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AMOV America Movil S.A.B.DE C.V. - ADR

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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

FORM20-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 RegulationS-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, anon-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-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 Rule12b-2 of the Exchange Act).

  Yes              No


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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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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 purchasing1,318,200,000 of the principal amount of the Exchangeable Bond. Aggregate principal amount of1,607,300,000 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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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 andover-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 and4G-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 ofnon- 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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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, anon-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 bynon-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 theAM-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 amarket-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, ayear-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 ournon- 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 ournon- Mexican operations for both periods. We believe that this additional information helps investors better understand the performance of ournon-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 recognizeright-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, includingon-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 ofhigher-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 ofnon-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 ofnon-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 ournon-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 significantnon- 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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RESULTS OF OPERATIONS

 

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 theyear-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 ournon-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 theone-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, aone-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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RESULTS OF OPERATIONS

 

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 ofhigher-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 ongoingCOVID-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 nooff-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 suchnon-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 totaling550 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 for1.0 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 thejurisdiction-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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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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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

América Móvil is organized under the laws of Mexico, with its principal place of business in Mexico City, and most of our directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and their assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under U.S. federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to judgments of U.S. courts, of liabilities based solely on U.S. federal securities laws.

You may not be entitled to participate in future preemptive rights offerings

Under Mexican law, if we issue new shares for cash as part of certain capital increases, we must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in América Móvil. Rights to purchase shares in these circumstances are known as preemptive rights. Our shareholders do not have preemptive rights in certain circumstances such as mergers, convertible debentures, public offers and placement of repurchased shares. We may not be legally permitted to allow holders of ADSs or holders of L Shares or A Shares in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) with respect to that future issuance of shares. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether we will file such a registration statement.

We cannot assure you that we will file a registration statement with the SEC to allow holders of ADSs or U.S. holders of L Shares or A Shares to participate in a preemptive rights offering. As a result, the equity interest of such holders in América Móvil may be diluted proportionately. In addition, under current Mexican law, it is not practicable for the depositary to sell preemptive rights and distribute the proceeds from such sales to ADS holders.

RISKS RELATING TO DEVELOPMENTS IN MEXICO AND OTHER COUNTRIES

Economic, political and social conditions in Latin America, the United States, the Caribbean and Europe may adversely affect our business

Our financial performance may be significantly affected by general economic, political and social conditions in the markets where we operate. Many countries in Latin America and the Caribbean, including Mexico, Brazil and Argentina, have undergone significant economic, political and social crises in the past, and these events may occur again in the future. We cannot predict whether changes in political administrations will result in changes in governmental

 

 

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policy and whether such changes will affect our business. Factors related to economic, political and social conditions that could affect our performance include:

 

 significant governmental influence over local economies;

 

 substantial fluctuations in economic growth;

 

 high levels of inflation, including hyperinflation;

 

 changes in currency values;

 

 exchange controls or restrictions on expatriation of earnings;

 

 high domestic interest rates;

 

 price controls;

 

 changes in governmental economic, tax, labor or other policies;

 

 imposition of trade barriers;

 

 changes in law or regulation; and

 

 overall political, social and economic instability.

Adverse economic, political and social conditions in Latin America, the United States, the Caribbean or in Europe may inhibit demand for telecommunication services and create uncertainty regarding our operating environment or may affect our ability to renew our licenses and concessions, to maintain or increase our market share or profitability and may have an adverse impact on future acquisitions, which could have a material adverse effect on our company. In addition, the perception of risk in the countries in which we operate may have a negative effect on the trading price of our shares and ADSs and may restrict our access to international financial markets.

In various countries where we operate, for example, elections took place during 2018, which could lead to economic, political and social changes over which we have no control. Our business may also be especially affected by conditions in Mexico and Brazil, two of our largest markets. Mexican elections in July 2018 resulted in a new president and in a new Congress with a majority of members in both houses representing a different political party from the parties that have been in power in the past. We cannot

predict what changes in policy the Mexican administration may adopt, or their impact on our operations. Additionally, in Mexico, economic conditions are strongly impacted by those of the United States. There is continuing uncertainty regarding U.S. policies with respect to matters of importance to Mexico and its economy, particularly with respect to trade and migration.

