Executive Summary / Key Takeaways

• Capital Efficiency Inflection: After three years of heavy investment in 5G, fiber, and IT systems, América Móvil is entering a harvest phase with 2025 CapEx targeted at MXN 6.7 billion, down significantly from prior levels, while revenue growth accelerates to 7.9% constant FX in Q2 2025, demonstrating that past investments are now driving earnings without proportional capital intensity.

• Postpaid Growth Engine: The company added 2.9 million postpaid subscribers in Q2 2025, with Brazil contributing 1.4 million, driving mobile service revenue growth of 9.5%—the best result in over a year—powered by network quality that management describes as "the only real 5G" in Mexico and the fastest network in Brazil according to regulator ANATEL.

• Regulatory Crossroads in Mexico: New telecommunications legislation threatens to impose symmetric regulations on "dominant players," with increased fines and coverage obligations, while aggressive MVNO competition from Walmex (WMMVY) and CFE pressures prepaid ARPU, creating a two-front battle that could compress margins despite operational excellence.

• Valuation Disconnect: Trading at 5.79x EV/EBITDA and 17.44x P/E with a 2.63% dividend yield, América Móvil trades at a meaningful discount to regional peers despite sector-leading 21.52% operating margins and 15.72% ROE, suggesting the market has not yet priced the free cash flow expansion potential from the CapEx pivot.

Setting the Scene: The Latin American Telecom Colossus

América Móvil, S.A.B. de C.V. was incorporated in 2000 in Mexico City, establishing its foundation as the dominant telecommunications service provider across Latin America. From its inception, the company built a comprehensive suite of services encompassing wireless and fixed voice, data services, value-added services like internet access, and equipment sales, operating under powerhouse brands including Telcel, Telmex Infinitum, and A1. The strategy has remained remarkably consistent: network quality, digitalization, customer care, and cost control.

Today, América Móvil sits at a critical inflection point. After three years of intensive capital deployment from 2023-2025, the company has modernized its network with 5G coverage across more than 100 Mexican cities and fiber penetration reaching 83.7% of Telmex's fixed broadband base. This infrastructure transformation coincides with a shifting competitive landscape, as Telefónica (TEF) divests regional assets and new MVNOs challenge incumbent positions. The company now faces a choice: harvest the benefits of past investments or continue heavy spending to defend market share.

The industry structure favors scale players. Telecommunications in Latin America requires massive upfront capital for spectrum licenses and network deployment, creating natural barriers to entry. América Móvil's 290 million subscriber base generates network effects that lower per-customer costs while increasing switching costs for users. This scale advantage manifests in superior margins and cash generation, but also attracts regulatory scrutiny, particularly in Mexico where the company holds a 55% mobile market share.

Technology and Network Quality: The Postpaid Moat

América Móvil's competitive advantage rests on network quality that competitors cannot easily replicate. In Brazil, the company holds a 38-40% share of the 5G market, with management emphasizing that ANATEL, the regulator, has certified Claro as the fastest network in the country. This isn't marketing fluff—it directly drives postpaid subscriber acquisition, as evidenced by Brazil's contribution of 1.4 million of the 2.9 million postpaid additions in Q2 2025.

In Mexico, the differentiation is even starker. Management claims Telcel operates "the only real 5G" network, covering more than 100 cities with "very good speed good quality." This network superiority allows the company to maintain prepaid ARPU of MXN 177, nearly 5x the MXN 38 ARPU of aggressive MVNO competitor BAIT. While BAIT and other MVNOs can compete on price, they cannot match the coverage and capacity required to support high-value postpaid customers who demand consistent data speeds and low latency.

The fiber transformation of the fixed-line business reinforces this moat. Telmex has upgraded 83.7% of its fixed broadband customers to fiber, with management targeting 91% penetration. This enables symmetrical connectivity speeds and bundled value-added services like Netflix, Paramount+, and cybersecurity tools. The strategy shifts the value proposition from dumb pipes to intelligent connectivity, supporting broadband revenue growth of 8.2% in Q2 2025 despite intense competition.

Financial Performance: Evidence of the Harvest Phase

Q2 2025 results validate the capital efficiency thesis. Revenue reached MXN 234 billion, up 13.8% year-over-year or 7.9% at constant exchange rates—the strongest constant-currency growth in over a year. Service revenue expanded 7.3%, while equipment revenue grew 12.5%, indicating healthy demand for both connectivity and devices. The broad-based acceleration across business lines and countries suggests the network investments are translating into commercial success.

