Company Quick10K Filing
America Movil
20-F 2019-12-31 Filed 2020-04-30
20-F 2018-12-31 Filed 2019-04-12
20-F 2017-12-31 Filed 2018-04-26
20-F 2016-12-31 Filed 2017-04-24
20-F 2015-12-31 Filed 2016-04-26
20-F 2014-12-31 Filed 2015-05-01
20-F 2013-12-31 Filed 2014-04-30
20-F 2012-12-31 Filed 2013-04-30
20-F 2011-12-31 Filed 2012-04-30
20-F 2010-12-31 Filed 2011-05-13
20-F 2009-12-31 Filed 2010-05-25

AMX 20F Annual Report

Item 17 ☐ Item 18 ☐
Part I Information on The Company Your Emotions
Part II Operating and Financial Review and Prospects Your Business
Part III Risk Factors You Can Trust
Part IV Share Ownership and Trading for Your Growth
Note 6 To Our Audited Consolidated Financial Statements Included in This Annual Report Provides Additional Information About Our Related Party Transactions.
Part V Corporate Governance
Part Vi: Regulation
Part VII Additional Information Development
Part VIII Consolidated Financial Statements
EX-2.1 d846131dex21.htm
EX-8.1 d846131dex81.htm
EX-12.1 d846131dex121.htm
EX-12.2 d846131dex122.htm
EX-13.1 d846131dex131.htm
EX-15.2 d846131dex152.htm

America Movil Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F 1 d846131d20f.htm FORM 20-F Form 20-F
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As filed with the Securities and Exchange Commission on April 29, 2020

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

Annual Report Pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934

for the fiscal year ended December 31, 2019

Commission file number: 1-16269

AMÉRICA MÓVIL, S.A.B. DE C.V.

(exact name of registrant as specified in its charter)

America Mobile

(translation of registrant’s name into English)

United Mexican States

(jurisdiction of incorporation)

Lago Zurich 245, Plaza Carso / Edificio Telcel

Colonia Ampliación Granada, Miguel Hidalgo

11529 Mexico City, Mexico

(address of principal executive offices)

Daniela Lecuona Torras

Lago Zurich 245, Plaza Carso / Edificio Telcel, Piso 16

Colonia Ampliación Granada, Miguel Hidalgo

11529 Mexico City,

Telephone: (5255) 2581-3700 / Facsimile: (5255) 2581-4422

E-mail: daniela.lecuona@americamovil.com

(name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:    Trading symbol    Name of each exchange on which registered:
A Shares, without par value    AMOV    New York Stock Exchange
L Shares, without par value    AMX    New York Stock Exchange
3.125% Senior Notes Due 2022    AMX22    New York Stock Exchange
3.625% Senior Notes Due 2029    AMX29    New York Stock Exchange
6.375% Notes Due 2035    AMX35    New York Stock Exchange
6.125% Notes Due 2037    AMX37    New York Stock Exchange
6.125% Senior Notes Due 2040    AMX40    New York Stock Exchange
4.375% Senior Notes Due 2042    AMX42    New York Stock Exchange
4.375% Senior Notes Due 2049    AMX49    New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the registrant’s classes of capital or common stock as of December 31, 2019:

 

20,602 million    AA Shares
531 million       A Shares
44,872 million       L Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes              No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.       Yes              No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.       Yes              No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes              No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      Accelerated filer      Non-accelerated filer      Emerging growth company    

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP        International Financial Reporting Standards as issued by the International Accounting Standards Board        Other    

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17         Item 18    

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes              No


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TABLE OF CONTENTS         

 

 

(See Form 20-F Cross Reference Guide on page 111)

 

Selected Financial Data

     2  
PART I: INFORMATION ON THE COMPANY      5  

About América Móvil

     6  

Our Networks

     14  

Our Competitors

     16  

Acquisitions, Other Investments and Divestitures

     16  

Marketing, Sales and Distribution, Customer Services

     17  
PART II: OPERATING AND FINANCIAL REVIEW AND PROSPECTS      19  

Overview

     20  

Results of Operations

     22  

Liquidity and Capital Resources

     36  

Critical Accounting Policies and Estimates

     42  
PART III: RISK FACTORS      45  
PART IV: SHARE OWNERSHIP AND TRADING      59  

Major Shareholders

     60  

Related Party Transactions

     61  

Dividends

     62  

Trading Markets

     62  

Bylaws

     62  

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     63  

Taxation of Shares and ADSs

     64  
PART V: CORPORATE GOVERNANCE      69  

Management

     70  

Corporate Governance

     79  

Controls and Procedures

     82  

Code of Ethics

     85  

Corporate Sustainability Report

     85  
PART VI: REGULATION      88  

Regulation

     89  
PART VII: ADDITIONAL INFORMATION      106  

Employees

     107  

Legal Proceedings

     107  

Principal Accountant Fees and Services

     108  

Additional Information

     109  

Forward-Looking Statements

     110  

Form 20-F Cross Reference Guide

     111  

Signatures

     114  
PART VIII: CONSOLIDATED FINANCIAL STATEMENTS   


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SELECTED FINANCIAL DATA

 

We prepared our audited consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements.

We present our consolidated financial statements in Mexican pesos. This annual report contains translations of various peso amounts into U.S. dollars at specified rates solely for your convenience. You should not construe these translations as representations that the peso amounts actually represent the U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, we have translated U.S. dollar amounts from pesos at the exchange rate of Ps.18.8452 to U.S.$1.00, which was the rate reported by Banco de México on December 30, 2019, as published in the Official Gazette of the Federation (Diario Oficial de la Federación, or “Official Gazette”).

We have not included earnings or dividends on a per American Depositary Share (“ADS”) basis. Each L Share ADS represents 20 L Shares and each A Share ADS represents 20 A Shares.

 

 

 

 

 

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FOR THE YEAR ENDED DECEMBER 31,

 

 

 
   

 

2015

   

 

2016

   

 

2017

   

 

2018

   

 

2019

   

 

2019

 
    

 

(in millions of Mexican pesos, except share and per share amounts)

 

   

 

(in millions of

U.S. dollars,
except share
and per share

amounts)

 
 
STATEMENT OF COMPREHENSIVE INCOME DATA:

 

             
Operating revenues   Ps.         893,738     Ps.         975,412     Ps. 1,021,634     Ps. 1,038,208     Ps. 1,007,348     U.S.$       53,454  
             
Operating costs and expenses     752,325       865,802               921,490               898,651               852,507       45,237  
             
Depreciation and amortization     125,715       148,526       160,175       155,713       158,915       8,433  
             
Operating income     141,413       109,610       100,144       139,557       154,841       8,217  
             
Net profit for the year   Ps. 36,961     Ps. 12,079     Ps. 32,155     Ps. 54,517     Ps. 70,313     U.S.$ 3,731  
 
NET PROFIT ATTRIBUTABLE FOR THE YEAR TO:

 

             
Equity holders of the parent   Ps. 35,055     Ps. 8,650     Ps. 29,326     Ps. 52,566     Ps. 67,731     U.S.$ 3,594  
             
Non-controlling interests     1,906       3,429       2,829       1,951       2,582       137  
             
Net profit for the year   Ps. 36,961     Ps. 12,079     Ps. 32,155     Ps. 54,517     Ps. 70,313     U.S.$ 3,731  
 
EARNINGS PER SHARE:

 

             
Basic   Ps. 0.52     Ps. 0.13     Ps. 0.44     Ps. 0.79     Ps. 1.03     U.S.$ 0.05  
             
Diluted   Ps. 0.52     Ps. 0.13     Ps. 0.44     Ps. 0.79     Ps. 1.03     U.S.$ 0.05  
             
Dividends declared per share (1)   Ps. 0.26     Ps. 0.28     Ps. 0.30     Ps. 0.32     Ps. 0.35     U.S.$ 0.02  
 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (MILLIONS):

 

             
Basic     66,869       65,693       65,909       66,055       66,016      

 

 

 

 

 

             
Diluted     66,869       65,693       65,909       66,055       66,016      

 

 

 

 

 

 
BALANCE SHEET DATA:

 

             
Property, plant and equipment, net   Ps. 573,529     Ps. 701,190     Ps. 676,343     Ps. 640,001     Ps. 639,343     U.S.$ 33,926  
             
Right of use assets                             118,003       6,262  
             
Total assets     1,296,487       1,515,042       1,486,212       1,429,223       1,531,934       81,291  
             
Short-term debt and current portion of long-term debt     119,590       82,607       51,746       96,230       129,172       6,854  
             
Short-term lease debt    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    25,895       1,374  
             
Long-term debt     563,627       625,194       646,139       542,692       495,082       26,271  
             
Long-term lease debt    

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

    94,702       5,025  
             
Capital stock     96,338       96,338       96,339       96,338       96,338       5,112  
             
Total equity     160,854       271,024       260,634       245,872       226,907       12,042  
 
NUMBER OF OUTSTANDING SHARES (MILLIONS):

 

             
AA Shares     23,384       20,635       20,602       20,602       20,602      

 

 

 

 

 

             
A Shares     625       592       567       546       531      

 

 

 

 

 

             
L Shares     41,990       44,571       44,901       44,887       44,872    

 

 

 

 

 

(1) Figures for each year provided represent the annual dividend declared at the general shareholders’ meeting that year. For information on dividends paid per share translated into U.S. dollars, see “Share Ownership and Trading—Dividends” under Part IV of this annual report.

 

  

 

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The Network of


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PART I INFORMATION ON THE COMPANY your Emotions


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About America Movil

 

HISTORY AND CORPORATE INFORMATION

América Móvil, S.A.B. de C.V. (“América Móvil,” “we” or the “Company”) is a sociedad anónima bursátil de capital variable organized under the laws of Mexico.

We were established in September 2000 when Teléfonos de México, S.A.B. de C.V. (“Telmex”), a fixed-line Mexican telecommunications operator privatized in 1990, spun off to us its wireless operations in Mexico and other countries. We have made significant acquisitions throughout Latin America, the United States, the Caribbean and Europe, and we have also expanded our businesses organically. In 2010, we acquired control of Telmex and Telmex Internacional, S.A.B. de C.V. (“Telmex Internacional”) in a series of public tender offers.

Our principal executive offices are located at Lago Zurich 245, Plaza Carso / Edificio Telcel, Colonia Ampliación Granada, Miguel Hidalgo, 11529, Mexico City, Mexico. Our telephone number at this location is (5255) 2581-3700.

BUSINESS OVERVIEW

We provide telecommunications services in 25 countries. We are a leading telecommunications services provider in Latin America, ranking first in wireless, fixed-line, broadband and Pay TV services based on the number of revenue generating units (“RGUs”).

Our largest operations are in Mexico and Brazil, which together account for over half of our total RGUs and where we have the largest market share based on RGUs. We also have operations in 16 other countries in the Americas and seven countries in Central and Eastern Europe as of December 31, 2019. For a list of our principal subsidiaries, see note 2 a(ii) to our audited consolidated financial statements and “Additional Information—Exhibit 8.1” under Part VII of this annual report.

We intend to build on our position as leaders in integrated telecommunications services in Latin America and the Caribbean, and to grow in other parts of the world by continuing to expand our subscriber base through the development of our existing businesses and strategic acquisitions when opportunities arise. We have developed world-class integrated telecommunications platforms to offer our customers new services and enhanced communications solutions with higher data speed transmissions at lower prices. We continue investing in our networks to increase coverage and implement new technologies to optimize our network capabilities. See “Operating and Financial Review and Prospects—Overview” under Part II of this annual report for a discussion on the seasonality of our business.

RECENT DEVELOPMENTS

COVID-19

The unprecedented health crisis arising from the spread of the Coronavirus will result in a severe global economic downturn that will impact most countries substantially, according to the forecasts of various international banks and multilateral institutions. There is no clarity as to its overall duration and magnitude or its impact in the countries where we operate. The financial resilience of our company, and its vast and critical infrastructure after a long period of heavy investment, are important assets in these times.

It has become increasingly evident that telecommunication services are critical for companies, families and individuals alike. At América Móvil we have been fully committed to ensuring the continuity of our top-quality services, while prioritizing the health and well-being of our customers and employees. We have adapted our processes and commercial plans to accommodate the needs of our subscribers, and we have actively supported all government measures related to our industry.

The impact of the pandemic on our financial performance through the first quarter of 2020 was limited. We entered this COVID-19 crisis with a solid balance sheet after a long period of deleveraging and remain committed to maintaining a low leverage ratio. We have drawn our committed credit facilities to ensure that we can continue to service our debt and preserve optimal liquidity for the foreseeable future. As for our cash flow and profitability, we aim to protect them by adjusting our operating expenditures, capital expenditures and working capital as needed.

The nature of the crisis, the public health measures to contain it, and the economic impact are all developing rapidly, and they vary among the different jurisdictions where we operate. The effects on our business and our financial performance remain highly uncertain.

Credit Facility Draw

On March 25, 2020, we drew the full amount of our U.S.$2.5 billion Dollar facility and our U.S.$2.0 billion Euro facility. We elected to draw on the facilities to assure liquidity and maximize flexibility in light of the current uncertainty surrounding the impact of COVID-19. See “Liquidity and Capital Resources—Borrowings” under Part II of this annual report.

Tender Offer of Exchangeable Bonds

On April 9, 2020, América Móvil announced a tender offer to purchase in cash its Zero Coupon Exchangeable Bonds due on May 28, 2020. The tender offer finalized on April 17, 2020 and resulted with the Company purchasing 1,318,200,000 of the principal amount of the Exchangeable Bond. Aggregate principal amount of 1,607,300,000 of the Exchangeable Bonds remains outstanding.

 

 

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About América Móvil MEXICO TELCEL TELMEX Licensed Population 127 Wireless Subscribers 76,918 Revenue Generating Units (RGUs) 21,992 Wireless Penetration 98% Wireless and fixed operations UNITED STATES TRACFONE Licensed Population 338 Wireless Subscribers 20,876 Revenue Generating Units (RGUs) - Wireless Penetration 132% Wireless operation ECUADOR CLARO Licensed Population 17 Wireless Subscribers 8,493 Revenue Generating Units (RGUs) 446 Wireless Penetration 92% Wireless and fixed operations PERU CLARO Licensed Population 33 Wireless Subscribers 11,611 Revenue Generating Units (RGUs) 1,603 Wireless Penetration 118% Wireless and fixed operations CHILE CLARO Licensed Population 19 Wireless Subscribers 6,873 Revenue Generating Units (RGUs) 1,400 Wireless Penetration 151% Wireless and fixed operation


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The following map illustrates the geographic diversity of our operations and certain key performance indicators (KPIs) as of December 31, 2019. AUSTRIA & EASTERN EUROPE A1 Licensed Population 41 Wireless Subscribers 21,296 Revenue Generating Units (RGUs) 6,143 Wireless Penetration 139% Austria, Belarus, Bulgaria, Croatia, Serbia, Slovenia and Macedonia / Wireless operation Austria, Belarus, Bulgaria, Croatia, Slovenia and Macedonia / Fixed operations CENTRAL AMERICA & CARIBBEAN CLARO Licensed Population 64 Wireless Subscribers 21,733 Revenue Generating Units (RGUs) 9,623 Wireless Penetration 102% Wireless and fixed operations COLOMBIA CLARO Licensed Population 51 Wireless Subscribers 31,104 Revenue Generating Units (RGUs) 7,613 Wireless Penetration 122% Wireless and fixed operations BRAZIL CLARO Licensed Population 211 Wireless Subscribers 54,488 Revenue Generating Units (RGUs) 34,048 Wireless Penetration 106% Wireless and fixed operations ARGENTINA, PARAGUAY & URUGUAY CLARO Licensed Population 56 Wireless Subscribers 24,634 Revenue Generating Units (RGUs) 1,114 Wireless Penetration 126% Argentina, Paraguay y Uruguay / Wireless operation Argentina and Paraguay / Fixed operations Licensed Population in millions Wireless Subscribers and Revenue Generating Units in thousands


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About America Movil

 

KEY PERFORMANCE INDICATORS

We have identified certain KPIs that help measure the performance of our operations. The table of our KPIs below includes the number of our wireless subscribers and our fixed RGUs, which together make up the total RGUs, in the countries where we operate. Wireless subscribers consist of the number of prepaid and postpaid subscribers to our wireless services. Fixed RGUs consist of fixed voice, fixed data and Pay TV units (which include customers of our Pay TV services and, separately, of certain other digital services). The figures below reflect total wireless subscribers and fixed RGUs of all our consolidated subsidiaries, without adjustments to reflect our equity interest, in the following reportable segments:

  Mexico Wireless;
  Mexico Fixed;
  Brazil;
  Colombia;
  Southern Cone (Argentina, Chile, Paraguay and Uruguay);
  Andean Region (Ecuador and Peru);
  Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama);
  the Caribbean (the Dominican Republic and Puerto Rico);
  the United States; and
  Europe (Austria, Belarus, Bulgaria, Croatia, Macedonia, Serbia and Slovenia).

