America Movil Falls as Smartphone Discounts Crimp Profits

America Movil SAB, the mobile-phone company controlled by billionaire Carlos Slim, dropped in Mexico trading after smartphone discounts contributed to a 17 percent decline in first-quarter profit.

The shares fell 0.4 percent to 12.44 pesos at the close in Mexico City. They have slid 17 percent this year, compared with a 2.1 percent decrease for the benchmark IPC index.

America Movil, which offers service in 17 Latin American countries and the U.S., is cutting prices for devices that can access the Web to encourage more users to sign up for long-term contracts with data plans. The company added 1.4 million wireless subscribers in the quarter for a total of 263 million.

“Smartphones are reducing prices, but on the other side, new, good smartphones are in the high level of prices,” Chief Executive Officer Daniel Hajj said today on a conference call. “You are going to see a lot more smartphones.”

Net income fell to 26.9 billion pesos ($2.2 billion), or 36 centavos a share, from 32.5 billion pesos a year earlier, Mexico City-based America Movil said yesterday in a statement. Sales were little changed at 193 billion pesos, compared with the 194 billion-peso average of 10 analysts’ estimates compiled by Bloomberg.

“AMX reported an uninspiring quarter,” Andre Baggio, an analyst at JPMorgan Chase & Co., said today in a note to clients, referring to the company by its ticker symbol. He said he continues to rate America Movil neutral, in part because of “unappealing growth rates” and concerns that regulations will tighten.

Colombia Disconnections

The increase in customers came even after America Movil disconnected 2.7 million mobile-phone customers in Colombia as part of a change in its reporting policy. It added 1.1 million wireless clients in Brazil and 854,000 in Mexico.

Those new subscribers were costly. The company said its profit margin in Brazil fell to 24.6 percent from 26.1 percent a year earlier, with half of the decline related to expenses to attract new users -- including discounts on smartphones.

In the U.S., where America Movil is the biggest prepaid wireless company, those expenses reduced profit margins to 4.5 percent from 12.9 percent a year earlier. The promotional prices did result in a sharp jump in sales in the U.S., up 40 percent to $1.5 billion.

Subscriptions across Latin America for cable and satellite television services, another business the company is tapping for growth, increased by 753,000 to 17.2 million.

The Mexican peso’s gains in the quarter hurt results, since most of America Movil’s revenue comes from outside its home country and must be translated to its local currency. The peso gained 4.2 percent against the dollar last quarter, the best among Latin America’s most important economies.

Currency Effects

Leaving out currency fluctuations, revenue would have increased 6.1 percent from a year earlier, and profit would have fallen 1.4 percent, leaving out interest, tax, depreciation and amortization, America Movil said.

Including currency changes, the profit measure, known as Ebitda, fell 6.8 percent to 63.8 billion pesos. That missed the 64.4 billion pesos estimated by analysts.

In Mexico, America Movil’s biggest market, the company is facing tougher regulation under a bill working its way through Congress. The proposal would force the company to share parts of its network with competitors; undergo more scrutiny of its prices; and sell assets if it is deemed too large. The Senate approved a version of the bill today and sent it back to the lower house of Congress for review.

Secondary Rules

America Movil is waiting to see how regulators interpret the law, since “secondary” rules such as definitions of market share will ultimately determine how the company is affected.

“It looks like we’re going to be a dominant player” under the new law, Hajj said today. “Lots of companies in the world are dominant, so let’s see what are going to be those secondary laws.”

America Movil has 70 percent of Mexico’s mobile-phone lines and about 80 percent of its landlines.

Average monthly wireless revenue per user in Mexico fell 6.3 percent to 166 pesos. The company has been offering promotions with extra minutes and free calling as competition increases. While the revenue figure dropped, sales growth in Mexico improved in March, a trend that will probably continue in the second quarter, Hajj said.

He also said he was “much more comfortable” with the performance of the Brazil unit, which has reduced customer turnover and added more users on long-term contracts after losing market share in Latin America’s largest economy.