Possible replacement of the LIBOR benchmark interest rate may have an impact on our business

On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Potential changes, or uncertainty related to such potential changes may adversely affect the market for loans with LIBOR-indexed interest rates. When LIBOR ceases to exist, we may need to amend the credit and loan agreements with our lenders that utilize LIBOR as a factor in determining the interest rate based on a new standard that is established, if any. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations and financial condition.

Changes in exchange rates could adversely affect our financial condition and results of operations

We are affected by fluctuations in the value of the currencies in which we conduct operations compared to the currencies in which our indebtedness is denominated. Such changes result in exchange losses or gains on our net indebtedness and accounts payable. In 2019, we reported net foreign exchange gains of Ps.5.2 billion.

In addition, currency fluctuations between the Mexican peso and the currencies of ournon-Mexican subsidiaries affect our results as reported in Mexican pesos. Currency fluctuations are expected to continue to affect our financial income and expense.

 

 

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RISK FACTORS

 

Major depreciation of the currencies in which we conduct operations could cause governments to impose exchange controls that would limit our ability to transfer funds between us and our subsidiaries

Major depreciation of the currencies in which we conduct operations may result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert such currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. For example, although the Mexican government does not currently restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert Mexican pesos into U.S. dollars or to transfer other currencies out of Mexico, it could institute restrictive exchange rate policies in the future. Similarly, the Brazilian government may impose temporary restrictions on the conversion of Brazilian reais into foreign currencies and on the remittance to foreign investors of proceeds from investments in Brazil whenever there is a serious imbalance in Brazil’s balance of payments or a reason to foresee a serious imbalance. In the past, the government of Argentina has adopted restrictions on access to the foreign exchange market and the transfer of foreign currency outside

Argentina. The Argentine government could impose further exchange controls or restrictions on the movement of capital and take other measures in the future in response to capital flight or a significant depreciation of the Argentine peso.

Developments in other countries may affect the market price of our securities and adversely affect our ability to raise additional financing

The market value of securities of Mexican companies is, to varying degrees, affected by economic and market conditions in other countries, including the United States, the European Union (the “EU”) and emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Mexican issuers. Crises in the United States, the EU and emerging market countries may diminish investor interest in securities of Mexican issuers. This could materially and adversely affect the market price of our securities, and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

 

 

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PART IV SHARE OWNERSHIP AND TRADING for your Growth


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MAJOR SHAREHOLDERS

 

The following table sets forth our capital structure as of March 31, 2020.

 

SERIES

 NUMBER OF SHARES
(MILLIONS)
  PERCENT OF COMBINED  

CAPITAL A SHARES AND AA

SHARES(1)

 
    

L Shares (no par value)

  44,868   68.0   
    

AA Shares (no par value)

  20,602   31.2  97.5
    

A Shares (no par value)

  526   0.8  2.5
    

Total(2)

  65,996   100  100

 

(1) The AA Shares and A Shares of América Móvil, together, are entitled to elect a majority of our directors. Holders of L Shares are entitled to limited voting rights under our bylaws. See “Bylaws—Voting Rights” under this Part IV.

(2) Figures in the table may not recalculate exactly due to rounding.

 

According to reports of beneficial ownership of our shares filed with the SEC, the Slim Family may be deemed to control us through their interests in a Mexican trust that holds AA Shares and L Shares for their benefit (the “Family Trust”), their interest in Inversora Carso, S.A. de C.V., including its subsidiary Control Empresarial de Capitales, S.A. de C.V. and their direct ownership of our shares. See “Management—Directors” and “Management—Executive Committee” under Part V and “Related Party Transactions” under this Part IV of this annual report.

The following table identifies owners of more than 5.0% of any series of our shares as of March 31, 2020. Except as described in the table below and the accompanying notes, we are not aware of any holder of more than 5.0% of any series of our shares. Figures below do not include L Shares that would be held by each shareholder upon conversion of AA Shares or A Shares, as provided for under our bylaws. See “Bylaws—Shareholders’ Equity” under this Part IV and “Management—Share Ownership of Directors and Senior Management” under Part V of this annual report.