 

 

 

 

 

AS OF DECEMBER 31,

 

 

     
    2017       2018       2019  
   
     (in thousands)  
WIRELESS SUBSCRIBERS:                        
       
Mexico Wireless     73,855       75,448       76,918  
       
Brazil     59,022       56,416       54,488  
       
Colombia     29,353       29,681       31,104  
       
Southern Cone     31,076       30,971       31,507  
       
Andean Region     20,352       20,344       20,104  
       
Central America     15,927       14,364       15,488  
       
Caribbean     5,637       5,887       6,244  
       
United States     23,132       21,688       20,876  
       
Europe     20,658       21,029       21,296  
       
Total Wireless Subscribers     279,012       275,828       278,025  
       
FIXED RGUS:                        
       
Mexico Fixed     21,851       22,337       21,992  
       
Brazil     35,904       35,285       34,048  
       
Colombia     6,753       7,171       7,613  
       
Southern Cone     2,023       2,199       2,514  
       
Andean Region     1,765       1,856       2,049  
       
Central America     5,811       6,465       4,409  
       
Caribbean     2,700       2,546       2,528  
       
Europe     6,036       6,203       6,143  
       
Total Fixed RGUs     82,844       84,062       81,296  
       
Total RGUs     361,856       359,890       359,323  

PRINCIPAL BRANDS

We operate in all of our geographic segments under the Claro brand name, except in Mexico, the United States and Europe, where we principally do business under the brand names listed below.

 

   COUNTRY

 

PRINCIPAL

BRANDS

  SERVICES AND PRODUCTS
     
Mexico   Telcel  

Wireless voice

Wireless data

     
 

 

  Telmex Infinitum  

Fixed voice

Fixed data

     
United States  

TracFone

Straight Talk

  Wireless voice Wireless data
     
Europe   A1(1)  

Wireless vocie

Wireless data

Fixed voice

Fixed data

Pay TV

 

(1) The harmonization of the brands within A1 Telekom Austria Group that was resolved in 2017 continued in 2019 with the successful brand launch in Belarus and North Macedonia, and will be completed in 2020 with the rebranding in Serbia.

 

SERVICES AND PRODUCTS

We offer a wide range of services and products that vary by market, including wireless voice, wireless data and value- added services, fixed voice, fixed data, broadband and IT services, Pay TV and over-the-top (“OTT”) services.

Wireless Operations

In 2019, our wireless voice and data operations generated revenues of Ps.523.0 billion, representing 51.9% of our consolidated revenues. As of December 31, 2019, our wireless operations represented approximately 77.4% of our total RGUs.

Voice and Data

Our wireless subsidiaries provide voice communication services across the countries in which they operate. We offer international roaming services to our wireless subscribers through a network of cellular service providers with which our wireless subsidiaries have entered into international roaming agreements around the world, and who provide GSM, 3G and 4G-LTE roaming services.

 

 

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The voice and data plans are either “postpaid,” where the customer is billed monthly for the previous month, or “prepaid,” where the customer pays in advance for a specified volume of use over a specified period. Postpaid plans increased as a percentage of the wireless base from 27.5% in December 2018 to 32.0% as of December 31, 2019, while prepaid plans represented 68.0%.

Our wireless voice services are offered under a variety of plans to meet the needs of different market segments. In addition, we often bundle wireless data communications services together with wireless voice services. Our wireless subsidiaries had approximately 278 million wireless voice and data subscribers as of December 31, 2019.

Prepaid customers typically generate lower levels of usage and are often unwilling or financially ineligible to purchase postpaid plans. Our prepaid plans have been instrumental to increase wireless penetration in Latin America and Eastern Europe to levels similar to those of developed markets. Additionally, prepaid plans entail little to no risk of non- payment, as well as lower customer acquisition costs and billing expenses, compared to the average postpaid plan.

In general, our average rates per minute of wireless    voice are very competitive for both prepaid and postpaid plans. The rates in 2019 decreased an average of 11.05%, at constant exchange rates relative to 2018. In addition, the plans we offer our retail customers include selective discounts and promotions that reduce the rates our customers pay.

Value-Added Services

As part of our wireless data business, our subsidiaries offer value-added services that include Internet access, messaging and other wireless entertainment and corporate services through GSM/EDGE, 3G and 4G LTE networks.

Internet services include roaming capability and wireless Internet connectivity for feature phones, smartphones, tablets and laptops, including data transmission, e-mail services, instant messaging, content streaming and

interactive applications. For example, in Mexico, our website for our wireless services (www.telcel.com) through Radiomóvil Dipsa, S.A. de C.V (“Telcel”), offers a wide range of services and content such as video, music, games and other applications, which our subscribers can access from mobile devices. In addition, we offer other wireless services, including wireless security services, mobile payment solutions, machine-to-machine services, mobile banking, virtual private network (“VPN”) services, video calls and Personal Communications Service (“PCS”).

Fixed Operations

In 2019, our fixed voice, data, broadband and IT solutions had revenues of Ps.292.2 billion, representing 29.0% of our consolidated revenues. As of December 31, 2019, our fixed operations represented approximately 22.6% of our total RGUs, compared to 23.4% as of December 31, 2018.

Voice

Our fixed voice services include local, domestic and international long-distance and public telephone services, under a variety of plans to meet the needs of different market segments, specifically tailored to our residential and corporate clients.

Data

We offer data services, including data centers, data administration and hosting services to our residential and corporate clients under a variety of plans.

Broadband

We provide residential broadband access through hybrid fiber-coaxial (“HFC”) or fiber-optic cable. These services are typically bundled with voice services and are competitively priced as a function of the desired or available speed. As a complement to these services, we offer a number of products such as home networking and smart home services.

 

 

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ABOUT AMERICA MOVIL

 

IT Solutions

Our subsidiaries provide a number of different IT solutions for small businesses and large corporations. We also provide specific solutions to the industrial, financial, government and tourism sectors, among others.

Pay TV

We offer Pay TV through cable and satellite TV subscriptions to both retail and corporate customers under a variety of plans. As of December 31, 2019, we had approximately 20.9 million Pay TV RGUs, a decrease of approximately 603 thousand Pay TV RGUs from the prior year.

Equipment, Accessories and Computer Sales

Equipment, accessories and computer sales revenues primarily include revenues from the sale of handsets, accessories and other equipment.

Other Services

Other services include revenues from other businesses, such as telephone directories, call center services, wireless security services, advertising, media and software development services.

OTT Services

We sell video, audio and other media content that is delivered through the internet directly from the content provider to the viewer or end user. Our most important service is ClaroVideo, an on-demand internet streaming video provider with more than 25,000 content titles sold across all the Latin American and Caribbean markets in which we operate. We offer bundled packages of ClaroVideo, which may include:

 

  Subscription video on demand, providing unlimited access to a catalogue of over 15,000 titles for a fixed monthly subscription fee;

 

  Transactional video on demand and electronic sell- through, offering the option to rent or buy new content releases; and

 

  Add-on services such as subscription and other OTT services through a platform payment system, including access to FOX, HBO, Noggin, Paramount+, among others.

We also offer an advertised and unlimited music streaming and downloading service in 16 countries in Latin America and Europe through ClaroMúsica, with access to approximately 50 million titles across all music genres.

Services and Products by Country

The following table is a summary of our principal services rendered and products produced as of December 31, 2019 in the countries in which we operate.

 

 

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WIRELESS VOICE,

DATA AND VALUE
ADDED SERVICES(1)

 

 

FIXED VOICE,
BROADBAND, DATA
AND IT SERVICES(2)

 

  PAY TV   OTT SERVICES(3)
         
Argentina        
         
Austria        
         
Belarus        
         
Brazil        
         
Bulgaria        
         
Chile        
         
Colombia        
         
Costa Rica        
         
Croatia        
         
Dominican Republic        
         
Ecuador        
         
El Salvador        
         
Guatemala        
         
Honduras        
         
Macedonia        
         
Mexico        

 

  (4) 
              
Nicaragua        
         
Panama        
         
Paraguay        
         
Peru        
         
Puerto Rico        
         
Serbia      

 

   

 

 
         
Slovenia        
         
Uruguay      

 

   

 

 
         
United States      

 

   

 

   

 

 

(1) Includes voice communication and international roaming services, interconnection and termination services, SMS, MMS, e-mail, mobile browsing, entertainment and gaming applications.

(2) Includes local calls, national and international long distance.

(3) Includes ClaroVideo and ClaroMúsica.

(4) Services provided by non-concessionaire subsidiaries.

 

 

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OUR NETWORKS

 

Our networks are one of our main competitive advantages. Today, we own and operate one of the largest integrated platforms based on our covered population across 17 countries in Latin America and are in the process of expanding our network in Europe.

INFRASTRUCTURE

For the year ended December 31, 2019, our capital expenditures totaled Ps.151.8 billion, which allowed us to increase our network, to expand our capacity and to upgrade our systems to operate with the latest technologies. With fully convergent platforms, we are able to deliver high- quality voice, video and data products.

As of December 31, 2019, the main components of our infrastructure were comprised of:

 

  Cell sites: 256,514 sites with 2G, 3G and 4G technologies (of which approximately 68% are equipped with 3G and 4G capabilities) across Latin America and Europe. Additionally, we have been expanding our coverage and improving quality and speed with a number of street cells and indoor solutions.

 

  Fiber-optic network: More than 923 thousand km. Our network passed approximately 79 million homes.

 

  Submarine cable system: Capacity of more than 189 thousand km in submarine cable, including the AM-1 submarine cable that extends 17,500 km and connects the United States to Central and South America with 11 landing points and provides international connectivity to all of our subsidiaries in these geographic areas.

 

  Satellites: Six. Star One S.A. (“Star One”) has the most extensive satellite system in Latin America, with a fleet that covers the United States, Mexico, Central America and South America. We use these satellites to supply capacity
   

for DTH services for Claro TV throughout Brazil and in other DTH Operations, as well as cellular backhaul, video broadcast and corporate data networks. In 2015 and 2016, we launched the Star One D1 and the Star One C4 to replace two limited capacity satellites.

 

  Data centers: 30. We use our data centers to manage a number of cloud solutions, such as Infrastructure as a Service (“IAAS”), Software as a Service (“SAAS”), security solutions and unified communications.

In the United States, we do not own any wireless telecommunications facilities or hold any wireless spectrum licenses. Instead, we purchase airtime through agreements with wireless service providers and resell airtime to customers. Through these agreements, we have a nationwide “virtual” network, covering almost all areas in which wireless services are available.

TECHNOLOGY

Our primary wireless networks use GSM/EDGE, 3G and 4G LTE technologies, which we offer in most of the countries where we operate. We aim to increase the speed of transmission of our data services and have been expanding our 3G and 4G LTE coverage.

We transmit wireless calls and data through radio frequencies that we use under spectrum licenses. Spectrum is a limited resource, and, as a result, we may face spectrum and capacity constraints on our wireless network. We continue to invest significant capital in expanding our network capacity and reach and to address spectrum and capacity constraints on a market-by-market basis.

The table below presents a summary of the population covered by our network, by country, as of December 31, 2019.

 

 

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GENERATION TECHNOLOGY

 

    

 

GSM

 

    

 

UMTS

 

    

 

LTE

 

 

    

(% of covered population)

 
       

Argentina

    

 

98

    

 

91

    

 

92

       

Austria

    

 

100

    

 

97

    

 

99

       

Belarus

    

 

99

    

 

99

    

 

-

 

       

Brazil

    

 

94

    

 

95

    

 

86

       

Bulgaria

    

 

100

    

 

100

    

 

99

       

Chile

    

 

98

    

 

97

    

 

96

       

Colombia

    

 

91

    

 

80

    

 

71

       

Costa Rica

    

 

87

    

 

81

    

 

70

       

Croatia

    

 

99

    

 

99

    

 

99

       

Dominican Republic

    

 

100

    

 

99

    

 

95

       

Ecuador

    

 

96

    

 

79

    

 

69

       

El Salvador

    

 

91

    

 

85

    

 

65

       

Guatemala

    

 

89

    

 

85

    

 

71

       

Honduras

    

 

86

    

 

81

    

 

58

       

Macedonia

    

 

100

    

 

100

    

 

100

       

Mexico

    

 

93

    

 

94

    

 

90

       

Nicaragua

    

 

85

    

 

80

    

 

49

       

Panama

    

 

84

    

 

84

    

 

70

       

Paraguay

    

 

76

    

 

74

    

 

68

       

Peru

    

 

87

    

 

81

    

 

75

       

Puerto Rico

    

 

80

    

 

97

    

 

89

       

Serbia

    

 

99

    

 

98

    

 

98

       

Slovenia

    

 

100

    

 

100

    

 

99

       

Uruguay

    

 

96

    

 

91

    

 

80

 

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OUR COMPETITORS

 

We operate in an intensely competitive industry. Competitive factors within our industry include pricing, brand recognition, service and product offerings, customer experience, network coverage and quality, development and deployment of technologies, availability of additional spectrum licenses and regulatory developments.

Our principal competitors differ, depending on the geographical market and the types of service we offer. We compete against other providers, of wireless, broadband and Pay TV that operate on a multi-national level, such as AT&T Inc., Teléfonica and Millicom, as well as various providers that operate on a nationwide level, such as Telecom Argentina and Telecom Italia. Competition remains intense as a result of saturation in the fixed and wireless

market, increased network investment by our competitors, the development and deployment of new technologies, the introduction of new products and services, new market entrants, the availability of additional spectrum, both licensed and unlicensed, and regulatory changes.

The effects of competition on our subsidiaries depend, in part, on the size, service offerings, financial strength and business strategies of their competitors, regulatory developments and the general economic and business climate in the countries in which they operate, including demand growth, interest rates, inflation and exchange rates. The effects could include loss of market share and pressure to reduce rates. See “Regulation” under Part VI and “Risk Factors” under Part III of this annual report.

 

 

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ACQUISITIONS, OTHER INVESTMENTS AND DIVESTITURES

 

Geographic diversification has been a key to our financial success, as it has provided for greater stability in our cash flow and profitability and has contributed to our strong credit ratings. In recent years, we have been evaluating the expansion of our operations to regions outside of Latin America. We believe that Europe and other areas beyond Latin America present opportunities for investment in the telecommunications sector that could benefit us and our shareholders over the long term.

We continue to seek ways to optimize our portfolio, including by finding investment opportunities in telecommunications and related companies worldwide, including in markets where we are already present, and we often have several possible acquisitions under consideration. We may pursue opportunities in Latin America or in other areas in the world. Some of the assets that we acquire may require significant funding for capital expenditures. We can give no assurance as to the extent, timing or cost of such investments. We also periodically evaluate opportunities for dispositions, in particular for businesses and in geographies that we no longer consider strategic.

We continue to make incremental acquisitions in areas that we consider accretive to our existing operations. The following are recent significant acquisitions:

 

  On December 18, 2019, we completed the acquisition of 100% of Nextel Telecomunicações Ltda. and its
   

subsidiaries (“Nextel Brazil”) from NII Holdings, Inc. and certain of its affiliates (“NII”) and AI Brazil Holdings B.V. Nextel Brazil provides nationwide mobile telecommunications services. With this transaction, we consolidate our operations as one of the leading telecommunication service providers in Brazil, strengthening our mobile network capacity, spectrum portfolio, subscriber base, coverage and quality, particularly in the cities of São Paulo and Rio de Janeiro, the main markets in Brazil. The adjusted amount paid for the business acquisition was U.S.$948.5 million on a cash-free and debt- free basis.

 

  On January 24, 2019, we completed the acquisition of 100% of Telefónica Móviles Guatemala, S.A (“Telefónica Guatemala”) from Telefónica S.A. and certain of its affiliates. We paid U.S.$333 million, net of acquired cash, for Telefónica Guatemala.

 

  On January 24, 2019, we entered into an agreement to acquire 99.3% of Telefónica Móviles Salvador, S.A. de C.V. (“Telefónica El Salvador”) for U.S.$315 million. The completion of the acquisition of Telefónica El Salvador is subject to certain customary closing conditions, including regulatory approval.

For additional information on our acquisitions and investments, see Recent Developments above and note 12 to our audited consolidated financial statements included in this annual report.

 

 

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MARKETING, SALES AND DISTRIBUTION, CUSTOMER SERVICES

 

MARKETING

We advertise our services and products through different channels with consistent and distinct branding and targeted marketing. We advertise via print, radio, television, digital media, sports event sponsorships and other outdoor advertising campaigns. In 2019, our efforts were mainly focused on promoting our 4.5G LTE services, leveraging the speed and quality of our networks and our fixed bundled offers, which compete on broadband speed and premium content.

