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Tickers in this Article: AMX, TMX, TEF
The astounding growth in the Latin American telecom sector shows no signs of abating. One of the hottest dishes in the area is Mexico City-headquartered America Movil SAB (NYSE:AMX), a regional wireless carrier that has grown to be one of the dominant forces in the go-go world of emerging markets telecommunications.

The company's third-quarter earnings show continued sizzle in top-line revenues and earnings. America Movil has its sights set on promising growth opportunities in regional, third-generation (3G) mobile telephony services. Perhaps the only potential spoiler at the fiesta is regulatory risk as the Mexican telecom authorities seek ways to open the market to increased competition.

Q3 results don't disappoint
Analysts by and large shrugged off the fact that America Movil missed its Q3 net-earnings estimate and were more focused on the robust pace of growth in revenue and earnings before interest, taxes, depreciation and amortization (EBITDA). The company reported a net earnings decline of 1.8% for the quarter to $11.1 billion Mexican pesos from $11.3 billion; meanwhile, sales grew 29.8% to $77.8 billion, slightly higher than expectations, and EBITDA outpaced expectations with a rise of 44.6% to $31.9 billion. The decline in the bottom line is attributable to accelerated depreciation and amortization charges arising from the write-off of obsolete equipment the company is retiring in certain countries.

Slim Pickings
America Movil was established in 2000 as a spinoff from the dominant fixed-line carrier Telefonos de Mexico SAB (Telmex NYSE:TMX). The wireless jewel in the crown of mega-billionaire Carlos Slim Helú, America Movil has moved quickly beyond its home borders and established itself as a force throughout Latin America, with strong positions in Brazil, Colombia, Argentina, Chile and Uruguay among others. The company's subscriber base from 15 countries has jumped to 143.4 million as of September 30, up from 124.8 million as of December 31, 2006 . Of the 6.2 million new subscribers gained in the third quarter, 1.4 million were in Mexico and 1.7 came from Brazil.

The company notes in its SEC Form 20-F financial statements that about 53.4% of consolidated revenues at the end of 2006 came from non-Mexican markets. This is up from 50.8% in 2005. (To learn more, see What You Need To Know About Financial Statements.)

The Full 3G Spectrum
America Movil is hoping to see its regional strategy bear fruit with planned upcoming spectrum auctions in Mexico, Brazil and elsewhere. At the core of the company's strategy are the spectrum bands that support 3G mobile services such as high-speed internet and streaming video, based on a technology known as UMTS, a successor to the GSM technology widely used in telecom markets outside the United States. Mexico's telecom regulator Cofetel is planning to launch spectrum auctions for the UMTS-compatible 1900 MHz and 1.7-2.1 GHz bands in early 2008, and Brazil's telecom mandarins are also planning to auction spectrum in these bands at about the same time. Acquisition of a sufficient amount of spectrum is important for wireless operators to justify the high capital investment required for 3G service offerings.

America Movil is hoping that the upcoming Cofetel auction will proceed more smoothly than its previous attempt to sell off spectrum in 2005. In that auction the company and one of its leading competitors, Spanish wireless operator Telefonica SA (NYSE:TEF) ran afoul of spectrum-cap limits the regulator had imposed and had to relinquish some of the wireless real estate they had won.

Indeed, the major barrier to America Movil's near-term prospects, at least in its home market, is the threat of regulatory action to open up competition in the market. Regulatory decisions could affect a number of critical areas such as the company's tariff plan, which currently heavily favors the its in-network users over calls to other wireless carriers or to fixed-wire lines.


Conclusion
With a strong third quarter behind it, America Movil looks well positioned to reap the benefits of strong growth in the Latin American mobile sector, and it has established itself as a leading competitor among emerging markets telecommunications providers.

Acquiring new spectra will open up new potential profit sources, and a well-balanced revenue mix across the region should help to cushion the downside arising from possible regulatory actions in Mexico. Emerging markets telecom is not for the fainthearted, but America Movil appears to be one of the more solid prospects.

For in-depth coverage of emerging market investment, check out Re-evaluating Emerging Markets and Investing Beyond Your Borders.

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