 

SHAREHOLDER

  SHARES OWNED (MILLIONS)   PERCENT OF CLASS(1) 
 

AA SHARES:

 

   

Family Trust(2)

   10,894    52.9% 
   

Inversora Carso(3)

   4,381    21.3% 
   

Carlos Slim Helú

   1,879    9.1% 
 

L SHARES:

 

   

Inversora Carso(3)

   6,020    13.4% 
   

Family Trust(2)

   5,998    13.4% 
   

Carlos Slim Helú

   3,072    6.8% 
   

BlackRock, Inc.(4)

   2,616    5.8% 

 

(1) Percentage figures are based on the number of shares outstanding as of March 31, 2020.

(2) The Family Trust is a Mexican trust that holds AA Shares and L Shares for the benefit of members of the Slim Family. In addition to shares held by the Family Trust, members of the Slim Family, including Carlos Slim Helú, directly own an aggregate of 3,558 million AA Shares and 9,570 million L Shares representing 17.3% and 21.3%, respectively, of each series. According to beneficial reports filed with the SEC, none of these members of the Slim Family, other than Carlos Slim Helú, individually directly own more than 5.0% of any class of our shares.

(3) Includes shares owned by subsidiaries of Inversora Carso. Based on beneficial ownership reports filed with the SEC, Inversora Carso is a Mexican sociedad anónima de capital variable and may be deemed to be controlled by the Slim Family.

(4) Based on beneficial ownership reports filed with the SEC.

 

As of March 31, 2020, 15.9% of the outstanding L Shares were represented by L Share ADSs, each representing the right to receive 20 L Shares, and 99.9% of the L Share ADSs were held by 6,726 registered holders with addresses in the United States. As of such date, 36.7% of the A Shares were held in the form of A Share ADSs, each representing the right to receive 20 A Shares, and 99.9% of the A Share ADSs were held by 3,318 registered holders with addresses in the United States. Each A Share may be exchanged at the option of the holder for one L Share.

We have no information concerning the number of holdings or holders with registered addresses in the United States that hold:

 

 

AA Shares;

 

 

A Shares not represented by ADSs; or

 

 

L Shares not represented by ADSs.

 

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RELATED PARTY TRANSACTIONS

 

Our subsidiaries purchase materials or services from a variety of companies that may be deemed for certain purposes to be under common control with us, including Telesites, Grupo Carso and Grupo Financiero Inbursa and their respective subsidiaries.

These services include insurance and banking services provided by Grupo Financiero Inbursa and its subsidiaries. In addition, we sell products in Mexico through the Sanborns and Sears Operadora México, S.A. de C.V. (“Sears”) store chains. Some of our subsidiaries also purchase network construction services and materials from subsidiaries of Grupo Carso. Our subsidiaries purchase these materials and services on terms no less favorable than they could obtain from unaffiliated parties, and would have access to other sources if our related parties ceased to provide them on competitive terms.

We and Telesites have entered into an agreement providing for site usage fees, annual price escalations and fixed annual charges that permit us to install a pre-determined amount of equipment at the sites and provide for incremental fee payments if capacity use is exceeded. The principal economic terms of the agreement conform to the reference terms published by Telesites and approved by IFT.

Note 6 to our audited consolidated financial statements included in this annual report provides additional information about our related party transactions.

 

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DIVIDENDS

 

We regularly pay cash dividends on our shares. The table below sets forth the nominal amount of dividends paid per share on each date indicated, in Mexican pesos and translated into U.S. dollars at the exchange rate reported by Banco de México, as published in the Official Gazette, for each of the respective payment dates.