We build on the strength of our well-recognized brand names to increase consumer awareness and customer loyalty. Building brand recognition is crucial for our business, and we have managed to position our brands as those of a premium carrier in most countries where we operate. For example, Claro and Telcel are the most valuable telecom brands in the Latin America region, according to the Telecoms 300 2019 report by Brand Finance. BrandZ’s Top 50 Most Valuable Latin American Brands 2019 list ranked Telcel among the top five brands in Latin America. In the same year, BrandZ also named Telcel as the highest recognized telecom brand in Mexico, and Telcel and Claro as two of the highest-ranked telecom brands in Latin America. In addition, a year-end 2019 study by Austrian Brand Monitor found that A1, the brand name

behind Telekom Austria, ranked number one in the Austrian telecommunications market for brand awareness, as well as for brand perception as a premium brand.

SALES AND DISTRIBUTION

Our extensive sales and distribution channels help us attract new customers and develop new business opportunities. We primarily sell our services and products through a network of retailers and service centers for retail customers and a dedicated sales force for corporate customers, with more than 490,000 points of sale and almost 2,900 customer service centers. Our subsidiaries also sell their services and products online.

CUSTOMER SERVICES

We give priority to providing our customers with quality customer care and support, with approximately 113,000 employees dedicated to customer service. We focus our efforts on constantly improving our customers’ experience by leveraging our commercial offerings and our sales and distribution networks. Customers may make inquiries by calling a toll-free telephone number, accessing our subsidiaries’ web sites and social media accounts or visiting one of the customer sales and service centers located throughout the countries we serve.

 

 

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The Network for


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PART II OPERATING AND FINANCIAL REVIEW AND PROSPECTS your Business


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Overview

 

INTRODUCTION

COVID-19

The unprecedented health crisis arising from the spread of the Coronavirus will result in a severe global economic downturn that will impact most countries substantially, according to the forecasts of various international banks and multilateral institutions. There is no clarity as to its overall duration and magnitude or its impact in the countries where we operate.

The nature of the crisis, the public health measures to contain it, and the economic impact are all developing rapidly, and they vary among the different jurisdictions where we operate. The effects on our business and our financial performance remain highly uncertain.

Segments

We have operations in 25 countries, which are aggregated for financial reporting purposes into ten reportable segments. Our operations in Mexico are presented in two segments—Mexico Wireless and Mexico Fixed, which consist principally of Telcel and Telmex, respectively. Our headquarters operations are allocated to the Mexico Wireless segment. Financial information about our segments is presented in note 23 to our audited consolidated financial statements included in this annual report.

The factors that drive our financial performance differ in the various countries where we operate, including subscriber acquisition costs, the competitive landscape, the regulatory environment, economic factors and interconnection rates, among others. Accordingly, our results of operations in each period reflect a combination of these effects on our different segments.

Constant Currency Presentation

Our financial statements are presented in Mexican pesos, but our operations outside Mexico account for a significant portion of our revenues. Currency variations between the Mexican peso and the currencies of our non- Mexican subsidiaries, especially the Euro, U.S. dollar, Brazilian real, Colombian and Argentine peso, affect our results of operations as reported in Mexican pesos. In the following discussion regarding our operating results, we include a discussion of the change in the different components of our revenues between periods at constant exchange rates, i.e., using the same exchange rate to translate the local-currency results of our non- Mexican operations for both periods. We believe that this additional information helps investors better understand the performance of our non-Mexican operations and their contribution to our consolidated results.

Effects of Exchange Rates

Our results of operations are affected by changes in currency exchange rates. In 2019 compared to 2018, the Mexican peso was stronger against some of our operating currencies, including the Brazilian Real, the Argentine Peso, the U.S. Dollar and the Euro.

Since most of our debt is issued by América Móvil out    of Mexico, to the extent that our functional currency, the Mexican peso, appreciates or depreciates against the currencies in which our indebtedness is denominated, we may incur foreign exchange gains or losses that are recorded as other comprehensive income in our consolidated statements of financial position.

Changes in exchange rates also affect the fair value of derivative financial instruments that we use to manage our currency-risk exposure, which are generally not accounted for as hedging instruments. In 2019, the Mexican peso strengthened against the currencies in which most of our indebtedness is denominated, and we recorded net foreign exchange gains of Ps.5.2 billion and net fair value gains on derivatives of Ps.4.4 billion. In 2018, the Mexican peso and the Brazilian real weakened against the currencies in which most of our indebtedness is denominated, and we recorded net foreign exchange losses of Ps.7.3 billion and net fair value losses on derivatives of Ps.4.7 billion. See note 7 to our audited consolidated financial statements included in this annual report.

Recent Changes in Accounting Standards

We have adopted IFRS 16 on leasing as of January 1, 2019 using the modified retrospective method. The implementation of IFRS 16 had a significant impact on our consolidated statements of financial position by requiring that we recognize right-of-use assets and lease liabilities. In our consolidated statements of comprehensive income, the new standard increases interest expense and depreciation and reduces other operating costs, without a significant impact on net income. Our financial statements as of the year ended December 31, 2018 have not been restated, and the reclassifications and adjustments arising from the adoption of IFRS 16 may affect the comparability of our financial statements for the year ended December 31, 2019. For more information, see note 2 a) i) to our audited consolidated financial statements included in this annual report.

We have adopted IFRIC 23 in 2019. IFRIC 23 is an interpretation by the International Accounting Standards Board that addresses the accounting for income taxes when tax

 

 

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treatments involve uncertainty that affects the application of IAS 12. The interpretation does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Company determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The interpretation did not have an impact on our consolidated financial statements.

Effects of Regulation

We operate in a regulated industry. Our results of operations and financial condition have been, and will continue to be, affected by regulatory actions and changes. Significant regulatory developments are presented in more detail in “Regulation” under Part VI and “Risk Factors” under Part III of this annual report.

COMPOSITION OF OPERATING REVENUES

In 2019, our total operating revenues were Ps.1,007 billion.

Revenues from wireless and fixed voice services primarily include charges from monthly subscriptions, usage charges billed to customers and usage charges billed to other service providers for calls completed on our network. The primary drivers of revenues from monthly subscription charges are the number of total RGUs and the prices of our service packages. The primary driver of revenues from usage charges (airtime, international and long-distance calls and interconnection costs) is traffic, which is represented by the number of total RGUs and their average usage.

Revenues from wireless and fixed data services primarily include charges for data, cloud, internet and OTT services and the usage from our data centers. In addition, revenues from value-added services and IT solutions to corporate clients contribute to our results for wireless and fixed data services, respectively. Revenues from IT solutions to our corporate clients mainly consist of revenues from installing and leasing dedicated links and revenues from VPN services.

Pay TV revenues consist primarily of charges from subscription services, additional programming, including on-demand programming, and advertising.

Equipment, accessories and computer sales revenues primarily include revenues from the sale of handsets, accessories and other equipment such as office equipment, household appliances and electronics. Most of our sales in handsets are driven by the number of new customers and contract renewals.

Other services primarily include revenues from other businesses, such as advertising and news companies, entertainment content distribution, telephone directories, call center services, wireless security services, network infrastructure services and a software development company.

Seasonality of our Business

Our business is subject to a certain degree of seasonality, characterized by a higher number of new customers during the fourth quarter of each year. We believe this seasonality is mainly driven by the Christmas shopping season. Revenue also tends to decrease during the months of August and September, when family expenses shift towards school supplies in many of the countries in which we operate, mainly Mexico.

General Trends Affecting Operating Results

Our results of operations in 2019 reflected several continuing long-term trends, including:

 

  intense competition, with growing costs for marketing and subscriber acquisition and retention, as well as declining customer prices;

 

  developments in the telecommunications regulatory environment;

 

  growing demand for data services over fixed and wireless networks, as well as for smartphones and devices with data service capabilities;

 

  declining demand for voice services; and

 

  growing operating costs reflecting, among other things, higher costs for Pay TV, customer care services and managing larger and more complex networks.

These trends are broadly characteristic of our businesses in all regions in recent years, and they have affected comparable telecommunications providers as well. Our performance in recent years has also been affected by ongoing regulatory changes in Mexico.

 

 

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RESULTS OF OPERATIONS

 

CONSOLIDATED RESULTS OF OPERATIONS FOR 2019 AND 2018

Operating Revenues

Total operating revenues for 2019 decreased by 3.0%, or Ps.30.8 billion, over 2018. At constant exchange rates, total operating revenues for 2019 increased by 2.3% over 2018. This increase principally reflects increases in revenues from our mobile, corporate networks, broadband and sales of equipment, which were partially offset by a decrease in revenues from Pay TV services and long distance.

REVENUES SERVICES. Revenues services for 2019 decreased by 3.4%, or Ps.29.2 billion, over 2018. At constant exchange rates, revenues services for 2019 increased by 2.1% over 2018. This increase principally reflects increases in revenues from our mobile services (prepaid and postpaid), fixed broadband and corporate networks, which were partially offset by a decrease in revenues from our Pay TV services in Brazil.

SALES OF EQUIPMENT, ACCESSORIES AND COMPUTERS.

Sales of equipment, accessories and computer sales revenues for 2019 decreased by 0.9%, or Ps.1.5 billion, over 2018. At constant exchange rates, revenues from sales of equipment, accessories and computer sales for 2019 increased by 3.6% over 2018. This increase principally reflects higher sales of smartphones, data-enabled devices and accessories.

Operating Costs and Expenses

COST OF SALES. Cost of sales was Ps.174.5 billion for 2019, a decrease of 3.0% from Ps.180.0 billion in 2018. At constant exchange rates, cost of sales for 2019 increased by 0.8% over 2018. This increase principally reflects sales of higher-end smartphones and an increase in handset financing plans.

COST OF SERVICES. Cost of services was Ps.297.1 billion for 2019, a decrease of 9.6% from Ps.328.8 billion in 2018. At constant exchange rates, cost of services for 2019 decreased by 5.5% over 2018. This decrease principally reflects the adoption of IFRS 16 and the implementation of our corporate cost savings program in all the countries in which we operate.

COMMERCIAL, ADMINISTRATIVE AND GENERAL EXPENSES. Commercial, administrative and general expenses for 2019 decreased by 4.9%, or Ps.11.1 billion, over 2018. As a percentage of operating revenues, commercial, administrative and general expenses were 21.4% for 2019, as compared to 21.9% for 2018. At constant exchange rates, commercial, administrative and general expenses for 2019 increased by 0.9% over 2018. This increase principally reflects unusual expense items in Mexico, Austria and Brazil.

OTHER EXPENSES. Other expenses for 2019 decreased by Ps.1.0 billion over 2018, principally reflecting unusual expense items in 2018 resulting from the sale of fixed assets in Puerto Rico.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 2019 increased by 2.1%, or Ps.3.2 billion, over 2018. As a percentage of operating revenues, depreciation and amortization was 15.8% for 2019, as compared to 15.0% for 2018. At constant exchange rates, depreciation and amortization for 2019 increased by 7.3% over 2018. Not taking into account the effects of IFRS 16, depreciation and amortization decreased by 8.3% in 2019 at constant exchange rates, principally as a result of changes in the useful lives of assets in Brazil.

Operating Income

Operating income for 2019 increased by 11.0%, or Ps.15.2 billion, over 2018. Operating margin (operating income as    a percentage of operating revenues) was 15.4% for 2019, as compared to 13.4% for 2018.

Non-Operating Items

NET INTEREST EXPENSE. Net interest expense (interest expense less interest income) for 2019 increased by 49.7%, or Ps.10.5 billion, over 2018. Without the effects of IFRS 16, the impact would have been an increase of 12.1% in net interest expense.

FOREIGN CURRENCY EXCHANGE GAIN, NET. We recorded a net foreign currency exchange gains of Ps.5.2 billion for 2019, compared to our net foreign currency exchange loss of Ps.7.3 billion for 2018. The gain principally reflects the depreciation of some of the currencies in which our indebtedness is denominated, particularly the Euro and the dollar.

 

 

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VALUATION OF DERIVATIVES, INTEREST COST FROM LABOR OBLIGATIONS AND OTHER FINANCIAL ITEMS, NET. We recorded a net loss of Ps.7.1 billion for 2019 on the valuation of derivatives, interest cost from labor obligations and other financial items, net, compared to a net loss of Ps.10.2 billion for 2018. The change in 2019 principally reflects a derivatives gain. See note 22 to our audited consolidated financial statements included in this annual report.

INCOME TAX. Our income tax expense for 2019 increased by 9.8%, or Ps.4.5 billion, over 2018. This increase principally reflects higher profit before income due to a foreign exchange gain in 2019 compared to 2018.

Our effective corporate income tax rate as a percentage of profit before income tax was 42.1% for 2019, compared to 46.0% for 2018. This rate differed from the Mexican statutory rate of 30% and changed year over year principally as a result of changes in permanent items such as local tax inflation effects and other impacts of non-taxable items.

Net Profit

We recorded a net profit of Ps.70.3 billion for 2019, an increase of 29.0%, or Ps.15.8 billion, over 2018.

CONSOLIDATED RESULTS OF OPERATIONS FOR 2018 AND 2017

Operating Revenues

Total operating revenues for 2018 increased by 1.6%, or Ps.16.6 billion, over 2017. At constant exchange rates, total operating revenues for 2018 increased by 3.5% over 2017. This increase principally reflects increases in revenues from our mobile and fixed data services, and equipment, accessories and computer sales operations, which were partially offset by a decrease in revenues from our mobile and fixed voice services.

REVENUES SERVICES. Revenues services for 2018 decreased by 1.7%, or Ps.14.8 billion, over 2017. At constant exchange rates, revenues services for 2018 increased by 0.5% over 2017. This increase principally reflects increases in revenues from our mobile voice and fixed and mobile

data services, which were partially offset by a decrease in revenues from our fixed voice services.

SALES OF EQUIPMENT, ACCESSORIES AND COMPUTERS. Sales of equipment, accessories and computer sales revenues for 2018 increased by 21.9%, or Ps.31.3 billion, over 2017. At constant exchange rates, revenues from sales of equipment, accessories and computer sales for 2018 increased by 22.1% over 2017. This increase principally reflects higher sales of data-enabled devices and accessories.

Operating Costs and Expenses

COST OF SALES. Cost of sales was Ps.180.0 billion for 2018, an increase of 5.8% from Ps.170.2 billion in 2017. At constant exchange rates, cost of sales for 2018 increased by 5.5% over 2017. This increase principally reflects sales of higher- end smartphones provided to our postpaid subscribers and an increase in handset financing plans.

COST OF SERVICES. Cost of services was Ps.328.8 billion for IT services, as well as TV content acquisition, which was partially offset by our corporate cost savings program.

COMMERCIAL, ADMINISTRATIVE AND GENERAL EXPENSES. Commercial, administrative and general expenses for 2018 decreased by 5.6%, or Ps.13.4 billion, over 2017. As a percentage of operating revenues, commercial, administrative and general expenses were 21.9% for 2018, as compared to 23.6% for 2017. At constant exchange rates, commercial, administrative and general expenses for 2018 decreased by 3.8% over 2017. This decrease principally reflects a decrease in costs related to customer services, systems development and local taxes.

OTHER EXPENSES. Other expenses for 2018 decreased by Ps.17.4 billion over 2017, principally reflecting the payment in 2017 of an arbitration award granted in Colombia.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 2018 decreased by 2.8%, or Ps.4.5 billion, over 2017. As a percentage of operating revenues, depreciation and amortization was 15.0% for 2018, as compared to 15.7% for 2017. At constant exchange rates, depreciation and amortization for 2018 decreased by 1.8% over 2017.

 

 

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RESULTS OF OPERATIONS

 

Operating Income

Operating income for 2018 increased by 39.4%, or Ps.39.4 billion, over 2017. Operating margin (operating income as a percentage of operating revenues) was 13.4% for 2018, as compared to 9.8% for 2017.

Non-Operating Items

NET INTEREST EXPENSE. Net interest expense (interest expense less interest income) for 2018 decreased by 22.8%, or Ps.6.3 billion, over 2017. This decrease principally reflects the favorable resolution of certain tax contingencies.

FOREIGN CURRENCY EXCHANGE LOSS, NET. We recorded a net foreign currency exchange loss of Ps.7.3 billion for 2018, compared to our net foreign currency exchange loss of Ps.13.8 billion for 2017. The loss principally reflects the depreciation of some of the currencies in which our indebtedness is denominated, particularly the Euro and the pound sterling.

VALUATION OF DERIVATIVES, INTEREST COST FROM LABOR OBLIGATIONS AND OTHER FINANCIAL ITEMS, NET. We recorded a loss of Ps.10.2 billion for 2018 on the valuation of derivatives, interest cost from labor obligations and other financial items, net, compared to a loss of Ps.1.9 billion for 2017. The loss in 2018 principally reflects a derivatives loss, which was partially offset by gains in our monetary position.

INCOME TAX. Our income tax expense for 2018 increased by 86.3%, or Ps.21.5 billion, over 2017. This increase principally reflects higher pretax income due to a smaller foreign exchange loss in 2018 compared to 2017.

