcel introduced a PCS system in Mexico City in 1999 and later extended this service to all regions of Mexico. At the end of the summer of 2000, it had almost 9 million of the almost 12 million cellular-phone subscribers in Mexico. It was also offering voice and data services.

AMÉRICA MÓVIL: 2000–04

Telmex began acquiring subsidiaries outside Mexico in 1999. By the time, a year later, it announced its intention to spin off América Móvil as an independent company for cellular and broadband Internet services, it was the largest mobile-service provider in Latin America, with about ten million subscribers. In addition to its Mexican base, it had, by the end of 2000, telecommunications interests in Argentina, Brazil, Colombia, Ecuador, Guatemala, Puerto Rico, the United States, and Uruguay. After the spinoff was effected, América Móvil was listed on stock exchanges in Mexico City, Madrid, and New York, but Telmex's holding company, Carso Global Telecom S.A. de C.V., retained majority control. A month earlier, Telmex issued $1 billion in five-year bonds to provide the new company with funds to engage in wireless-license auctions in Brazil, and it did not have to assume any of Telmex's debts.

Although Telmex's Telcel holding formed the base of América Móvil, the new company also had other important holdings, such as 49 percent stakes (later sold) in CompUSA Inc. and the Mexican cable-TV provider Empresas Cablevisión, S.A. de C.V. In addition, it was a partner, along with Bell Canada International Inc. and SBC Communications Inc., in a consortium called Telecom Américas Ltd. This consortium was aimed at developing wireless and broadband operations in South America, and it already owned cellular operations in Brazil and Colombia, broadband wireless services in Venezuela and Argentina, and a Brazilian telephony and broadband-cable unit offering pay television and high-speed Internet access. By June 2002, when Bell Canada International agreed to sell its 39 percent stake in Telecom Américas to América Móvil for possibly as much as $1.9 billion, the consortium was operating four cellular-phone companies in Brazil. (América Móvil also bought SBC's 12 percent stake.) The company won more mobile-phone licenses in Brazil later in 2002, including one covering the coveted metropolitan São Paulo market, making it a formidable rival to European-owned companies in Latin America's most populous country and one underserved in the cellular market, by Mexican standards.

América Móvil's headlong expansion continued unabated into 2003. Unlike its rivals, the company was not interested in just cherry-picking affluent customers. Using its Mexican model, América Móvil was eager to win customers en masse, regardless of how much money they had to spend. Relatively cheap fixed plans offered a given amount of minutes for a given amount of money. When the buyer used up the minutes, the plan automatically converted to an account that allowed further purchase through calling cards. América Móvil also customarily fielded two or three times as many points of sale as its competitors, mostly through third parties. "They believe a bigger net catches more fish," an industry executive explained to Latin Trade. "They want to get as many phones into as many hands as possible, so they make sure the phones are everywhere…. It's simple stuff, and it's ruthlessly executed." América Móvil's expansion also was enhanced by its deep pockets and willingness to buy debt-ridden rivals on the cheap. Then Slim's lieutenants came in to cut costs and make the enterprises profitable, a hallmark of the Mexican tycoon's operations. A big acquisition was the purchase of Brazil's BCP S.A. from Banco Safra S.A. and BellSouth Corporation, for $643 million in cash. This made América Móvil Brazil's second-largest mobile-phone operator.

COMPANY PERSPECTIVES

We intend to capitalize on our position as the leader in wireless telecommunications in Latin America to continue to expand our subscriber base, both by development of our existing businesses and selected strategic acquisitions in the region. We seek to become a leader in each of our markets by providing better coverage and services and benefiting from economies of scale. We closely monitor our costs and expenses, and we will continue to explore alternatives to further improve our operating margins.

Before the year was out, América Móvil had spent about $1.2 billion to purchase wireless companies in Argentina, Colombia, Ecuador, Guatemala, and Nicaragua, as well as Brazil, where, in addition to BCP, it bought BSE S.A. for $185 million. The company paid about $417 million for Compañía de Telecomunicaciones de El Salvador (CTE) and $49.6 million for a 49-percent share of Empresa Nicaragüense de Telecomu-nicaciones, S.A. (Enitel). To raise money for its acquisitions, América Móvil had issued the largest corporate bond ever in Mexico in 2001. It also used derivatives in Mexico to refinance debt from its Latin American subsidiaries. The company had assumed $3 billion in debt to acquire operations in Brazil and Colombia. The business magazine LatinFinance chose América Móvil as its corporation of the year for 2003, citing its "astute acquisitions" and "deft issuance in the local capital markets."

By this time Telcel alone had invested $3 billion to far outstrip the competition in Mexico. Much of this money went to develop GSM, an increasingly popular rival to CDMA, which prevailed in the United States. Created in Europe, where it became the standard, GSM digitalized the signal but was expected to require telecommunications companies to instal more radio bases so that the infrastructure would support the number of simultaneous users. Telcel was also spending money on special corporate platforms such as BlackBerry, services to monitor truck fleets, and integration of e-mail with short messages and specific applications such as access to ERP. The company also was deploying or upgrading GSM networks in nearly all the other countries in which it was operating. By the end of 2004 América Móvil had begun providing many of the voice and data services supported by GSM technology, such as SMS, CSD, high-speed CSD, and GPRS.