 

  

PAYMENT DATE

 PESOS PER SHARE  DOLLARS PER SHARE 
   

November 11, 2019

 Ps.      0.17 U.S.$       0.0090 
   

July 15, 2019

 Ps.      0.18 U.S.$0.0095 
   

November 12, 2018

 Ps.      0.16 U.S.$0.0080 
   

July 16, 2018

 Ps.      0.16 U.S.$0.0085 
   

November 13, 2017

 Ps.      0.15 U.S.$0.0079 
   

July 17, 2017

 Ps.      0.15 U.S.$0.0085 
   

November 14, 2016

 Ps.      0.14 U.S.$0.0068 
   

July 15, 2016

 Ps.      0.14 U.S.$0.0076 
   

November 13, 2015

 Ps.      0.13 U.S.$0.0078 
   

September 25, 2015

 Ps.      0.30 U.S.$0.0177 
   

July 17, 2015

 Ps.      0.13 U.S.$0.0082 

On April 24, 2020, our shareholders approved a dividend of Ps.0.38 per share, of which Ps.0.19 per share is payable on July 20, 2020 and Ps.0.19 is payable on November 9, 2020. Shareholders entitled to the dividend will have an option to receive it in a cash, as series L Shares or combination thereof.

The declaration, amount and payment of dividends by América Móvil is determined by majority vote of the holders of AA Shares and A Shares, generally on the recommendation of the Board of Directors, and depends on our results of operations, financial condition, cash requirements, future prospects and other factors considered relevant by the holders of AA Shares and A Shares.

Our bylaws provide that holders of AA Shares, A Shares and L Shares participate equally on a per-share basis in dividend payments and other distributions, subject to certain preferential dividend rights of holders of L Shares. See “Bylaws—Dividend Rights” and “Bylaws—Preferential Rights of L Shares” under this Part IV.

 

 

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TRADING MARKETS

Our shares and ADSs are listed on the following markets::

 

  

SECURITY

  STOCK EXCHANGE  TICKER SYMBOL
   

L Shares

  Mexican Stock Exchange—Mexico City  AMXL
   

L Share ADSs

  New York Stock Exchange—New York  AMX
   

A Shares

  Mexican Stock Exchange—Mexico City  AMXA
   

A Share ADSs

  New York Stock Exchange—New York  AMOV

 

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BYLAWS

We are asociedad anónima bursátil de capital variableorganized under Mexican law. For a description of our AA Shares, A Shares and L Shares, and a brief summary of certain significant provisions in our current bylaws and Mexican law, see “Description of Securities Registered Under Section 12 of the Exchange Act,” filed as Exhibit 2.1 with this annual report. For a description of our Board of Directors, Executive and Audit and Corporate Practices Committees and External Auditor, see “Management” under Part V of this annual report.

 

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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFLICATED PURCHASERS

 

We periodically repurchase our L Shares and A Shares on the open market using funds authorized by our shareholders specifically for the repurchase of L Shares and A Shares by us at our discretion. In the annual ordinary shareholders’ meeting held on April 24, 2020, our shareholders authorized an allocation of Ps.6 billion to repurchase L Shares and A Shares from April 2020 to April 2021.

The following tables set out information concerning purchases of our L Shares and A Shares by us and our affiliated purchasers in 2019. We did not repurchase our L Shares or A Shares other than through the share repurchase program.

 

PERIOD

  TOTAL NUMBER
OF SHARES
PURCHASED
(1)(3)
   AVERAGE PRICE
PER SHARE
(3)
   TOTAL NUMBER OF SHARES
PURCHASED AS PART OF
PUBLICLY ANNOUNCED
PLANS OR PROGRAMS
(3)
   APPROXIMATE MEXICAN PESO
VALUE OF SHARES THAT MAY
YET BE PURCHASED UNDER THE
PLANS OR PROGRAMS
(2)
 
     

January 2019

   3,400,000           Ps.      14.74        3,400,000                      2,529,653,368                 
     

February 2019

   5,008,180           14.28        5,008,180                      2,458,160,850                 
     

March 2019

   3,544,075           13.70        3,544,075                      2,409,569,852                 
     

March 2019(4)

   1,652           13.75        1,652                      2,409,569,852                 
     

April 2019

   3,346,504           14.19        3,346,504                      2,960,276,576                 
     

May 2019

   4,000,000           13.47        4,000,000                      2,906,382,343                 
     

June 2019

   750,000           14.04        750,000                      2,895,853,559                 
     

July 2019

   1,869,756           13.72        1,869,756                      2,870,207,277                 
     

August 2019

   4,712,186           13.06        4,712,186                      2,808,649,183                 
     

September 2019

   785,032           14.22        785,032                      2,797,485,567                 
     

October 2019

   350,000           14.87        350,000                      2,792,279,567                 
     

November 2019

   400,000           15.06        400,000                      2,786,257,067                 
     

December 2019

   2,410,311           14.78        2,410,311                      2,750,633,256                 

Total L Shares

  30,576,044              30,576,044                       

Total A Shares

  1,652              1,652                       

(1) This includes purchases by us and our affiliated purchasers in 2019.