Our effective corporate income tax rate as a percentage of profit before income tax was 46.0% for 2018, compared to 43.7% for 2017. This rate differed from the Mexican statutory rate of 30% and changed year over year principally as a result of changes in permanent items such as local tax inflation effects and other impacts of non-taxable items.

Net Profit

We recorded a net profit of Ps.54.5 billion for 2018, an increase of 69.5%, or Ps.22.4 billion, over 2017.

 

 

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SEGMENT RESULTS OF OPERATIONS

We discuss below the operating results of each reportable segment. Notes 2. z) and 23 to our audited consolidated financial statements describe how we translate the financial statements of our non-Mexican subsidiaries.

Exchange rate changes between the Mexican peso and the currencies in which our subsidiaries operate affect our reported results in Mexican pesos and the comparability of reported results between periods.

The following table sets forth the exchange rates used to translate the results of our significant non- Mexican operations, as expressed in Mexican pesos per foreign currency unit, and the change from the rate used in the prior period indicated. The U.S. dollar is our functional currency in several of the countries or territories in which we operate in addition to the United States, including Ecuador, Puerto Rico, Panama and El Salvador.

 

MEXICAN PESOS PER FOREIGN CURRENCY UNIT (AVERAGE FOR THE PERIOD)

 
         

2017/2018

         

2018/2019

       
    

2017

   

% CHANGE

   

2018

   

% CHANGE

   

2019

 
           

Brazilian real

 

 

5.9346

 

 

 

(10.8

 

 

5.2937

 

 

 

(7.6

 

 

4.8907

 

           

Colombian peso

 

 

0.0064

 

 

 

1.6

 

 

 

0.0065

 

 

 

(9.2

 

 

0.0059

 

           

Argentine peso

 

 

1.1489

 

 

 

(36.4

 

 

0.7311

 

 

 

(43.8

 

 

0.4110

 

           

U.S. dollar

 

 

18.9400

 

 

 

1.6

 

 

 

19.2397

 

 

 

0.1

 

 

 

19.2641

 

           

Euro

 

 

21.3649

 

 

 

6.3

 

 

 

22.7093

 

 

 

(5.0

 

 

21.5642

 

The tables below set forth operating revenues and operating income for each of our segments for the years indicated.

 

YEAR ENDED DECEMBER 31, 2019

 
   

OPERATING REVENUES

   

OPERATING INCOME

 
    

(in millions of
Mexican pesos)

 

   

(as a% of total
operating revenues)

 

   

(in millions of
(Mexican pesos)

 

   

 

(as a% of total
operating income)

 

 
         

Mexico Wireless

 

Ps.

237,840

 

 

 

23.6

 

Ps.

67,694

 

 

 

43.7

         

Mexico Fixed

 

 

96,037

 

 

 

9.5

 

 

 

9,732

 

 

 

6.3

 

         

Brazil

 

 

181,778

 

 

 

18.0

 

 

 

28,847

 

 

 

18.6

 

         

Colombia

 

 

74,636

 

 

 

7.4

 

 

 

15,325

 

 

 

9.9

 

         

Southern Cone

 

 

65,272

 

 

 

6.5

 

 

 

4,008

 

 

 

2.6

 

         

Andean Region

 

 

55,533

 

 

 

5.5

 

 

 

8,023

 

 

 

5.2

 

         

Central America

 

 

46,734

 

 

 

4.6

 

 

 

5,712

 

 

 

3.7

 

         

United States

 

 

155,864

 

 

 

15.5

 

 

 

2,968

 

 

 

1.9

 

         

Caribbean

 

 

35,718

 

 

 

3.5

 

 

 

5,741

 

 

 

3.7

 

         

Europe

 

 

98,420

 

 

 

9.8

 

 

 

8,688

 

 

 

5.6

 

         

Eliminations

 

 

(40,484)

 

 

 

(3.9

 

 

(1,897

 

 

(1.2

         

Total

 

 

Ps.        1,007,348

 

 

 

100

 

 

Ps.        154,841

 

 

 

100

 

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YEAR ENDED DECEMBER31, 2018

 
   

OPERATING REVENUES

   

OPERATING INCOME

 
    

(in millions of
Mexican pesos)

 

   

 

(as a% of total
operating revenues)

 

   

(in millions of
Mexican pesos)

 

   

 

(as a% of total
operating income)

 

 
         

Mexico Wireless

 

Ps.

224,557

 

 

 

21.6

 

Ps.

57,451

 

 

 

41.2

         

Mexico Fixed

 

 

96,081

 

 

 

9.3

 

 

 

8,086

 

 

 

5.8

 

         

Brazil

 

 

193,306

 

 

 

18.6

 

 

 

23,495

 

 

 

16.8

 

         

Colombia

 

 

75,805

 

 

 

7.3

 

 

 

14,389

 

 

 

10.3

 

         

Southern Cone

 

 

102,350

 

 

 

9.9

 

 

 

16,976

 

 

 

12.2

 

         

Andean Region

 

 

55,787

 

 

 

5.4

 

 

 

5,004

 

 

 

3.6

 

         

Central America

 

 

45,033

 

 

 

4.3

 

 

 

4,868

 

 

 

3.5

 

         

United States

 

 

153,266

 

 

 

14.8

 

 

 

2,665

 

 

 

1.9

 

         

Caribbean

 

 

36,640

 

 

 

3.5

 

 

 

5,812

 

 

 

4.2

 

         

Europe

 

 

100,716

 

 

 

9.7

 

 

 

4,732

 

 

 

3.4

 

         

Eliminations

 

 

(45,333)

 

 

 

(4.4

 

 

(3,921

 

 

(2.9

         

Total

 

 

Ps.    1,038,208

 

 

 

100.0

 

 

Ps.    139,557

 

 

 

100.0

 

YEAR ENDED DECEMBER 31, 2017

 
   

OPERATING REVENUES

   

OPERATING INCOME

 
    

(in millions of

Mexican pesos)

   

(as a % of total

operating revenues)

   

(in millions of

Mexican pesos)

   

(as a % of total

operating income)

 
         

Mexico Wireless

 

Ps.

206,771

 

 

 

20.2

 

Ps.

50,666

 

 

 

50.6

         

Mexico Fixed

 

 

98,485

 

 

 

9.6

 

 

 

7,922

 

 

 

7.9

 

         

Brazil

 

 

215,322

 

 

 

21.1

 

 

 

11,601

 

 

 

11.6

 

         

Colombia

 

 

72,740

 

 

 

7.1

 

 

 

(4,704

 

 

(4.7

         

Southern Cone

 

 

82,344

 

 

 

8.1

 

 

 

11,676

 

 

 

11.7

 

         

Andean Region

 

 

56,571

 

 

 

5.5

 

 

 

5,650

 

 

 

5.6

 

         

Central America

 

 

44,282

 

 

 

4.3

 

 

 

5,252

 

 

 

5.2

 

         

United States

 

 

148,590

 

 

 

14.5

 

 

 

2,915

 

 

 

2.9

 

         

Caribbean

 

 

35,215

 

 

 

3.4

 

 

 

4,752

 

 

 

4.7

 

         

Europe

 

 

93,644

 

 

 

9.2

 

 

 

4,524

 

 

 

4.5

 

         

Eliminations

 

 

(32,330)

 

 

 

(3.0

 

 

(111

 

 

(0.0

         

Total

 

 

Ps.        1,021,634

 

 

 

100.0

 

 

Ps.        100,143

 

 

 

100.0

 

 

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INTERPERIOD SEGMENT COMPARISONS

The following discussion addresses the financial performance of each of our reportable segments, first by comparing results for 2019 and 2018 and then by comparing results for 2018 and 2017.

In the year-to- year comparisons for each segment, we include percentage changes in operating revenues, percentage changes in operating income and operating margin (operating income as a percentage of operating revenues), in each case calculated based on the segment financial information presented in Note 23 to our audited consolidated financial statements, which is prepared in accordance with IFRS.

Each reportable segment includes all income, cost and expense eliminations that occurred between subsidiaries within the reportable segment. The Mexico Wireless segment also includes corporate income, costs and expenses.

Comparisons in the following discussion are calculated using figures in Mexican pesos. We also include percentage changes in adjusted segment operating revenues, adjusted segment operating income and adjusted operating margin (adjusted operating income as a percentage of adjusted operating revenues). The adjustments eliminate (i) certain intersegment transactions, (ii) for our non-Mexican segments, the effects of exchange rate changes and (iii) for the Mexican Wireless segment only, revenues and costs of group corporate activities and other businesses that are allocated to the Mexico Wireless segment.

2019 COMPARED TO 2018

Mexico Wireless

The number of prepaid wireless subscribers for 2019 increased by 1.0% over 2018, and the number of postpaid wireless subscribers increased by 6.2%, resulting in an increase in the total number of wireless subscribers in Mexico of 1.9%, or 1.5 million, to approximately 77.0 million as of December 31, 2019.

Segment operating revenues for 2019 increased by 5.9% over 2018. Adjusted segment operating revenues for 2019 increased by 6.5% over 2018. This increase in segment operating revenues principally reflects an increase in mobile

data revenues, which were partially offset by a decrease in wireless voice revenues.

Segment operating income for 2019 increased by 17.8% over 2018. Adjusted segment operating income for 2019 increased by 20.3% over 2018.

Segment operating margin was 28.5% in 2019, as compared to 25.6% in 2018. Adjusted segment operating margin for this segment was 35.1% in 2019, as compared to 31.1% in 2018. This increase in segment operating margin for 2019 principally reflects our corporate costs savings program in operations, networks and maintenance, which we successfully implemented without affecting the quality of our services and coverage.

Mexico Fixed

The number of fixed voice RGUs in Mexico for 2019 decreased by 3.3% over 2018, and the number of broadband RGUs in Mexico increased by 0.7%, resulting in a decrease in total fixed RGUs in Mexico of 1.5% over 2018, or 345 thousand, to approximately 22.0 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 0.05% over 2018. Adjusted segment operating revenues for 2019 decreased by 2.5% over 2018. This decrease in segment operating revenues principally reflects a decrease in fixed voice revenues of 5.6%, driven by RGU disconnections, which was partially offset by higher revenues from corporate networks services and broadband.

Segment operating income for 2019 increased by 20.4% over 2018. Adjusted segment operating income for 2019 decreased by 34.5% over 2018. This decrease principally reflects increases in the contractual salary increases to our employees, and higher information technology and customer service costs.

Segment operating margin was 10.1% in 2019, as compared to 8.4% in 2018. Adjusted segment operating margin was 2.5% in 2019, as compared to 3.7% in 2018. This decrease in segment operating margin for 2019 principally reflects increases in costs associated with customer service and service quality improvements, as well as networks maintenance. Such costs were principally attributable to increased labor costs.

 

 

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Brazil

The number of prepaid wireless subscribers for 2019 decreased by 18.0% over 2018, and the number of postpaid wireless subscribers increased by 17.0%, resulting in a decrease in the total number of wireless subscribers in Brazil of 3.4%, or 1.9 million, to approximately 54.5 million as of December 31, 2019. The number of fixed voice RGUs for 2019 decreased by 5.2% over 2018, the number of broadband RGUs decreased by 1.9%, and the number of Pay TV RGUs decreased by 5.7%, resulting in a decrease in total fixed RGUs in Brazil of 3.5%, or 1.2 million, to approximately 34.0 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 6.0% over 2018. Adjusted segment operating revenues for 2019 increased by 1.9% over 2018. This increase in segment operating revenues principally reflects higher mobile data and fixed data revenues of 17.0% and 7.7%, respectively, in 2019 over 2018. The increase in mobile data revenues in 2019 principally reflects the increased usage of social networking platforms, cloud services and content, and fixed data revenues increased principally due to an increase in broadband RGUs and corporate network services. The increase in segment operating revenues was partially offset by a decrease in mobile voice, fixed voice and Pay TV revenues of 6.6%, 12.0% and 7.6%, respectively, in 2019 over 2018, driven by RGUs disconnections and lower traffic.

Segment operating income for 2019 increased by 22.8% over 2018. Adjusted segment operating income for 2019 increased by 36.0% over 2018.

Segment operating margin was 15.9% in 2019, as compared to 12.2% in 2018. Adjusted segment operating margin was 15.1% in 2019, as compared to 11.3% in 2018. This increase in segment operating margin for 2019 principally reflects improved cost management as a result of our cost savings program.

Colombia

The number of prepaid wireless subscribers for 2019 increased by 4.4% over 2018, and the number of postpaid wireless subscribers increased by 6.0%, resulting in an increase in the total number of wireless subscribers in Colombia of 4.8%, or 1.4 million, to approximately 31.1 million as of December 31, 2019. The number of fixed

voice RGUs for 2019 increased by 7.3% over 2018, the number of broadband RGUs increased by 6.6% and the number of Pay TV RGUs increased by 4.7%, resulting in an increase in total fixed RGUs in Colombia of 6.2%, or 441 thousand, to approximately 7.6 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 1.5% over 2018. Adjusted segment operating revenues for 2019 increased by 9.3% over 2018. This increase in segment operating revenues principally reflects increases in fixed data revenues, mobile data revenues, both in prepaid and postpaid mobile data, and Pay TV revenues. The increase in segment operating revenues was partially offset by a decrease in long distance revenues.

Segment operating income for 2019 increased by 6.5% over 2018. Adjusted segment operating income for 2019 increased by 19.8% over 2018.

Segment operating margin was 20.5% in 2019, as compared to 19.0% in 2018. Adjusted segment operating margin was 25.6% in 2019, as compared to 23.3% in 2018. This increase in segment operating margin for 2019 principally reflects a decrease in costs and expenses under our cost savings program.

Southern Cone—Argentina, Chile, Paraguay and Uruguay

The number of prepaid wireless subscribers for 2019 increased by 1.2% over 2018, and the number of postpaid wireless subscribers increased by 2.8%, resulting in an increase in the total number of wireless subscribers in our Southern Cone segment of 1.7%, or 536 thousand, to approximately 31.5 million as of December 31, 2019. The number of fixed voice RGUs for 2019 increased by 19.5% over 2018, the number of broadband RGUs increased by 22.5%, and the number of Pay TV RGUs increased by 4.3%, resulting in an increase in total fixed RGUs in our Southern Cone segment of 14.4%, or 316 thousand, to approximately 2.5 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 36.2% over 2018. Adjusted segment operating revenues for 2019 decreased by 4.1% over 2018. This decrease principally reflects a decrease of 5.8% in adjusted operating revenues in Argentina, Paraguay and Uruguay. In Argentina, an

 

 

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increase in fixed data, corporate networks and broadband, and fixed voice were offset by a decrease in mobile voice and data. For this segment, we analyze results in Argentina, Paraguay and Uruguay in terms of the Argentine peso, because Argentina accounts for the major portion of the operations in these three countries.

Segment operating income for 2019 decreased by 76.4% over 2018. Adjusted segment operating income for 2019 decreased by 4.7% over 2018. This decrease principally reflects a decline in operating income from our operations in Chile related to an interconnection rate reduction and a contraction of mobile services revenues due to competitive pressures. Additionally, services revenues declined in Argentina due to adverse economic conditions.

Segment operating margin was 6.1% in 2019, as compared to 16.6% in 2018. Adjusted segment operating margin was 18.5% in 2019, which decreased in comparison to 20.2% in 2018. This decrease in the segment operating margin for 2019 principally reflects a decrease in revenues coupled with an increase in costs and expenses, including higher wages and salaries and other expense items as a result of inflation or exchange rates.

Andean Region—Ecuador and Peru

The number of prepaid wireless subscribers for 2019 decreased by 2.6% over 2018, and the number of postpaid wireless subscribers increased by 1.6%, resulting in a decrease in the total number of wireless subscribers in our Andean Region segment of 1.2%, or 239 thousand, to approximately 20.1 million as of December 31, 2019. The number of fixed voice RGUs for 2019 increased by 2.0% over 2018, the number of broadband RGUs increased by 21.8% and the number of Pay TV RGUs increased by 5.5%, resulting in an increase in total fixed RGUs in our Andean Region segment of 10.4%, or 193 thousand, to approximately 2.0 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 0.5% over 2018. Adjusted segment operating revenues for 2019 increased by 0.4% over 2018. This increase principally reflects an increase of 0.9% in Ecuador and a decrease of 0.05% in Peru. This increase was driven by an increase in revenues from broadband and Pay TV services. Our fixed voice operations had a slight increase considering this a growing market in Ecuador. In Peru, fixed revenues

increased, however, they were partially offset by lower revenues on mobile services.

Segment operating income for 2019 increased by 60.3% over 2018. Adjusted segment operating income for 2019 increased by 12.2% over 2018. This increase principally reflects an increase of 13.2% in Peru and an increase of 11.7% in Ecuador.