América Móvil's rate of growth remained phenomenal in 2004. Its subscriber base grew 34 percent in Brazil, 58 percent in Colombia, 155 percent in Argentina, and 27 percent in Mexico, its most mature market. The company also entered Nicaragua and Honduras for the first time. The value of its stock had more than tripled in two years. At the end of the year, the company had 61.1 million subscribers in 11 countries, of which a substantial majority were prepaid customers. América Móvil also had about 1.9 million fixed lines in El Salvador, Guatemala, and Nicaragua. In Mexico, the company had 28.9 million subscribers. In Brazil, with about 13.7 million subscribers, Telecom Américas (by this time only in Brazil) was operating a network covering the principal cities under the brand name Claro. Other brand names were CTI Móvil in Argentina; Comcel in Colombia; Porta in Ecuador; Personal in El Salvador; and PCS Digital in Guatemala and Nicaragua. The U.S. subsidiary, TracFone Wireless, Inc., was engaged in the sale and distribution of prepaid wireless services and wireless phones throughout the United States, Puerto Rico, and the U.S. Virgin Islands. It had 4.4 million subscribers.

AMÉRICA MÓVIL IN 2005

There was further expansion in 2005. América Móvil agreed, in August, to pay $472 million for Chile's third-largest cell phone company in subscriber terms, Smartcom. It also acquired Telecom Italia Mobile S.p. A.'s Peruvian unit for $503.4 million. América Móvil raised its wireless subscriber base to 93.3 million in 2005, a 53 percent increase over the previous year, and its fixed lines to two million. About 90 percent of its wireless customers were using prepaid-rate plans. The average customer paid $16 a month. Its revenues of MXN 182.15 billion ($16.71 billion) were 31 percent higher than the previous year. Net profit reached MXN 31.64 billion ($2.9 billion), 85 percent higher than in 2004. Net debt ended the year at MXN 55.8 billion ($4.8 billion), MXN 12 billion higher than the previous year. Of the company's 2005 revenues, Mexico accounted for just under half the total. During the year, América Móvil acquired a 20-year license to provide nationwide wireless services in Peru and reached an agreement with Hutchinson Telecommunications International Ltd. to purchase its wireless operations in Paraguay, which were operating under the brand name Porthable.

KEY DATES

1990:: Telcel begins offering wireless telephone service in all of Mexico.
1995:: Telcel has a majority share of the Mexican cellular-phone market.
2000:: Telmex spins off Telcel as América Móvil, for wireless and broadband Internet service.
2003:: América Móvil is the second-largest mobile-phone company in Brazil.
2004:: The value of América Móvil stock has more than tripled in two years.
2005:: América Móvil acquires companies in Chile and Peru; its subscriber base reaches 95 million.
2006:: América Móvil buys stakes in companies in two Latin American countries and Puerto Rico.

América Móvil's weakest link was proving to be Brazil. Counting not only acquisition costs but also fees for wireless licenses and infrastructure investments, the company spent almost $5 billion in 2002–03 to launch Claro. However, Claro slipped to third place among wireless providers in 2005 and lost money, the only unprofitable América Móvil holding that year. Although it was still gaining customers, more than 80 percent were prepaid clients spending an average of less than $10 a month.

América Móvil further raised its dominance in Latin America in 2006. It purchased the Dominican Republic subsidiary of Verizon Communications Inc., which was providing fixed-line, wireless, and Internet service, for $2.06 billion. It also bought Verizon's 52 percent interest in Telecomunicaciones de Puerto Rico, the holding company of the leading telecommunications firm on the island, for $939 million. It also joined with Telmex in acquiring Verizon's 28.5-percent stake in the leading Venezuelan fixed-line and wireless provider, Nacional Telefónos de Venezuela C.A., for $676 million.

As of 2005, América Móvil had a complex capital structure. Some 68 percent of its capital was in the form of L shares, but this class of shares had no voting rights. More than three-fourths of these were American Depositary Receipts traded in the United States, with Brandes Investment Partners, LP, and J.P. Morgan Chase & Co. as the principal owners. Another 30 percent of the capital, constituting 93 percent of the voting shares, were AA shares. Almost 70 percent of these were held by América Telecom, whose voting stock was majority-owned by Carlos Slim and certain members of his immediately family. Most of the rest of the AA shares were owned by SBC International. Slim was the chairman of the board of América Móvil. The chief executive officer was Daniel Hajj Aboumrad.

PRINCIPAL SUBSIDIARIES

AM Latin America LLC (United States); AM Wireless Uruguay, S.A. (Uruguay); AMOV Perú, S.A. (Peru); Compañía de Telecomunicaciones de El Salvador (CTE) (El Salvador; 96%); Comunicación Celular S.A. (Comcel) (Colombia); Consorcio Ecuatoriano de Telecomunicaciones, S.A. (CONECEL) (Ecuador); CTI Holdings, S.A. (Argentina); Empresa Nicaragü1ense de Telecomunicaciones, S.A. (ENITEL) (Nicaragua); Telcel (Radiomóvil Dipsa, S.A. de C.V.) (Mexico); Telecomunicaciones de Guatemala, S.A. (Guatemala); TracFone Wireless, Inc. (United States; 98%).