(2) This is the approximate peso amount available at the end of the period for purchases of both L Shares and A Shares pursuant to our share repurchase program.

(3) Refers to L Shares unless otherwise indicated.

(4) Refers to A Shares.

 

  

  

  

  

 

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TAXATION OF SHARES AND ADSs

 

The following summary contains a description of certain Mexican federal and U.S. federal income tax consequences of the acquisition, ownership and disposition of L Shares, A Shares, L Share ADSs or A Share ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, hold or sell shares or ADSs.

This discussion does not constitute, and should not be considered as, legal or tax advice to holders. The discussion is for general information purposes only and is based upon the federal tax laws of Mexico (including the Mexican Income Tax Law (Ley del Impuesto sobre laRenta) and the United States in effect on the date of this annual report, including the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion and the protocols thereto between the United States and Mexico currently in force (together, the “Tax Treaty”) and the agreement between the United States and Mexico concerning the exchange of information with respect to tax matters. The Tax Treaty is subject to change, and such changes may have retroactive effects. Holders of shares or ADSs should consult their own tax advisors as to the Mexican, U.S. or other tax consequences of the purchase, ownership and disposition of shares or ADSs, including, in particular, the effect of any foreign, state or local tax laws.

MEXICAN TAX CONSIDERATIONS

The following is a general summary of the principal consequences under the Mexican Income Tax Law and the rules and regulations thereunder, as currently in effect, of an investment in shares or ADSs by a holder that is not a resident of Mexico and that will not hold shares or ADSs or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment in Mexico (a “nonresident holder”).

For purposes of Mexican taxation, the definition of residence is highly technical and residence arises in several situations. Generally, an individual is a resident of Mexico if he or she has established his or her home or center of vital interests in Mexico, and a corporation is considered a resident if it has its place of effective management in Mexico. However, any determination of residence should

take into account the particular situation of each person or legal entity.

If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican tax purposes, all income attributable to that permanent establishment will be subject to Mexican income taxes, in accordance with applicable tax laws.

This summary does not purport to be a comprehensive description of all the Mexican tax considerations that may be relevant to a decision to purchase, own or dispose of the shares. In particular, this summary (i) does not describe any tax consequences arising under the laws of any state, locality, municipality or taxing jurisdiction other than certain federal laws of Mexico and (ii) does not address all of the Mexican tax consequences that may be applicable to specific holders of the shares, including a holder:

 

 whose shares were not acquired through the Mexican Stock Exchange or other markets authorized by the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) or the Mexican Federal Tax Code;

 

 of shares or ADSs that control us;

 

 that holds 10.0% or more of our shares;

 

 that is part of a group of persons for purposes of Mexican law that controls us (or holds 10.0% or more of our shares); or

 

 that is a resident of Mexico or is a corporation resident in a tax haven (as defined by the Mexican Income Tax Law).

Tax Treaties

Provisions of the Tax Treaty that may affect the taxation of certain U.S. holders (as defined below) are summarized below.

The Mexican Income Tax Law has established procedural requirements for a nonresident holder to be entitled to benefits under any of the tax treaties to which Mexico is a party, including on dispositions and dividends. These procedural requirements include, among others, the obligation to (i) prove tax treaty residence, (ii) file tax calculations made by an authorized certified public

 

 

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accountant or an informational tax statement, as the case may be, and (iii) appoint representatives in Mexico for taxation purposes. Parties related to the issuer may be subject to additional procedural requirements.