Segment operating margin was 14.4% in 2019, as compared to 9.0% in 2018. Adjusted segment operating margin was 17.1% in 2019, as compared to 15.1% in 2018. This increase in the segment operating margin for 2019 principally reflects gains from our cost savings program.

Central America—Guatemala, El Salvador, Honduras, Nicaragua, Panama and Costa Rica

The number of prepaid wireless subscribers for 2019 increased by 8.0% over 2018, and the number of postpaid wireless subscribers increased by 7.0%, resulting in an increase in the total number of wireless subscribers in our Central America segment of 7.8%, or 1.1 million, to approximately 15.5 million as of December 31, 2019. The number of fixed voice RGUs for 2019 increased by 5.4% over 2018, the number of broadband RGUs decreased by 64.0% and the number of Pay TV RGUs increased by 1.4%, resulting in a decrease in total fixed RGUs in our Central America segment of 31.8%, or 2.0 million, to approximately 4.4 million as of December 31, 2019.

Segment operating revenues for 2019 increased by 3.8% over 2018. Adjusted segment operating revenues for 2019 decreased by 3.8% over 2018.

Segment operating income for 2019 increased by 17.3% over 2018. Adjusted segment operating income for 2019 increased by 28.1% over 2018. This increase principally reflects the acquisition of Telefónica Guatemala, partially offset by adverse business conditions, particularly in Nicaragua and El Salvador.

Segment operating margin was 12.2% in 2019, as compared to 10.8% in 2018. Adjusted segment operating margin was 13.7% in 2019, as compared to 12.2% in 2018. This increase in segment operating margin for 2019 principally reflects lower costs compared to 2018, including the one-time charge related to the settlement of an interconnection dispute in Guatemala and an unusual

 

 

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charge arising from a government challenge to tax credits in Honduras in 2018.

Caribbean—Dominican Republic and Puerto Rico

The number of prepaid wireless subscribers for 2019 increased by 6.7% over 2018, and the number of postpaid wireless subscribers increased by 4.8%, resulting in an increase in the total number of wireless subscribers in our Caribbean segment of 6.1%, or 358 thousand, to approximately 6.2 million as of December 31, 2019. The number of fixed voice RGUs for 2019 decreased by 4.3% over 2018, the number of broadband RGUs increased by 3.1% and the number of Pay TV RGUs increased by 3.0%, resulting in a decrease in total fixed RGUs in our Caribbean segment of 0.7%, or 18 thousand, to approximately 2.5 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 2.5% over 2018. Adjusted segment operating revenues for 2019 decreased by 5.2% over 2018. This decrease in segment operating revenues principally reflects a decrease in revenues in Puerto Rico which resulted from extraordinary revenue items booked in 2018 from government aid received and insurance proceeds resulting from the effects of Hurricane Maria, which were substantially offset by an increase in all lines of revenues except in fixed voice revenues in the Dominican Republic. We analyze segment results in U.S. dollars because it is the functional currency of our operations in Puerto Rico, and the currency of the Dominican Republic is relatively stable against the U.S. dollar.

Segment operating income for 2019 decreased by 1.2% over 2018. Adjusted segment operating income for 2019 decreased by 17.6% over 2018. This decrease principally reflects a decrease of 1024.9% in Puerto Rico and an increase of 11.3% in the Dominican Republic.

Segment operating margin was 16.1% in 2019, as compared to 15.9% in 2018. Adjusted segment operating margin was 14.1% in 2019, as compared to 16.3% in 2018. This decrease in segment operating margin for 2019 principally reflects lower operating revenues in Puerto Rico, partially offset by increased revenues and our cost savings program in the Dominican Republic.

United States

The number of prepaid wireless subscribers for 2019 decreased by 3.7% over 2018, or 811 thousand, to approximately 20.9 million total wireless subscribers in the United States as of December 31, 2019.

Segment operating revenues for 2019 increased by 1.7% over 2018. Adjusted segment operating revenues for 2019 increased by 1.6% over 2018. This increase in segment operating revenues principally reflects higher mobile voice and data usage as the mix of clients continues to shift towards to our high-usage Tracfone brands.

Segment operating income for 2019 increased by 11.4% over 2018. Adjusted segment operating income for 2019 increased by 6.0% over 2018.

Segment operating margin was 1.9% in 2019, as compared to 1.7% in 2018. Adjusted segment operating margin was 7.1% in 2019, as compared to 6.8% in 2018. This increase in segment operating margin for 2019 principally reflects better controls over commercial, operational and administrative costs.

Europe

The number of prepaid wireless subscribers for 2019 decreased by 9.4% over 2018, and the number of postpaid wireless subscribers increased by 4.4%, resulting in an increase in the total number of wireless subscribers in our Europe segment of 1.3%, or 268 thousand, to approximately 21.3 million as of December 31, 2019. The number of fixed voice RGUs for 2019 decreased by 3.6% over 2018, the number of broadband RGUs decreased by 0.7% and the number of Pay TV RGUs increased by 1.8%, resulting in a decrease in total fixed RGUs in our Europe segment of 1.0%, or 59 thousand, to approximately 6.1 million as of December 31, 2019.

Segment operating revenues for 2019 decreased by 2.3% over 2018. Adjusted segment operating revenues for 2019 increased by 2.9% over 2018. This increase in segment operating revenues principally reflects an increase in corporate networks, postpaid mobile data, and an increase in Pay TV revenues. We analyze segment results in euros because it is the functional currency in our operations in Europe.

Segment operating income for 2019 increased by 83.6% over 2018. Adjusted segment operating income for 2019 increased by 81.5% over 2018.

 

 

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Segment operating margin was 8.8% in 2019, as compared to 4.7% in 2018. Adjusted segment operating margin was 8.8% in 2019, as compared to 4.8% in 2018. This increase in segment operating margin for 2019 principally reflects our corporate cost savings program in all countries and improved performance in some countries.

2018 COMPARED TO 2017

Mexico Wireless

The number of prepaid wireless subscribers for 2018 increased by 1.4% over 2017, and the number of postpaid wireless subscribers increased by 5.8%, resulting in an increase in the total number of wireless subscribers in Mexico of 2.2%, or 1.5 million, to approximately 75.0 million as of December 31, 2018.

Segment operating revenues for 2018 increased by 8.6% over 2017. Adjusted segment operating revenues for 2018 increased by 11.4% over 2017. This increase in segment operating revenues principally reflects an increase of 11.7% in mobile data revenues, driven by increased use of value-added services by our wireless subscribers, including activity from messaging, content downloading, mobile applications and social media, and an increase in revenues from service plans offering higher data capacity.

Segment operating income for 2018 increased by 13.4% over 2017. Adjusted segment operating income for 2018 increased by 20.2% over 2017.

Segment operating margin was 25.6% in 2018, as compared to 24.5% in 2017. Adjusted segment operating margin for this segment was 31.1% in 2018, as compared to 28.8% in 2017. This increase in segment operating margin for 2018 principally reflects costs related to interconnection rates, licensing fees, mobile site infrastructure rentals, maintenance and roaming charges.

Mexico Fixed

The number of fixed voice RGUs in Mexico for 2018 increased by 1.0% over 2017, and the number of broadband RGUs in Mexico increased by 3.8%, resulting in an increase in total fixed RGUs in Mexico of 2.2% over 2017, or 486 thousand, to approximately 22.0 million as of December 31, 2018.

Segment operating revenues for 2018 decreased by 2.4% over 2017. Adjusted segment operating revenues for 2018 decreased by 3.8% over 2017. This decrease in segment

operating revenues principally reflects a decrease in fixed voice revenues of 4.4%, driven by RGU disconnections, a decrease in long-distance calls and a decrease in fixed data revenues of 0.7%, which was partially offset by higher revenues from broadband and corporate network services.

Segment operating income for 2018 increased by 2.1% over 2017. Adjusted segment operating income for 2018 decreased by 18.1% over 2017. This decrease principally reflects lower revenues from long-distance services and equipment sales.

Segment operating margin was 8.4% in 2018, as compared to 8.0% in 2017. Adjusted segment operating margin was 3.7% in 2018, as compared to 4.3% in 2017. This decrease in segment operating margin for 2018 principally reflects increases in costs associated with customer service and service quality improvements, as well as network maintenance.

Brazil

The number of prepaid wireless subscribers for 2018 decreased by 14.9% over 2017, and the number of postpaid wireless subscribers increased by 15.6%, resulting in a decrease in the total number of wireless subscribers in Brazil of 4.4%, or 2.6 million, to approximately 56.0 million as of December 31, 2018. The number of fixed voice RGUs for 2018 decreased by 5.0% over 2017, the number of broadband RGUs increased by 5.0%, and the number of Pay TV RGUs decreased by 3.1%, resulting in a decrease in total fixed RGUs in Brazil of 1.7%, or 619 thousand, to approximately 35.0 million as of December 31, 2018.

Segment operating revenues for 2018 decreased by 10.2% over 2017. Adjusted segment operating revenues for 2018 increased by 0.5% over 2017. This increase in segment operating revenues principally reflects higher mobile data and fixed data revenues of 31.0% and 7.6%, respectively, in 2018 over 2017. The increase in mobile data revenues in 2018 principally reflects the usage of social networking platforms, cloud services and content, and fixed data revenues increased principally due to an increase in broadband RGUs and corporate network services. The increase in segment operating revenues was partially offset by a decrease in mobile voice, fixed voice and Pay TV revenues of 31.9%, 17.5% and 5.2%, respectively, in 2018 over 2017, driven by RGU disconnections and lower traffic reflecting a decrease in disposable income.

 

 

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Segment operating income for 2018 increased by 102.5% over 2017. Adjusted segment operating income for 2018 increased by 172.4% over 2017. This increase principally reflects the favorable resolution of certain tax contingencies.

Segment operating margin was 12.2% in 2018, as compared to 5.4% in 2017. Adjusted segment operating margin was 11.3% in 2018, as compared to 4.2% in 2017. This increase in segment operating margin for 2018 principally reflects synergy gains in marketing, network maintenance, information technology, subscriber acquisition and customer service related to the ongoing integration of our three Brazilian subsidiaries, which have collectively driven our costs down.

Colombia

The number of prepaid wireless subscribers for 2018 increased by 0.4% over 2017, and the number of postpaid wireless subscribers increased by 3.7%, resulting in an increase in the total number of wireless subscribers in Colombia of 1.1%, or 328 thousand, to approximately 30.0 million as of December 31, 2018. The number of fixed voice RGUs for 2018 increased by 10.1% over 2017, the number of broadband RGUs increased by 6.4% and the number of Pay TV RGUs increased by 2.8%, resulting in an increase in total fixed RGUs in Colombia of 6.2%, or 418 thousand, to approximately 7.1 million as of December 31, 2018.

Segment operating revenues for 2018 increased by 4.2% over 2017. Adjusted segment operating revenues for 2018 increased by 2.6% over 2017. This increase in segment operating revenues principally reflects increases in fixed data revenues, mobile data revenues, fixed voice revenues and Pay TV revenues, which increased by 8.9%, 3.2%, 9.0% and 8.6%, respectively, in 2018, principally due to an increase in sales of bundled packages of wireless services, higher demand for data plans and an increase in subscribers for internet services. The increase in segment operating revenues was partially offset by a decrease of 8.1% in mobile voice revenues, driven by more competitive commercial offerings in response to pricing pressure from competitors.

Segment operating income for 2018 was Ps.14.4 billion, compared to a segment operating loss of Ps 4.7 billion in 2017. This change is principally due to the payment

in 2017 of an arbitration award granted in Colombia. Adjusted segment operating income for 2018 increased by 576.5% over 2017.

Segment operating margin was 19.0% in 2018, as compared to (6.5%) in 2017. Adjusted segment operating margin was 23.3% in 2018, as compared to (5.0%) in 2017. This increase in segment operating margin for 2018 principally reflects Comcel’s cost savings program.

Southern Cone—Argentina, Chile, Paraguay and Uruguay

The number of prepaid wireless subscribers for 2018 decreased by 1.4% over 2017, and the number of postpaid wireless subscribers increased by 1.7%, resulting in a decrease in the total number of wireless subscribers in our Southern Cone segment of 0.3%, or 105 thousand, to approximately 31.0 million as of December 31, 2018. The number of fixed voice RGUs for 2018 increased by 8.3% over 2017, the number of broadband RGUs increased by 12.6%, and the number of Pay TV RGUs increased by 6.1%, resulting in an increase in total fixed RGUs in our Southern Cone segment of 8.7%, or 175 thousand, to approximately 2.2 million as of December 31, 2018.

Segment operating revenues for 2018 increased by 24.3% over 2017. Adjusted segment operating revenues for 2018 increased by 17.4% over 2017. This increase principally reflects an increase of 33.4% in Argentina, Paraguay and Uruguay. This increase was driven by higher data usage, particularly in the form of mobile data, video streaming, content downloading and service package purchases in Argentina, Paraguay and Uruguay and in the form of Pay TV, corporate network and broadband services in Chile. For this segment, we analyze results in Argentina, Paraguay and Uruguay in terms of the Argentine peso, because Argentina accounts for the major portion of the operations in these three countries.

Segment operating income for 2018 increased by 45.4% over 2017. Adjusted segment operating income for 2018 increased by 52.1% over 2017. This increase principally reflects an increase in adjusted operating income of 41.0% in Argentina, Paraguay and Uruguay, which was partially offset by a decrease in adjusted operating loss of 16.2% in Chile.

 

 

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Segment operating margin was 16.6% in 2018, as compared to 14.2% in 2017. Adjusted segment operating margin was 20.2% in 2018, which increased in comparison to 17.0% in 2017. This increase in the segment operating margin for 2018 principally reflects the cost saving programs of our subsidiaries in the Southern Cone.

Andean Region—Ecuador and Peru

The number of prepaid wireless subscribers for 2018 decreased by 0.1% over 2017, and the number of postpaid wireless subscribers increased by 0.2%, resulting in a decrease in the total number of wireless subscribers in our Andean Region segment of 0.04%, or 8 thousand, to approximately 20.3 million as of December 31, 2018. The number of fixed voice RGUs for 2018 increased by 2.9% over 2017, the number of broadband RGUs increased by 12.4% and the number of Pay TV RGUs decreased by 3.2%, resulting in an increase in total fixed RGUs in our Andean Region segment of 5.2%, or 91 thousand, to approximately 1.8 million as of December 31, 2018.

Segment operating revenues for 2018 decreased by 1.4% over 2017. Adjusted segment operating revenues for 2018 decreased by 2.0% over 2017. This decrease principally reflects a decrease of 0.1% in Ecuador and a decrease of 4.3% in Peru. This decrease was driven by lower revenues from our wireless and fixed voice operations, an increase in tax obligations and bad debt expenses in Ecuador and competitive pricing practices, bundled packages and smartphones subsidies in Peru, which was partially offset by higher revenues from mobile data and higher revenues from fixed data, especially broadband and corporate data services.

Segment operating income for 2018 decreased by 11.4% over 2017. Adjusted segment operating income for 2018 decreased by 5.5% over 2017. This decrease principally reflects a decrease of 15.4% in Peru and a decrease of 0.1% in Ecuador.

Segment operating margin was 9.0% in 2018, as compared to 10.0% in 2017. Adjusted segment operating margin was 15.1% in 2018, as compared to 15.9% in 2017. This decrease in the segment operating margin for 2018 principally reflects gains from our cost savings program and lower direct taxes in Ecuador as well as operation, information technology, marketing and sales costs, which

was partially offset by postpaid subscriber acquisition costs driven by a more aggressively competitive environment in Peru.

Central America—Guatemala, El Salvador, Honduras, Nicaragua, Panama and Costa Rica

The number of prepaid wireless subscribers for 2018 decreased by 11.3% over 2017, and the number of postpaid wireless subscribers decreased by 1.5%, resulting in a decrease in the total number of wireless subscribers in our Central America segment of 9.8%, or approximately 1.6 million, to approximately 14.3 million as of December 31, 2018. The number of fixed voice RGUs for 2018 increased by 8.7% over 2017, the number of broadband RGUs increased by 16.0% and the number of Pay TV RGUs increased by 3.2%, resulting in an increase in total fixed RGUs in our Central America segment of 11.3%, or 654 thousand, to approximately 6.4 million as of December 31, 2018.

Segment operating revenues for 2018 increased by 1.7% over 2017. Adjusted segment operating revenues for 2018 were unchanged over 2017.

Segment operating income for 2018 decreased by 7.3% over 2017. Adjusted segment operating income for 2018 decreased by 6.7% over 2017. This decrease principally reflects a decrease of 14.9% in Guatemala and a decrease of 131.5% in Honduras, which was partially offset by an increase of 18.3% in El Salvador, an increase of 3.1% in Nicaragua, an increase of 30.2% in Panama and an increase of 27.7% in Costa Rica.