The margin story is equally compelling. EBITDA hit MXN 92.4 billion, up 11.2% in peso terms and 5.1% constant currency, with margins remaining nearly flat sequentially across all countries. This stability during a period of heavy subscriber growth demonstrates operating leverage: incremental revenue flows through to EBITDA without proportional cost increases. Operating profit of MXN 47 billion grew 4% despite a 24.5% jump in depreciation from tower leases and hyperinflationary accounting in Argentina.

Capital expenditures tell the real story. Management has guided 2025 CapEx to MXN 6.7 billion, down from MXN 131 billion in 2024, citing the completion of major 5G, fiber, and IT investments. This reduction isn't temporary—management states the target is to maintain the same CapEx-to-sales percentage in coming years, implying a permanent step-down in capital intensity.

With net debt to EBITDA at a comfortable 1.56x and free cash flow expanding, the company has increased capacity for shareholder distributions, buying back MXN 8.7 billion in shares during the first half of 2025.

Segment Dynamics: Postpaid Leads, Prepaid Stabilizes

The wireless segment's transformation toward postpaid is the primary growth driver. Postpaid service revenue surged 9.5% in Q2 2025, the best result in over a year, while the postpaid base grew 6.8% year-over-year. Brazil's performance is particularly noteworthy, with management attributing success to "a very strong and good quality network," increased sales force, successful Claro Flex program, and growing Net Promoter Score. The Nubank (NU) partnership, while still small, provides a digital distribution channel that complements physical stores.

Prepaid revenue, long a drag from Mexico's economic slowdown, recovered to 3.1% growth in Q2 2025 from just 0.9% in Q1. Mexican prepaid ARPU climbed 2.2% after a 2.2% decline in Q1, with management linking the improvement to the economy "doing a little bit better." This stabilization matters because prepaid still represents a significant portion of the subscriber base, and its decline had been offsetting postpaid gains. The recovery suggests the Mexican economy may have bottomed, supporting management's view that Q1 2025 marked the trough.

Fixed-line performance demonstrates the fiber strategy's success. Broadband revenue grew 8.2% in Q2 2025, with Mexico accelerating to 231,000 net additions from 155,000 in Q1. Corporate networks revenue jumped 15%—the best performance in several quarters—driven by cloud services, digitalization, and data center projects. PayTV revenue increased 10.1%, also a multi-quarter high, reflecting the value of bundled content. These results show that fiber isn't just a cost center; it's generating premium pricing and new revenue streams.

Outlook and Execution: Management's Roadmap

Management's guidance reveals confidence in the harvest phase thesis. Daniel Hajj explicitly stated the CapEx target of MXN 6.7-6.8 billion for 2025, adding "I don't think there's going to be any change on the way we are going to invest in the next 1 or 2 years." This commitment to lower capital intensity implies free cash flow expansion, with CFO Carlos Garcia Moreno noting "there is going to be more cash available for distributions" given the 1.4x net debt to EBITDA ratio sits at the target range's midpoint.

The Mexican economic outlook supports prepaid recovery. Garcia Moreno expects the economy to bottom in Q1 2025 and recover in the second half, with real policy rates coming down and government expenditures potentially increasing. This macro view underpins the prepaid revenue stabilization and provides a catalyst for further acceleration. In Brazil, Hajj sees "no big changes on the next quarters," expecting continued postpaid momentum from network quality and sales force expansion.

Chile represents a key execution test. The ClaroVTR consolidation contributed MXN 3.3 billion in revenue during the last two months of 2024, and management is targeting a three-year integration plan. Hajj emphasizes they want "profitability and market share," with number portability gains over the last six months indicating the network improvements are resonating. The $250 million CapEx budget for Chile in 2025 focuses on fiber and 5G, with synergies already reducing costs and improving EBITDA margins.

M&A strategy remains opportunistic. The termination of the Entel joint bid for Telefónica Chile allows América Móvil to pursue assets individually, potentially consolidating market share in a region where Telefónica is retreating. Hajj stated they are "open to M&A opportunities" as Telefónica sells assets, with the ability to act from a position of financial strength.

Risks: The Thesis Under Pressure

The new Mexican telecommunications law poses the most significant risk to the investment thesis. Daniel Hajj noted the legislation is "substantially similar to the original proposal," creating two regulatory bodies: one for antitrust matters that can impose symmetric regulations on dominant players, and another assuming the former IFT's powers. Increased fines, coverage obligations for remote areas, and new user density requirements will entail "a lot of work" and potentially higher costs. If América Móvil is designated a dominant player, margin compression could offset the benefits of lower CapEx.