Payment of Dividends

Dividends, either in cash or in kind, paid with respect to L Shares, A Shares, L Share ADSs or A Share ADSs will generally be subject to a 10.0% Mexican withholding tax (provided that no Mexican withholding tax will apply to distributions of net taxable profits generated before 2014).

Taxation of Dispositions

The tax rate on income realized by a nonresident holder from a disposition of shares through the Mexican Stock Exchange is generally 10.0%, which is applied to the net gain realized on the disposition. This tax is payable through withholding made by intermediaries. However, such withholding does not apply to a nonresident holder who certifies that the holder is resident in a country with which Mexico has entered into an income tax treaty.

The sale or other transfer or disposition of shares not carried out through the Mexican Stock Exchange and not held in the form of ADSs will be subject to a 25% tax rate in Mexico, which is applicable to the gross proceeds realized from the sale. Alternatively, a nonresident holder may, subject to certain requirements, elect to pay taxes on the net gain realized from the sale of shares at a rate of 35%.

The sale or disposition of ADSs through securities exchanges or markets recognized under the Mexican federal tax code (which includes the NYSE) by nonresidents who are residents of a country with which Mexico has entered into an income tax treaty is not subject to income tax in Mexico under the current tax rules. The tax treatment of such transfer of ADSs by nonresidents who are also not residents of a country with which Mexico has entered into an income tax treaty is not clear under the current Mexican tax rules.

Pursuant to the Tax Treaty, gains realized by a U.S. resident that is eligible to receive benefits pursuant to the Tax Treaty from the sale or other disposition of shares or ADSs, even if the sale or disposition is not carried out under the circumstances described in the preceding paragraphs, will

not be subject to Mexican income tax, provided that the gains are not attributable to a permanent establishment or a fixed base in Mexico, and further provided that such U.S. holder owned less than 25% of the shares representing our capital stock (including ADSs), directly or indirectly, during the 12-month period preceding such disposition. U.S. residents should consult their own tax advisors as to their possible eligibility under the Tax Treaty.

Gains and gross proceeds realized by other nonresident holders that are eligible to receive benefits pursuant to other income tax treaties to which Mexico is a party may be exempt from Mexican income tax, in whole or in part. Non-U.S. holders should consult their own tax advisors as to their possible eligibility under such treaties.

Other Mexican Taxes

A nonresident holder generally will not be liable for estate, inheritance or similar taxes with respect to its holdings of shares or ADSs; provided, however, that gratuitous transfers of shares or ADSs may, in certain circumstances, result in the imposition of a Mexican tax upon the recipient. There are no Mexican stamp, issue registration or similar taxes payable by a nonresident holder with respect to shares or ADSs.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain U.S. federal income tax consequences to U.S. holders (as defined below) of the acquisition, ownership and disposition of shares or ADSs. The summary does not purport to be a comprehensive description of all of the tax consequences of the acquisition, ownership or disposition of shares or ADSs. The summary applies only to U.S. holders that will hold their shares or ADSs as capital assets and does not apply to special classes of U.S. holders, such as dealers in securities or currencies, holders with a functional currency other than the U.S. dollar, holders of 10.0% or more of our shares measured by vote or value (whether held directly or through ADSs or both), tax-exempt organizations, banks, insurance companies or other financial institutions, holders liable for the alternative minimum tax, securities traders electing to account for their investment in their shares or ADSs on a mark-to-market basis, entities that are treated for U.S. federal income tax purposes as partnerships or other pass-through entities or

 

 

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TAXATION OF SHARES AND ADSs

 

equity holders therein and persons holding their shares or ADSs in a hedging transaction or as part of a straddle or conversion transaction.

For purposes of this discussion, a “U.S. holder” is a holder of shares or ADSs that is:

 

 a citizen or resident of the United States of America,

 

 a corporation (or other entity taxable as a corporation) organized under the laws of the United States of America or any state thereof or

 

 otherwise subject to U.S. federal income taxation on a net income basis with respect to the shares or ADSs.

Each U.S. holder should consult such holder’s own tax advisor concerning the overall tax consequences to it of the ownership or disposition of shares or ADSs that may arise under foreign, state and local laws.