Segment operating margin was 10.8% in 2018, as compared to 11.9% in 2017. Adjusted segment operating margin was 12.2% in 2018, as compared to 13.1% in 2017. This decrease in segment operating margin for 2018 principally reflects higher costs related to doubtful accounts, a one-time charge related to the settlement of an interconnection dispute in Guatemala and an unusual charge arising from a government challenge to tax credits in Honduras.

Caribbean—Dominican Republic and Puerto Rico

The number of prepaid wireless subscribers for 2018 increased by 4.8% over 2017, and the number of postpaid wireless subscribers increased by 3.7%, resulting in an

 

 

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increase in the total number of wireless subscribers in our Caribbean segment of 4.4%, or approximately 250 thousand, to approximately 5.9 million as of December 31, 2018. The number of fixed voice RGUs for 2018 decreased by 8.1% over 2017, the number of broadband RGUs decreased by 6.4% and the number of Pay TV RGUs increased by 3.9%, resulting in a decrease in total fixed RGUs in our Caribbean segment of 5.7%, or 154 thousand, to approximately 2.6 million as of December 31, 2018.

Segment operating revenues for 2018 increased by 4.0% over 2017. Adjusted segment operating revenues for 2018 increased by 2.6% over 2017. This increase in segment operating revenues principally reflects an increase in segment mobile data revenues and an increase in Pay TV revenues in the Dominican Republic, which was partially offset by lower revenues from wireless and fixed voice services in Puerto Rico. We analyze segment results in U.S. dollars because it is the functional currency of our operations in Puerto Rico, and the currency of the Dominican Republic is relatively stable against the U.S. dollar.

Segment operating income for 2018 increased by 22.3% over 2017. Adjusted segment operating income for 2018 increased by 20.7% over 2017. This increase principally reflects an increase of 21.9% in the Dominican Republic and an increase of 730.5% in Puerto Rico.

Segment operating margin was 15.9% in 2018, as compared to 13.5% in 2017. Adjusted segment operating margin was 16.3% in 2018, as compared to 13.8% in 2017. This increase in segment operating margin for 2018 principally reflects lower unusual costs in 2018 related to the reconstruction and operation of our networks in the aftermath of Hurricane Maria, as well as increased revenues in the Dominican Republic and our corporate cost savings program.

United States

The number of prepaid wireless subscribers for 2018 decreased by 6.2% over 2017, or approximately 1.4 million, to approximately 22.0 million total wireless subscribers in the United States as of December 31, 2018.

Segment operating revenues for 2018 increased by 3.1% over 2017. Adjusted segment operating revenues for 2018 increased by 1.6% over 2017. This increase in segment operating revenues principally reflects higher mobile voice

and data usage and revenues driven by the success of existing unlimited data plans and increased equipment sales of higher-end smartphones.

Segment operating income for 2018 decreased by 8.6% over 2017. Adjusted segment operating income for 2018 decreased by 17.4% over 2017.

Segment operating margin was 1.7% in 2018, as compared to 2.0% in 2017. Adjusted segment operating margin was 6.8% in 2018, as compared to 8.4% in 2017. This decrease in segment operating margin for 2018 principally reflects an increase in content costs as a result of increased data usage.

Europe

The number of prepaid wireless subscribers for 2018 decreased by 5.8% over 2017, and the number of postpaid wireless subscribers increased by 4.1%, resulting in an increase in the total number of wireless subscribers in our Europe segment of 1.7%, or approximately 342 thousand, to approximately 21.0 million as of December 31, 2018. The number of fixed voice RGUs for 2018 decreased by 2.9% over 2017, the number of broadband RGUs increased by 2.4% and the number of Pay TV RGUs increased by 15.9%, resulting in an increase in total fixed RGUs in our Europe segment of 3.7%, or 224 thousand, to approximately 6.2 million as of December 31, 2018.

Segment operating revenues for 2018 increased by 7.6% over 2017. Adjusted segment operating revenues for 2018 increased by 1.2% over 2017. This increase in segment operating revenues principally reflects an increase in high-value customers in the mobile business and an ongoing strong fixed-line business, along with an increase in connectivity. We analyze segment results in euros because it is the functional currency in our operations in Europe.

Segment operating income for 2018 increased by 4.6% over 2017. Adjusted segment operating income for 2018 decreased by 4.3% over 2017.

Segment operating margin was 4.7% in 2018, as compared to 4.8% in 2017. Adjusted segment operating margin was 4.8% in 2018, as compared to 5.0% in 2017. This decrease in segment operating margin for 2018 principally reflects increases in costs related to marketing and subscriber acquisition.

 

 

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LIGUIDITY AND CAPITAL SOURCES

 

FUNDING REQUIREMENTS

We generate substantial cash flows from our operations. On a consolidated basis, our cash flows from operating activities were Ps.234.3 billion in 2019, compared to Ps.248.3 billion in 2018. Our cash and cash equivalents amounted to Ps.19.7 billion at December 31, 2019, compared to Ps.21.7 billion at December 31, 2018. We believe our working capital is sufficient for our present requirements. We use the cash that we generate from our operations and from borrowings principally for the following purposes:

 

  Capital expenditures — We make substantial capital expenditures to continue expanding and improving our networks in each country in which we operate. Our capital expenditures on plant, property and equipment and acquisition or renewal of licenses were Ps.151.8 billion in 2019, Ps.151.8 billion in 2018, and Ps.136.7 billion in 2017. The amount of capital expenditures can vary significantly from year to year, depending on acquisition opportunities, concession renewal schedules and the need for more spectrum. We have budgeted capital expenditures for 2020 of approximately U.S.$8.5 billion (Ps.170.0 billion), which will be primarily funded by our operating activities. That amount is subject to change as we continue to evaluate our capital expenditure needs and opportunities in light of the ongoing COVID-19 outbreak.

 

  Acquisitions — We made substantial expenditures on acquisitions in 2019. In January 2019, we acquired 100% of the capital of Telefonica Guatemala. The amount paid for the business acquisition was U.S.$333.0 million, net of acquired cash. In 2019, we acquired 100% of Nextel Brazil from NII Holdings, Inc. and certain of its affiliates (“NII”) and AI Brazil Holdings B.V. The adjusted amount paid for the business acquisition was U.S.$948.5 million, on a cash-free and debt-free basis. Also in January 2019, we entered into an agreement to acquire 99.3% of Telefónica El Salvador for the amount of U.S.$315.0 million. The completion of the acquisition of Telefónica El Salvador is subject to certain customary conditions, including regulatory approval.
  Indebtedness — We must pay interest on our indebtedness and repay principal when due. As of December 31, 2019, we had approximately Ps. 129.2 billion of principal and amortization due in 2020.

 

  Dividends — We pay regular dividends. We paid Ps.24.2 billion in dividends in 2019 and Ps.22.4 billion in 2018. Our shareholders approved on April 24, 2020 the payment of a Ps.0.38 ordinary dividend per share in two installments in 2020. See “Share Ownership and Trading—Dividends” under Part IV in this annual report.

 

  Share repurchases. — We regularly repurchase our own shares. We spent Ps.435.7 million repurchasing our own shares in the open market in 2019 and Ps.511.4 billion in 2018. Our shareholders have authorized additional repurchases, and as of March 31, 2020, we have spent Ps.121.3 million repurchasing our shares in the open market in 2020, but whether we will continue to do so will depend on our operating cash flow and on various other considerations, including market prices and our other capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2019, we had no off-balance sheet arrangements that require disclosure under applicable SEC regulations.

 

 

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CONTRACTUAL OBLIGATIONS

The following table summarizes certain contractual obligations as of December 31, 2019. Many of our obligations are denominated in currencies other than Mexican pesos. The table does not include accounts payable, pension liabilities, interest payments or payments under derivatives contracts. See notes 14, 15 and 17 to our audited consolidated financial statements included in this annual report.

 

 

PAYMENTS DUE BY PERIOD

 

 

    

TOTAL

   

 

LESS THAN
1 YEAR

   

 

1-3 YEARS

   

 

4-5 YEARS

   

 

AFTER 5 YEARS

 
    

(in millions of Mexican pesos)

 
 
CONTRACTUAL OBLIGATIONS AS OF DECEMBER 31, 2019:

 

           
Short-term debt   Ps. 129,172     Ps. 129,172     Ps.     Ps.     Ps.  
           
Short-term lease debt     25,895       25,895                    
           
Long-term debt     495,082             184,391       33,732       276,959  
           
Long-term lease debt     94,702             64,717       16,264       13,720  
           
Purchase obligations     138,687       69,338       68,816       532        
           
Total   Ps. 883,539     Ps. 224,405     Ps. 317,925     Ps. 50,529     Ps. 290,679  

Other than the amounts in the table above, we had no other outstanding material purchase commitments as of December 31, 2019. We enter into a number of supply, advertising and other contracts in the ordinary course of business, but those contracts are not material to our liquidity.

BORROWINGS

In addition to cash flows generated from operations, we rely on a combination of borrowings from a range of different sources, including the international capital markets, capital markets in Mexico and other countries where we operate, international and local banks, equipment suppliers and export credit agencies. We seek to maintain access to diverse sources of funding. In managing our funding, we generally seek to keep our leverage, as measured by the ratio of net debt to EBITDA, at a level that is consistent with maintaining the ratings given to our debt by the principal credit rating agencies. Our total consolidated indebtedness as of December 31, 2019 was Ps.624.3 billion, of which Ps.129.2 billion was short-term debt (including the current portion of long-term debt), compared to Ps.638.9 billion as of December 31, 2018.

Management defines net debt as total debt minus cash and cash equivalents, minus marketable securities (including Koninklijke KPN N.V. (“KPN”) shares) or other short- term investments. As of December 31, 2019, we had net debt of Ps.556.8 billion, compared to Ps.568.2 billion as of December 31, 2018. Without taking into account the effects of derivative financial instruments that we use to manage our interest rate and currency risk, approximately 87.2% of our indebtedness at December 31, 2019 was denominated in currencies other than Mexican pesos (approximately 32.8% of such non-Mexican peso debt in U.S. dollars and 67.2% in other currencies), and approximately 10.1% of our consolidated debt obligations bore interest at floating rates. After the effects of derivative transactions and excluding the debt of Telekom Austria, approximately 36.5% of our net debt as of December 31, 2019 was denominated in Mexican pesos.

The weighted average cost of all our third-party debt at December 31, 2019 (excluding commissions and reimbursement of certain lenders for Mexican taxes withheld) was approximately 4.2% per annum.

Our major categories of indebtedness at December 31, 2019 are summarized in the table below. See also Note 14 to our audited consolidated financial statements included in this annual report.

 

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  DEBT

 

(millions of Mexican pesos)

      
   

SENIOR NOTES

        
   

DENOMINATED IN U.S. DOLLARS:

        
   

América Móvil 5.000% Senior Notes due 2020

  

Ps.

11,775

 

   

América Móvil 3.125% Senior Notes due 2022

  

 

30,152

 

   

América Móvil 3.625% Senior Notes due 2029

  

 

18,845

 

   

América Móvil 6.375% Senior Notes due 2035

  

 

18,493

 

   

América Móvil 6.125% Senior Notes due 2037

  

 

6,958

 

   

América Móvil 6.125% Senior Notes due 2040

  

 

37,691

 

   

América Móvil 4.375% Senior Notes due 2042

  

 

21,672

 

   

América Móvil 4.375% Senior Notes due 2049

  

 

23,557

 

   

Total

  

Ps.

169,143

 

   

DENOMINATED IN MEXICAN PESOS

        
   

América Móvil 8.600% Domestic Senior Notes due 2020

  

Ps.

7,000

 

   

América Móvil 6.450% Senior Notes due 2022

  

 

22,500

 

   

América Móvil 7.125% Senior Notes due 2024

  

 

11,000

 

   

América Móvil 0.000% Domestic Senior Notes due 2025

  

 

4,757

 

   

América Móvil 8.460% Senior Notes due 2036

  

 

7,872

 

   

Telmex 8.360% Domestic Senior Notes due 2037

  

 

5,000

 

   

Total

  

Ps.

58,129

 

   

DENOMINATED IN EURO

        
   

Commercial Paper -0.230% due 2020

  

Ps.

2,599

 

   

América Móvil B.V. 0.000% Exchangeable Bonds due 2020

  

 

60,051

 

   

América Móvil 3.000% Senior Notes due 2021

  

 

21,131

 

   

TKA 3.125% Senior Notes due 2021

  

 

15,849

 

   

TKA 4.000% Senior Notes due 2022

  

 

15,849

 

   

América Móvil 4.750% Senior Notes due 2022

  

 

15,849

 

   

TKA 3.500% Senior Notes due 2023

  

 

6,339

 

   

América Móvil 3.259% Senior Notes due 2023

  

 

15,848

 

   

América Móvil 1.500% Senior Notes due 2024

  

 

17,961

 

   

TKA 1.500% Senior Notes due 2026

  

 

15,848

 

   

América Móvil 0.750% Senior Notes due 2027

  

 

21,131

 

   

América Móvil 2.125% Senior Notes due 2028

  

 

13,735

 

   

Total

  

Ps.

222,190

 

   

DENOMINATED IN POUND STERLING

        
   

América Móvil 5.000% Senior Notes due 2026

  

Ps.

12,492

 

   

América Móvil 5.750% Senior Notes due 2030

  

 

16,239

 

   

América Móvil 4.948% Senior Notes due 2033

  

 

7,495

 

   

América Móvil 4.375% Senior Notes due 2041

  

 

18,737

 

   

Total

  

Ps.

54,963

 

 

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  DEBT

 

(millions of Mexican pesos)

      
   

DENOMINATED IN JAPANESE YEN

        
   

América Móvil 2.950% Senior Notes due 2039

  

Ps.

2,255

 

   

Total

  

Ps.

2,255

 

   

DENOMINATED IN CHILEAN PESOS

        
   

América Móvil 3.961% Senior Notes due 2035

  

Ps.

3,563

 

   

Total

  

Ps.

3,563

 

   

DENOMINATED IN BRAZILIAN REAIS

        
   

Claro Brasil 102.900% of CDI Domestic Senior Notes due 2020

  

Ps.

7,013

 

   

Claro Brasil 104.000% of CDI Domestic Senior Notes due 2021

  

 

5,143

 

   

Claro Brasil 104.250% of CDI Domestic Senior Notes due 2021

  

 

7,083

 

   

Claro Brasil CDI + 0.600% Domestic Senior Notes due 2021

  

 

1,683

 

   

Claro Brasil 106.000% of CDI Domestic Senior Notes due 2022

  

 

9,351

 

   

Claro Brasil 106.500% of CDI Domestic Senior Notes due 2022

  

 

4,676

 

   

Total

  

Ps.

34,949

 

   

HYBRID NOTES

        
   

DENOMINATED IN EURO:

        
   

América Móvil NC10 (Series B) Capital Securities due 2073

  

Ps.

11,622

 

   

Total

  

Ps.

11,622

 

   

DENOMINATED IN POUND STERLING

        
   

América Móvil NC7 Capital Securities due 2073

  

Ps.

13,741

 

   

Total

  

Ps.

13,741

 

   

BANK DEBT AND OTHER

        
   

DENOMINATED IN U.S. DOLLARS

  

Ps.

9,359

 

   

DENOMINATED IN MEXICAN PESOS

  

Ps.

22,000

 

   

DENOMINATED IN EUROS

  

Ps.

2,113

 

   

DENOMINATED IN CHILEAN PESOS

  

Ps.

4,876

 

   

DENOMINATED IN PERUVIAN SOLES

  

Ps.

15,351

 

   

Total

  

Ps.

53,699

 

   

Total Debt

  

Ps.

624,254

 

   

Less short-term debt and current portion of long-term debt

  

Ps.

129,172

 

   

Total Long-term Debt

  

Ps.

495,082

 

   

EQUITY:

        
   

Capital stock

  

Ps.

96,338

 

   

Total retained earnings

  

 

281,450

 

   

Other comprehensive income (loss) items

  

 

(199,878

   

Non-controlling interest

  

 

48,997

 

   

Total Equity

  

Ps.

226,907

 

   

Total Capitalization (total long-term debt plus equity)

  

Ps.

721,989

 

 

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Additional information about certain categories of our indebtedness is provided below:

 

  Mexican peso-denominated international notes. Our 8.46% senior notes due 2036 are denominated in Mexican pesos, but all amounts in respect of the notes are payable in U.S. dollars, unless a holder of notes elects to receive payment in Mexican pesos in accordance with specified procedures.

 

  Mexican peso-denominated domestic notes. Our domestic senior notes (certificados bursátiles) sold in the Mexican capital markets have varying maturities, ranging from 2020 through 2037, and bear interest at fixed rates.

 

  Global peso notes program. The global peso notes program was established in November 2012. Since its establishment, we have issued peso-denominated notes that can be distributed and traded on a seamless basis in Mexico and internationally. The notes are registered with the SEC in the United States and with the CNBV in Mexico.