MVNO competition in Mexico remains fierce. Walmex and CFE have been competing aggressively for two years, with BAIT offering prepaid ARPU of just MXN 38 compared to Telcel's MXN 177. While management dismisses this as a low-quality segment, sustained pressure could force price cuts that bleed into postpaid or reduce overall market profitability. The risk is that what starts as prepaid competition migrates upmarket as MVNOs improve their networks and service quality.

Economic volatility in Latin America could derail the recovery. The Mexican economy's slowdown since April 2024 has already impacted prepaid revenues, and any renewed weakness would pressure the segment that management is counting on for stabilization. Currency fluctuations also pose a threat—while the peso depreciated against most regional currencies in Q2 2025, boosting reported results, a reversal could create headwinds. With 60% of net debt in local currencies and 32% in dollars, the company has some natural hedge, but significant peso strength would compress reported growth.

Competitive Positioning: Strength Against Regional Peers

América Móvil's scale creates a cost advantage that regional competitors cannot match. Telefónica, with net debt to EBITDA of 2.01x and negative profit margins of -5.00%, is retreating from the region, selling assets that América Móvil can selectively acquire. While Telefónica's global diversification provides some stability, its Latin American operations suffer from lower margins and slower growth, making it a weaker competitor in the markets that matter most for AMX.

Millicom (TIGO) operates with higher EBITDA margins of 26.48% but lacks the scale to compete on network quality. Its 2.56x debt-to-equity ratio and smaller subscriber base limit its ability to invest in 5G and fiber at América Móvil's pace. In Colombia, where both companies compete, América Móvil's 40% market share versus TIGO's 30% translates into better network economics and higher ARPU.

TIM S.A. (TIMB) in Brazil presents a more direct threat, with 25.21% operating margins and strong postpaid growth. However, TIM's focus on mobile-only services limits its ability to offer the converged fixed-mobile bundles that América Móvil is increasingly using to reduce churn and increase ARPU. América Móvil's 38-40% 5G market share in Brazil exceeds TIM's position, and the Nubank partnership provides a digital edge that TIM cannot easily replicate.

The key differentiator is América Móvil's integrated strategy. While competitors focus on either mobile or fixed, América Móvil's fiber-to-the-home infrastructure enables converged offers that lock in customers. This is particularly valuable in Brazil, where 11 million home passes with fiber support both broadband and mobile services, creating a moat that pure mobile players cannot cross.

Valuation Context: Discounted Quality

At $21.45 per share, América Móvil trades at 17.44x trailing earnings and 5.79x EV/EBITDA, metrics that appear modest for a company generating 21.52% operating margins and 15.72% ROE. The 2.63% dividend yield provides income while investors wait for the harvest phase to fully materialize. Net debt to EBITDA of 1.65x sits comfortably in management's target range of 1.35-1.5x, indicating balance sheet strength without excessive leverage.

Peer comparisons highlight the discount. Telefónica trades at 6.18x EV/EBITDA despite negative profit margins and a struggling Latin American portfolio. Millicom commands 6.00x EV/EBITDA with higher debt levels and less scale. TIM S.A. trades at 6.12x EV/EBITDA but lacks the fixed-line assets that are driving América Móvil's corporate networks growth. The valuation gap suggests the market has not fully appreciated the sustainability of América Móvil's lower capital intensity or the competitive moat created by its integrated network.

Free cash flow generation provides the ultimate valuation support. With 2025 CapEx targeted at MXN 6.7 billion and EBITDA running at approximately MXN 92 billion per quarter, the company is positioned to generate substantial excess cash. Management's commitment to returning capital through buybacks (MXN 8.7 billion in H1 2025) and dividends, combined with the statement that "there is going to be more cash available for distributions," signals confidence in the free cash flow inflection.

Conclusion: The Harvest Phase Is Here

América Móvil has reached an inflection point where three years of heavy network investment are translating into accelerating revenue growth with declining capital intensity. The postpaid subscriber engine, powered by superior 5G and fiber networks, is generating the best mobile service revenue growth in over a year, while the fixed-line business benefits from corporate digitalization and bundled content services. Management's guidance for sustained lower CapEx, combined with a comfortable leverage position, points to significant free cash flow expansion that the market has not yet priced.

The investment thesis hinges on two variables: execution of the harvest phase in Mexico despite regulatory and competitive headwinds, and continued postpaid momentum in Brazil. If América Móvil can maintain its network quality advantage while reducing capital spending, the valuation discount to regional peers should close as free cash flow becomes visible. The termination of the Entel joint bid creates optionality for selective M&A that could further consolidate market share. For investors, the story is no longer about building networks—it's about harvesting the returns from networks already built.