Treatment of ADSs

In general, a U.S. holder of ADSs will be treated as the owner of the shares represented by those ADSs for U.S. federal income tax purposes. Deposits or withdrawals of shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes. U.S. holders that withdraw any shares should consult their own tax advisors regarding the treatment of any foreign currency gain or loss on any pesos received in respect of such shares.

Taxation of Distributions

In general, a U.S. holder will treat the gross amount of distributions we pay, without reduction for Mexican withholding tax, as dividend income for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits. Because we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions paid to U.S. holders generally will be reported as dividends. In general, the gross amount of any dividends will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the U.S. holder, in the case of shares, or by the depositary, in the case of ADSs.

Dividends will be paid in pesos and will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date that they are received by the U.S. holder, in the case of shares, or by the depositary, in the case of ADSs (regardless of whether such pesos are in fact converted into U.S. dollars on such date). If such dividends are converted into U.S. dollars on the date of such receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividends. U.S. holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any pesos received by a U.S. holder or depositary that are converted into U.S. dollars on a date subsequent to receipt. Dividends paid by us will not be eligible for the dividends-received deduction allowed to corporations under the U.S. Internal Revenue Code of 1986, as amended (the “Code”).

The amount of Mexican tax withheld generally will give rise to a foreign tax credit or deduction for U.S. federal income tax purposes. Dividends generally will constitute “passive category income” for purposes of the foreign tax credit (or, in the case of certain U.S. holders, “general category income”). The foreign tax credit rules are complex. U.S. holders should consult their own tax advisors with respect to the implications of those rules for their investments in our shares or ADSs.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the shares or ADSs will be subject to taxation at reduced rates if the dividends are “qualified dividends.” Dividends paid on the shares or ADSs will be treated as qualified dividends if (i) (A) the shares or ADSs are readily tradable on an established securities market in the United States or (B) we are eligible for the benefits of a comprehensive tax treaty with the United States which the U.S. Treasury determines is satisfactory for purposes of this provision and which includes an exchange of information program, and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. In addition, the U.S. Treasury has determined that the Tax Treaty meets the requirements for reduced rates of taxation,

 

 

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and we believe we are eligible for the benefits of the Tax Treaty. Based on our audited consolidated financial statements and relevant market data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to the 2018 and 2019 taxable years. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income and relevant market data, we do not anticipate becoming a PFIC for the 2020 taxable year. Holders of shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

Distributions of additional shares or ADSs to U.S. holders with respect to their shares or ADSs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

Taxation of Dispositions

A U.S. holder generally will recognize capital gain or loss on the sale or other disposition of the shares or ADSs in an amount equal to the difference between the U.S. holder’s basis in such shares or ADSs (in U.S. dollars) and the amount realized on the disposition (in U.S. dollars, determined at the spot rate on the date of disposition if the amount realized is denominated in a foreign currency). Gain or loss recognized by a U.S. holder on such sale or other disposition generally will be long-term capital gain or loss if, at the time of disposition, the shares or ADSs have been held for more than one year. Long-term capital gain recognized by a U.S. holder that is an individual is taxable at reduced rates. The deductibility of a capital loss is subject to limitations.

Gain, if any, realized by a U.S. holder on the sale or other disposition of the shares or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, if a Mexican withholding tax is imposed on the sale or disposition of the shares, a U.S. holder that does not receive significant foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of such Mexican taxes. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, the shares or ADSs.

Information Reporting and Backup Withholding

Dividends on, and proceeds from the sale or other disposition of, the shares or ADSs paid to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the holder:

 

 establishes that it is an exempt recipient, if required, or

 

 provides an accurate taxpayer identification number on a properly completed Internal Revenue Service Form W-9 and certifies that no loss of exemption from backup withholding has occurred.

The amount of any backup withholding from a payment to a holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the Internal Revenue Service.

U.S. Tax Consequences for Non-U.S. holders

DISTRIBUTIONS.A holder of shares or ADSs that is, with respect to the United States, a foreign corporation or a nonresident alien individual (a “non-U.S. holder”) will generally not be subject to U.S. federal income or withholding tax on dividends received on shares or ADSs, unless such income is effectively connected with the conduct by the holder of a U.S. trade or business.