 

  International notes. We have outstanding debt securities in the international markets denominated in U.S. dollars, pound sterling and euros. We have also issued debt securities in the local market in Japan.

 

  Hybrid notes. We have outstanding two series of Capital Securities maturing in 2073: one series denominated in euros totaling 550 million, and one series denominated in pound sterling in the amount of £550 million. The Capital Securities are subject to redemption at our option at varying dates beginning in 2023 for the euro-denominated series and beginning in 2020 for the sterling-denominated series. Our hybrid notes are deeply subordinated, and when they were issued, the principal rating agencies stated that they would treat only half of the principal amount as indebtedness for purposes of evaluating our leverage (an analysis referred to as 50.0% equity credit).

 

  Bank loans. At December 31, 2019, we had approximately Ps.53.7 billion outstanding under a number of bank facilities bearing interest at fixed and variable rates. We also have two revolving syndicated credit facilities—one for U.S.$2.5 billion expiring in August 2024 and one for the Euro equivalent of U.S.$2.0 billion expiring in May 2021. As long as the facilities are committed, a commitment fee is paid. As of December 31, 2019, these credit facilities were
   

undrawn. Both facilities include covenants that limit our ability to incur secured debt, to effect a merger in which the surviving entity would not be América Móvil or to sell substantially all of our assets. In addition, both facilities require us to maintain a consolidated ratio of debt to EBITDA not greater than 4.0 to 1.0 and a consolidated ratio of EBITDA to interest expense not less than 2.5 to 1.0. As of the date of this annual report, we are in compliance with these covenants. On March 25, 2020, we drew the full amount of both facilities. For more information see “Recent Developments.” Telekom Austria has an undrawn revolving syndicated credit facility for 1.0 billion (the “TKA Facility”) expiring in July 2024. The TKA Facility includes covenants that limit Telekom Austria’s ability to incur secured debt, effect certain mergers or sell substantially all of its assets and our ability to transfer control over, or reduce our share ownership in, Telekom Austria. For more information, see note 14 to our audited consolidated financial statements included in this annual report.

 

  Options involving KPN and TKA shares. The Company has entered into certain option contracts related to shares that are or have been a strategic investment for the Company. These options include a sale of call options related to our KPN shares with an exercise period that will expire in May 2020 and the sale of a cash-settled put option related to TKA shares that will expire in August 2023. See note 7 to our audited consolidated financial statements included in this annual report.

 

  Euro-denominated commercial paper program. At December 31, 2019, debt under our euro-denominated commercial paper program aggregated to Ps. $2,599.1 million.

Some of the public securities issued by América Móvil in international and Mexican capital markets are guaranteed by Telcel. As of December 31, 2019, we had, on an unconsolidated basis, unsecured and unsubordinated indebtedness of approximately Ps.498.2 billion (U.S.$26.4 billion), excluding guarantees of subsidiaries’ indebtedness. As of December 31, 2019, our subsidiaries had indebtedness (excluding guarantees of indebtedness of us and our other subsidiaries) of approximately Ps.126.0 billion (U.S.$6.7 billion), and a substantial portion of our subsidiaries’ indebtedness is owed by Telekom Austria.

 

 

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RISK MANAGEMENT

We regularly assess our interest rate and currency exchange exposures in order to determine how to manage the risk associated with these exposures. We have indebtedness denominated in currencies other than the currency of our operating environments, and we have expenses for operations and for capital expenditures in a variety of currencies. We use derivatives to adjust the resulting exchange rate and interest rate exposures. We do not use derivatives to hedge the exchange rate exposures that arise from having operations in different countries.

Our practices vary from time to time depending on our judgment of the level of risk, expectations as to exchange or interest rate movements and the costs of using derivative financial instruments. We may stop using derivative financial instruments or modify our practices at any time.

As of December 31, 2019, we had derivatives positions with an aggregate net fair value liability of Ps.2.8 billion, which are described in Note 7 to our audited consolidated financial statements. For additional information, see note 2 v) to our audited consolidated financial statements included in this annual report.

 

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES6

 

USE OF ESTIMATES IN CERTAIN ACCOUNTING POLICIES

In preparing our financial statements, we make estimates concerning a variety of matters. Some of these matters are highly uncertain, and our estimates involve judgments we make based on the information available to us. In the discussion below, we have identified several of these matters for which our financial presentation would be materially affected if either (i) we used different estimates that we could reasonably have used or (ii) in the future, we change our estimates in response to changes that are reasonably likely to occur.

The discussion addresses only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a material impact if we used a different estimate. There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation.

ESTIMATED USEFUL LIVES OF PLANT, PROPERTY AND EQUIPMENT

We estimate the useful lives of particular classes of plant, property and equipment in order to determine the amount of depreciation expense to be recorded in each period. Depreciation expense is a significant element of our costs and expenses, amounting in 2019 to Ps.114.8 billion, or 13.5% of our operating costs and expenses. See Note 10 to our audited consolidated financial statements included in this annual report.

We currently depreciate most of our property, plant and equipment based on an estimated useful life determined upon the expected particular conditions of operations and maintenance in each of the countries in which we operate.

The estimates are based on our historical experience with similar assets, anticipated technological changes and other factors, taking into account the practices of other telecommunications companies. We review estimated useful lives each year to determine whether they should be changed, and, at times, we have changed them for particular classes of assets. We may shorten the estimated useful life of an asset class in response to technological changes,

changes in the market or other developments, which would result in higher depreciation expense.

IMPAIRMENT OF LONG-LIVED ASSETS

We have large amounts of long-lived assets, including property, plant and equipment, intangible assets, investments in associates and goodwill, on our balance sheet. Under IFRS, we are required to test long-lived assets for impairment when circumstances indicate a potential impairment or, in some cases, at least on an annual basis. The impairment analysis for long-lived assets requires us to estimate the recovery value of the asset, which is the greater of its fair value (minus any disposal costs) and its value in use. To estimate the fair value of a long-lived asset, we typically take into account recent market transactions, or, if no such transactions can be identified, we use a valuation model that requires the making of certain assumptions and estimates. Similarly, to estimate the value in use of long- lived assets, we typically make various assumptions about the future prospects for the business to which the asset relates, consider market factors specific to that business and estimate discounted future cash flows to be generated by that business. Based on this impairment analysis, including all assumptions and estimates related thereto, as well as guidance provided by IFRS relating to the impairment of long-lived assets, we determine whether we need to recognize an impairment to reduce the carrying value of the asset as stated on our balance sheet. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors, such as industry and economic trends, and internal factors, such as changes in our business strategy and our internal forecasts. Different assumptions and estimates could materially impact our reported financial results. More conservative assumptions of the anticipated future benefits from these businesses could result in impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions could result in lower or no impairment charges, higher net income and higher asset values. See Note 2 ab) to our audited consolidated financial statements included in this annual report.

 

 

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DEFERRED INCOME TAXES

We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves the jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of temporary differences resulting from the differing treatment of certain items, such as accruals and amortization, for tax and financial reporting purposes, as well as net operating loss carry forwards and other tax credits. These items result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We must assess, in the course of our tax planning procedures, the fiscal years of the reversal of our deferred tax assets and liabilities, and if there will be future taxable profits in those periods to support the recognition of the deferred tax assets. Significant management judgment is required in determining our provisions for income taxes, deferred tax assets and liabilities. The analysis is based on estimates of future taxable income in the jurisdictions in which the group operates and the period over which the deferred tax assets and liabilities will be recoverable or settled. If actual results differ from these estimates, or if we adjust these estimates in future periods, our financial position and results of operations may be materially affected.

We record deferred tax assets based on the amount that we believe is more likely than not to be realized. In assessing the future realization of deferred tax assets, we consider future taxable income and ongoing tax planning strategies. In the event that our estimates of projected future taxable

income and benefits from tax planning strategies are lowered, or changes in current tax regulations are enacted that would impose restrictions on the timing or the extent of our ability to utilize the tax benefits of net operating loss carry forwards in the future, an adjustment to the recorded amount of deferred tax assets would be made.

LABOR OBLIGATIONS

We recognize liabilities on our balance sheet and expenses in our statement of comprehensive income to reflect our obligations related to our post-retirement seniority premiums, pension and retirement plans in the countries in which we operate and offer defined contribution and benefit pension plans. The amounts we recognize are determined on an actuarial basis that involves many estimates and assumptions for post-retirement pension and termination benefits in accordance with IFRS.

We use estimates in four specific areas that have a significant effect on these amounts: (i) the rate of return we assume our labor obligation plans will achieve on their investments, (ii) the rate of increase in salaries that we assume we will observe in future years, (iii) the discount rates that we use to calculate the present value of our future obligations and (iv) the expected rate of inflation. The assumptions we have applied are identified in Note 18 to our audited consolidated financial statements included in this annual report. These estimates are determined based on actuarial studies performed by independent experts using the projected unit-credit method.

 

 

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The Network


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PART III RISK FACTORS you can Trust


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RISK FACTORS

 

RISKS RELATING TO OUR OPERATIONS

Competition in the telecommunications industry is intense and could adversely affect the revenues and profitability of our operations

Our businesses face substantial competition. We expect that competition will intensify in the future as a result of the entry of new competitors, the development of new technologies, products and services and convergence. We also expect consolidation in the telecommunications industry, as companies respond to the need for cost reduction and additional spectrum. This trend may result in larger competitors with greater financial, technical, promotional and other resources to compete with our businesses.

Among other things, our competitors could:

 

  provide higher handset subsidies;

 

  offer higher commissions to retailers;

 

  provide free airtime or other services (such as internet access);

 

  offer services at lower costs through double, triple and quadruple play packages or other pricing strategies;

 

  expand their networks faster; or

 

  develop and deploy improved technologies faster, such as 5G LTE technology.

Competition can lead us to increase advertising and promotional spending and to reduce prices for services and handsets. These developments may lead to lower operating margins, greater choices for customers and increasing movement of customers among competitors, which may make it difficult for us to retain or add new customers. The cost of adding new customers may also continue to increase, reducing profitability even if customer growth continues.

Our ability to compete successfully will depend on our coverage, the quality of our network and service, our rates, customer service, effective marketing, our success in selling double, triple and quadruple play packages and our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services and technologies, changes in consumer

preferences, demographic trends, economic conditions and discount pricing strategies by competitors.

If we are unable to respond to competition and compensate for declining prices by adding new customers, increasing usage and offering new services, our revenues and profitability could decline.

Governmental or regulatory actions could adversely affect our operations

Our operations are subject to extensive government regulation and can be adversely affected by changes in law, regulation or regulatory policy. The licensing, construction, operation, sale, resale and interconnection arrangements of telecommunications systems in Latin America and elsewhere are regulated to varying degrees by government or regulatory authorities. Any of these authorities having jurisdiction over our businesses could adopt or change regulations or take other actions that could adversely affect our operations. In particular, the regulation of prices that operators may charge for their services and environmental matters, including renewable energy and climate change regulation, could have a material adverse effect by reducing our profit margins. See “Regulation” under Part VI for a discussion on the functional separation of Telmex and Telnor wholesale services, “Legal Proceedings” under Part VII and Note 17 to our audited consolidated financial statements included in this annual report.

In addition, changes in political administrations could lead to the adoption of policies concerning competition and taxation of communications services. For example, since 2013, Mexico has implemented reforms to the telecommunications sector that aim to promote more competition and investment by imposing asymmetric regulation upon economic agents deemed “preponderant or dominant.” The asymmetric regulations that are applicable to us, which have adversely affected the results of our Mexican operations, may be reviewed every two years. We are unable to anticipate the effect of an amendment on existing asymmetric regulations, or the imposition of new ones, on our results or operations in Mexico. In other countries, we could also face policies such as preferences for local over foreign ownership of communications licenses and assets or for government over private ownership, which could make it more cumbersome or

 

 

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impossible for us to continue to develop our businesses. Restrictions such as those described above could result in lower revenues and require capital investments, all of which could materially adversely affect our businesses and results of operations.

Our failure to meet or maintain quality of service goals and standards could result in fines and other adverse consequences

The terms of the concessions under which our subsidiaries operate require them to meet certain service quality goals, including, for example, minimum call completion rates, maximum busy circuits rates, operator availability and responsiveness to repair requests. Failure to meet service quality obligations in the past has resulted in the imposition of material fines by regulatory entities. We are also subject to and may be subject to additional claims by customers, including class actions, seeking remedies for service problems. Our ability to comply with these obligations in the future may be affected by factors beyond our control and, accordingly, we cannot assure that we will be able to comply with them.

Dominant carrier related regulations could adversely affect our business by limiting our ability to pursue competitive and profitable strategies

Our regulators are authorized to impose specific requirements as to rates (including termination rates), quality of service, access to active or passive infrastructure and information, among other matters, on operators that are determined to have substantial market power in a specific market. We cannot predict what steps regulatory authorities might take in response to determinations regarding substantial market power in the countries in which we operate. However, adverse determinations against our subsidiaries could result in material restrictions on our operations. We may also face additional regulatory restrictions and scrutiny as a result of our provision of combined services.

If dominant carrier regulations are imposed on our business in the future, they could likely reduce our flexibility to adopt competitive market policies and impose specific tariff requirements or other special regulations on us, such as

additional requirements regarding disclosure of information or quality of service. Any such new regulation could have a material adverse effect on our operations.

We must continue to acquire additional radio spectrum capacity and upgrade our networks in order to expand our customer base and maintain the quality of our wireless services

Licensed radio spectrum is essential to our growth and the quality of our wireless services and for the operation and deployment of our networks, including new generation networks such as 5G LTE technology, to offer improved data and value-added services. We obtain most of our radio spectrum through auctions conducted by governments of the countries in which we operate. Participation in spectrum auctions in most of these countries requires prior government authorization, and we may be subject to caps on our ability to acquire additional spectrum. Our inability to acquire additional radio spectrum capacity could affect our ability to compete successfully because it could result in, among other things, a decrease in the quality of our network and service and in our ability to meet the demands of our customers.

In the event we are unable to acquire additional radio spectrum capacity, we can increase the density of our network by building more cell and switch sites, but such measures are costly and may be subject to local restrictions and regulatory approvals, and they would not meet our needs as effectively.

We have concessions and licenses for fixed terms, and the government may revoke or terminate them as well as reacquire the assets under our concession under various circumstances, some of which are beyond our control

Our concessions and licenses have specified terms, ranging typically from five to 20 years, and are generally subject to renewal upon payment of a fee, but renewal is not assured. The loss of, or failure to renew, any one concession could have a material adverse effect on our business and results of operations. Our ability to renew concessions and the terms of renewal are subject to a number of factors beyond our control, including the prevalent regulatory and political

 

 

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environment at the time of renewal. Fees are typically established at the time of renewal. As a condition for renewal, we may be required to agree to new and stricter terms and service requirements. In some of the jurisdictions where we operate and under certain circumstances, mainly in connection with fixed services, we may be required to transfer certain assets covered by some of our concessions to the government pursuant to valuation methodologies that vary in each jurisdiction. It is uncertain whether reversion would ever be applied in many of the jurisdictions where we operate and how reversion provisions would be interpreted in practice. For further information, see “Regulation” under Part VI of this annual report and Note 17 to our audited consolidated financial statements included in this annual report.

In addition, the regulatory authorities in the jurisdictions in which we operate can revoke our concessions under certain circumstances. In Mexico, for example, the Federal Law on Telecommunications and Broadcasting gives the government the right to expropriate our concessions or to take over the management of our networks, facilities and personnel in cases of failures to meet obligations under our concession agreements, imminent danger to national security, internal peace or the national economy, natural disasters and public unrest. See “Regulation” under Part VI of this annual report.

We continue to look for acquisition opportunities, and any future acquisitions and related financing could have a material effect on our business, results of operations and financial condition

We continue to look for investment opportunities in telecommunications and related companies worldwide, including in markets where we are already present, and we often have several possible acquisitions under consideration. Any future acquisitions, and related financing and acquired indebtedness, could have a material effect on our business, results of operations and financial condition, but we cannot provide assurances that we will complete any of them. In addition, we may incur significant costs and expenses as we integrate these companies in our systems, controls and networks.

We are subject to significant litigation

Some of our subsidiaries are subject to significant litigation that, if determined adversely to our interests, may have a material adverse effect on our business, results of operations, financial condition or prospects. Our significant litigation is described in “Regulation” under Part VI and in Note 17 to our audited consolidated financial statements included in this annual report.

We are contesting significant tax assessments

We and some of our subsidiaries have been notified of tax assessments for significant amounts by the tax authorities of the countries in which we operate, especially in Brazil, Mexico and Ecuador. The tax assessments relate to, among other things, alleged improper deductions and underpayments. We are contesting these tax assessments in several administrative and legal proceedings, and our challenges are at various stages. If determined adversely to us, these proceedings may have a material adverse effect on our business, results of operations, financial condition or prospects. In addition, in some jurisdictions, challenges to tax assessments require the posting of a bond or security for the contested amount, which may reduce our flexibility in operating our business. Our significant tax assessments are described in Note 17 to our audited consolidated financial statements included in this annual report.

Failure to comply with anti-corruption, anti-bribery and anti-money laundering laws could harm our reputation, subject us to substantial fines and adversely affect our business

We operate in multiple jurisdictions and are subject to complex regulatory frameworks with increased enforcement activities worldwide. Our governance and compliance processes may not prevent future breaches of legal, accounting or governance standards and regulations. We may be subject to breaches of our code of ethics, anti-corruption policies and business conduct protocols and to instances of fraudulent behavior, corrupt practices and dishonesty by our employees, contractors or other agents. Our failure to comply with applicable laws and other regulatory requirements could harm our reputation, subject us to substantial fines, sanctions or penalties and adversely affect our business and ability to access financial markets.

 

 

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A system failure could cause delays or interruptions of service, which could have an adverse effect on our operations

We need to continue to provide our subscribers with a reliable service over our network. Some of the risks to our network and infrastructure include the following:

 

  physical damage to access lines and fixed networks;

 

  power surges or outages;

 

  natural disasters;

 

  climate change;

 

  malicious actions, such as theft or misuse of customer data;

 

  limitations on the use of our radio bases;

 

  software defects;

 

  human error; and

 

  disruptions beyond our control.

In Brazil, for example, our satellite operations may be affected if we experience a delay in launching new satellites to replace those currently in use when they reach the end of their operational lives. Such delay may occur because of, among other reasons, construction delays, unavailability of launch vehicles and/or launch failures. In addition, in 2017, our operations in Puerto Rico suffered significant damage in the aftermath of Hurricane Maria, and our operations in Mexico experienced network overloads and power outages following the earthquake on September 19, 2017.

We have instituted measures to reduce these risks. However, there is no assurance that any measures we implement will be effective in preventing system failures under all circumstances. System failures may cause interruptions in services or reduced capacity for our customers, either of which may have an adverse effect on our operations due to, for example, increased expenses, potential legal liability, loss of existing and potential subscribers, reduced user traffic, decreased revenues and reputational harm.

Our financial condition and results of operations may be adversely affected by the occurrence of severe weather, natural or man-made disasters and other catastrophic events, including war, terrorism and other acts of violence, and disease

Our operations can be disrupted by unforeseen events, including war, terrorism, and other international, regional, or local instability or conflicts (including labor issues), embargos, public health issues (including tainted food, food-borne illnesses, food tampering, tampering with or failure of water supply or widespread or pandemic illness such as coronavirus (“COVID-19”), ebola, the avian or H1N1 flu, MERS), and natural disasters such as earthquakes, tsunamis, hurricanes, or other adverse weather and climate conditions in the countries in which we operate. These events could disrupt or prevent our ability to perform functions and otherwise impede our ability to continue business operations in a continuous manner, which in turn may materially and adversely impact our business and operating results.

The COVID-19 outbreak has had a material impact on the global economy and our business

The COVID-19 outbreak has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. In April 2020, the International Monetary Fund warned that the outbreak is likely to trigger the worst recession since the Great Depression. Governments in jurisdictions where we operate have taken aggressive measures to slow the spread of COVID-19, including quarantines and lock-downs, restrictions on travel, and closing of businesses and public and private institutions. In addition, governments have imposed a wide variety of consumer protection measures that limit how certain businesses, including telecommunications companies, can operate their businesses and interact with their customers. The virus continues to spread globally and cause significant social and market disruption.

 

 

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There are a number of consequences of the outbreak and its impact on global economies that could have a material adverse effect on our business.

 

  The economic slowdown has had an adverse impact on demand for our services, beginning in March 2020.

 

  We have been required to change or restrict many of our operations, including customer support, servicing and repairs, network maintenance, retail operations and investment projects. This could have an impact on our costs.

 

  We have implemented policies, including work-from-home policies and social distancing policies, that could limit the efficiency and effectiveness of our operations and our reporting and internal controls.

 

  We have taken steps to strengthen our cash position, including by drawing on our credit facilities. See “Recent Developments” under Part I hereof.

Most of the impact and actions described above were implemented during the latter part of the first quarter of 2020. The extent of the impact of the COVID-19 on the Company’s operational and financial performance for the remainder of the year and beyond will depend on future developments, including the duration and spread of the outbreak, all of which are highly uncertain and cannot be predicted. If the COVID-19 outbreak continues to spread, the impact on our operations, our clients, our suppliers and financial markets could materially adversely affect our financial condition or results of operations.

Increases in labor and employee benefit costs may reduce our profitability, increase our funding requirements and could have an adverse impact on our operations

Many of our employees are members of labor unions with which we conduct collective negotiations on wages, benefits and working conditions. We use actuarial methodologies and assumptions such as discount rate, salary increase and mortality, among others, for the determination and valuation of our employee benefits, including retirement benefits. We evaluate from time to time, with the support of specialists, our actuarial

methodologies and assumptions, as well as the valuation of the assets related to these benefits.

Our labor costs and the costs of maintaining employee benefits could be affected by several factors, including legislative and regulatory changes, work stoppages, subsequent negotiations, increases in healthcare costs, minimum wages, decreases in investment returns on the assets held in funds to support the payment of certain employee benefits and changes in the discount rate and mortality assumptions. An increase in labor and employee benefit costs could reduce our profitability, increase our funding requirements and have an adverse impact on our operations.

Cybersecurity incidents and other breaches of network or information technology security could have an adverse effect on our business and our reputation

Cybersecurity incidents, and other tactics designed to gain access to and exploit sensitive information by breaching critical systems of large companies, are evolving and have been increasing in both sophistication and occurrence in recent years. While we employ a number of measures to prevent, detect and mitigate such incidents, there is no guarantee that we will be able to adequately anticipate or prevent one. Cybercrime, including attempts to overload our servers with denial- of- service attacks, theft, social engineering, phishing, ransomware or similar disruptions from unauthorized access or attempted unauthorized access to our systems could result in the destruction, misuse or release of personal information or other sensitive data. However, it is difficult to detect or prevent evolving forms of cybersecurity incidents, and our systems, and those of our third-party service providers and of our customers, are vulnerable to cybersecurity incidents.

In the event that our systems are breached or damaged for any reason, we may suffer loss or unavailability of data and interruptions to our business operations. If such an event occurs, the unauthorized disclosure, loss or unavailability of data and the disruption to our fixed-line or wireless networks may have a material adverse effect on our business and results of operations. The costs associated with a cybersecurity incident could include increased expenditures on information and cybersecurity measures,

 

 

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damage to our reputation, loss of existing customers and business partners and lead to financial losses from remedial actions and potential liability, including possible litigation and sanctions. Any of these occurrences may result in a material adverse effect on our results of operations and financial condition.

Failure to achieve proper data governance could lead to data mismanagement

We process large amounts of personally identifiable information of customers and employees and are subject to various compliance, security, privacy, data quality and regulatory requirements. Failure to achieve proper data governance could lead to data mismanagement which in turn could result in data loss, regulatory investigations or sanctions, and cybersecurity risk.

If our churn rate increases, our business could be negatively affected

The cost of acquiring a new subscriber is much higher than the cost of maintaining an existing subscriber. Accordingly, subscriber deactivations, or “churn,” could have a material negative impact on our operating income, even if we are able to obtain one new subscriber for each lost subscriber. A substantial majority of our subscribers are prepaid, and we do not have long-term contracts with them. Our average churn rate on a consolidated basis was 4.1% for the year ended December 31, 2019 and 4.2% for the year ended December 31, 2018. If we experience an increase in our churn rate, our ability to achieve revenue growth could be materially impacted. In addition, a decline in general economic conditions could lead to an increase in churn, particularly among our prepaid subscribers.

We rely on key suppliers to provide equipment that we need to operate our business

We rely upon various key suppliers to provide us with handsets, network equipment or services, which we need to expand and operate our business. Our key suppliers include Huawei, Ericsson and Alcatel. If these suppliers fail to provide equipment or service to us on a timely basis, we could experience disruptions, which could have an adverse effect on our revenues and results of operations. In addition, we might be unable to satisfy requirements under our concessions.

Government or regulatory actions with respect to certain suppliers may impact us. For example, the government of the United States and Canada, among others, are currently conducting a regulatory review of certain international suppliers of network equipment and technologies to evaluate potential risks. We are currently unable to predict the outcome of such reviews, including any possible restrictions placed on our key suppliers , and as a result we cannot determine their potential impact on our business.

Our ability to pay dividends and repay debt depends on our subsidiaries’ ability to pay dividends and make other transfers to us

We are a holding company with no significant assets, other than the shares of our subsidiaries and our holdings of cash and cash equivalents. Our ability to pay dividends and repay debt depends on the continued transfer to us of dividends and other income from our subsidiaries. The ability of our subsidiaries to pay dividends and make other transfers to us may be limited by various regulatory, contractual and legal constraints that affect them.

We may fail to realize the benefits anticipated from acquisitions, divestments and significant investments we make from time to time

The business growth opportunities, revenue benefits, cost savings and other benefits we anticipated to result from our acquisitions, divestments and significant investments may not be achieved as expected, or may be delayed. Our divestments may also adversely affect our prospects. For example, we may be unable to fully implement our business plans and strategies for the combined businesses due to regulatory limitations, and we may face regulatory restrictions in our provision of combined services in some of the countries in which we operate. To the extent that we incur higher integration costs or achieve lower revenue benefits or fewer cost savings than expected, or if we are required to recognize impairments of acquired assets, investments or goodwill, our results of operations and financial condition may suffer.

A downgrade of Mexico’s credit rating could affect us

Credit rating agencies regularly evaluate Mexico and its sovereign rating based on various factors including

 

 

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macroeconomic trends, tax and budgetary conditions and indebtedness metrics. If Mexico’s sovereign credit rating is downgraded by credit rating agencies, the rating of our securities may also be downgraded, which could negatively affect our financing costs and the market price of our

securities.

RISKS RELATING TO THE TELECOMMUNICATIONS INDUSTRY GENERALLY

Changes in the telecommunications industry could affect our future financial performance

The telecommunications industry continues to experience significant changes as new technologies are developed that offer subscribers an array of choices for their communications needs. These changes include, among others, regulatory changes, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products, evolving renewable energy and clean technologies, and changes in end-user needs and preferences. There is uncertainty as to the pace and extent of growth in subscriber demand, and as to the extent to which prices for airtime, broadband access, Pay TV and fixed-line rental may continue to decline. Our ability to compete in the delivery of high-quality internet and broadband services is particularly important, given the increasing contribution of revenues from data services to our overall growth. If we are unable to meet future advances in competing technologies on a timely basis or at an acceptable cost, we could lose subscribers to our competitors. In general, the development of new services in our industry requires us to anticipate and respond to the varied and continually changing demands of our subscribers. It also requires significant capital expenditure, including investment in the continual maintenance and upgrading of our networks, in order to expand coverage, increase our capacity to absorb higher bandwidth usage and adapt to new technologies. We may not be able to accurately predict technological trends or the success of new services in the market. In addition, there could be legal or regulatory restraints to our introduction of new services. If these services fail to gain acceptance in the marketplace, or if costs associated with implementation and completion of the introduction of these services materially increase, our ability to retain and attract

subscribers could be adversely affected. This is true across many of the services we provide, including wireless and cable technology.

The intellectual property used by us, our suppliers or service providers may infringe on intellectual property rights owned by others

Some of our products and services use intellectual property that we own or license from others. We also provide content we receive from content producers and distributors, such as ringtones, text games, video games, video, including TV programs and movies, wallpapers or screensavers, and we outsource services to service providers, including billing and customer care functions, that incorporate or utilize intellectual property. We and some of our suppliers, content distributors and service providers have received, and may receive in the future, assertions and claims from third parties that the content, products or software utilized by us or our suppliers, content producers and distributors and service providers infringe on the patents or other intellectual property rights of these third parties. These claims could require us or an infringing supplier, content distributor or service provider to cease engaging in certain activities, including selling, offering and providing the relevant products and services. Such claims and assertions also could subject us to costly litigation and significant liabilities for damages or royalty payments, or require us to cease certain activities or prevent us from selling certain products or services.

Concerns about health risks relating to the use of wireless handsets and base stations may adversely affect our business

Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions. Lawsuits have been filed in the United States against certain participants in the wireless industry alleging various adverse health consequences as a result of wireless phone usage, and our subsidiaries may be subject to similar litigation in the future. Government authorities could increase regulation on electromagnetic emissions of mobile handsets and base stations, which could have an adverse effect on our business, financial condition and results of operations. Research and studies are ongoing, and there can be no assurance that further research and studies will

 

 

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not demonstrate a link between radio frequency emissions and health concerns. Any negative findings in these studies could adversely affect the use of wireless technology and, as a result, our future financial performance.

Developments in the telecommunications sector have resulted, and may result, in substantial write- downs of the carrying value of certain of our assets

Where the circumstances require, we review the carrying value of each of our assets, subsidiaries and investments in associates to assess whether those carrying values can be supported by the future discounted cash flows expected to be derived from such assets. Whenever we consider that due to changes in the economic, regulatory, business or political environment, our goodwill, investments in associates, intangible assets or fixed assets may be impaired, we consider the necessity of performing certain valuation tests, which may result in impairment charges. The recognition of impairments of tangible, intangible and financial assets could adversely affect our results of operations. See “Critical Accounting Policies and Estimates—Impairment of Long-Lived Assets” under Part II of this annual report.

RISKS RELATING TO OUR CONTROLLING SHAREHOLDERS, CAPITAL STRUCTURE AND TRANSACTIONS WITH AFFILIATES

Members of one family may be deemed to control us and may exercise their control in a manner that may differ from the interest of other shareholders

Based on reports of beneficial ownership of our shares filed with the SEC, Carlos Slim Helú, together with his sons, daughters and grandchildren (together, the “Slim Family”) may be deemed to control us. The Slim Family may be able to elect a majority of the members of our Board of Directors and to determine the outcome of other actions requiring a vote of our shareholders. The interests of the Slim Family may diverge from the interests of our other investors.

We have significant transactions with affiliates

We engage in various transactions with Telesites, S.A.B. de C.V. (“Telesites”) and certain subsidiaries of Grupo Carso, S.A.B. de C.V. (“Grupo Carso”) and Grupo Financiero

Inbursa, S.A.B. de C.V. (“Grupo Financiero Inbursa”), all which may be deemed for certain purposes to be under common control with América Móvil.

These transactions occur in the ordinary course of business. Transactions with affiliates may create the potential for conflicts of interest.

We also make investments together with related parties, sell investments to related parties and buy investments from related parties. For more information about our transactions with affiliates, see “Related Party Transactions” under Part IV of this annual report.

Our bylaws restrict transfers of shares in some circumstances

Our bylaws provide that any acquisition or transfer of 10.0% or more of our capital stock by any person or group of persons acting together requires the approval of our Board of Directors. You may not acquire or transfer more than 10.0% of our capital stock without the approval of our Board of Directors. See “Bylaws—Restrictions of Certain Transfers” under Part IV of this annual report.

The protections afforded to minority shareholders in Mexico are different from those in the United States

Under Mexican law, the protections afforded to minority shareholders are different from those in the United States. In particular, the law concerning fiduciary duties of directors is not as fully developed as in other jurisdictions, the procedure for class actions is different, and there are different procedural requirements for bringing shareholder lawsuits. As a result, in practice it may be more difficult for minority shareholders of América Móvil to seek remedies against us or our directors or controlling shareholders than it would be for shareholders of a company incorporated in another jurisdiction, such as Delaware.

Holders of L Shares and L Share ADSs have limited voting rights

Our bylaws provide that holders of L Shares are not permitted to vote, except on such limited matters as, among others, the transformation or merger of América Móvil or the cancellation of registration of the L Shares with the

 

 

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LOGO

RISK FACTORS

 

Mexican Securities Registry (Registro Nacional de Valores, or “RNV”) maintained by the CNBV or any stock exchange on which they are listed. If you hold L Shares or L Share ADSs, you will not be able to vote on most matters, including the declaration of dividends, which are subject to a shareholder vote in accordance with our bylaws.

Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary

Under our bylaws, a shareholder is required to deposit its shares with a custodian in order to attend a shareholders’ meeting. A holder of ADSs will not be able to meet this requirement and, accordingly, is not entitled to attend shareholders’ meetings. A holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs, in accordance with procedures provided for in the deposit agreements, but a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so.

Our bylaws may only be enforced in Mexico

Our bylaws provide that legal actions relating to the execution, interpretation or performance of the bylaws may be brought only in Mexican courts. As a result, it may be difficult for non- Mexican shareholders to enforce their shareholder rights pursuant to the bylaws.

It may be difficult to enforce civil liabilities against us or our directors, officers and controlling persons