DISPOSITIONS.A non-U.S. holder of shares or ADSs will not be subject to U.S. federal income or withholding tax on gain realized on the sale of shares or ADSs, unless:

 

 such gain is effectively connected with the conduct by the holder of a U.S. trade or business or

 

 in the case of gain realized by an individual holder, the holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.

INFORMATION REPORTING AND BACKUP WITHHOLDING.Although non-U.S. holders generally are exempt from backup withholding, a non-U.S. holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.

 

 

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PART V CORPORATE GOVERNANCE


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MANAGEMENT

 

DIRECTORS

Our Board of Directors has broad authority to manage our company. Our bylaws provide for the Board of Directors to consist of between five and 21 directors and allow for the election of an equal number of alternate directors. Directors need not be shareholders. A majority of our directors and a majority of the alternate directors must be Mexican citizens and elected by Mexican shareholders.

A majority of the holders of the AA Shares and A Shares voting together elect a majority of the directors and alternate directors, provided that any holder or group of holders of at least 10.0% of the total AA Shares and A Shares is entitled to name one director and one alternate director. Two directors and two alternate directors, if any, are elected by a majority vote of the holders of L Shares. Each alternate director may attend meetings of the Board of Directors and vote in the absence of the corresponding director. Directors and alternate directors are elected or reelected at each annual general meeting of shareholders and each annual ordinary special meeting of holders of L Shares. In accordance with the Mexican Securities Market Law (Ley del Mercado de Valores), the determination as to the independence of our directors is made by our shareholders, though the CNBV may challenge this determination. Pursuant to our bylaws and the Mexican Securities Market Law, at least 25.0% of our directors must be independent. In order to have a quorum for a meeting of the Board of Directors, a majority of those present must be Mexican nationals.

 

At the annual shareholders’ meetings held on April 24, 2020, 13 of the current members of the Board of Directors, as well as all current members of the Executive Committee and three of the Audit and Corporate Practices Committee, were reelected, and the Corporate Secretary and the Corporate Pro Secretary were reappointed, with 11 directors elected by the AA Shares and A Shares voting together and two directors elected by the L Shares. 54% of the members of the Board of Directors were considered independent by the annual ordinary general shareholders´ meeting held on April 24, 2020 and 8% of the members of the Board of Directors are women.

Our bylaws provide that the members of the Board of Directors are elected for a term of one year. Pursuant to Mexican law, members of the Board continue in their positions after the expiration of their terms for up to an additional 30-day period if new members are not elected. Furthermore, in certain circumstances provided under the Mexican Securities Market Law, the Board of Directors may elect temporary directors who then may be elected or replaced at the shareholders’ meetings.

The names and positions of the members of the Board reelected or elected for the first time at the annual general shareholders’ meeting held on April 24, 2020, their year of birth, and information concerning their committee membership and principal business activities outside América Móvil are set forth below:

 

 

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Directors elected by holders of Series AA and Series A Shares:

 

 

CARLOS SLIM DOMIT

Chairman of the Board and the Executive Committee

 

 

Born:

 

  

 

1967

 

 

First elected:

 

  

2011

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Chairman of the Board of Telmex

 

 

Other directorships:

 

  

Chairman of the Board of Grupo Carso and its subsidiaries

 

 

Business experience:

 

  

Chief Executive Officer of Sanborn Hermanos, S.A. de C.V. (“Sanborn Hermanos”)

 

 

PATRICK SLIM DOMIT

Vice Chairman and Member of the Executive Committee

 

 

Born:

 

  

 

1969

 

 

First elected:

 

  

2004

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Vice Chairman of our Board of Directors

 

 

Other directorships:

 

  

Director of Grupo Carso, Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V. (“IDEAL”) and Telmex

 

 

Business experience:

 

  

Chief Executive Officer of Grupo Carso and Vice President of Commercial Markets of Telmex

 

 

DANIEL HAJJ ABOUMRAD

Director and Member

of the Executive Committee

 

 

Born:

 

  

 

1966

 

 

First elected:

 

  

2000

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Chief Executive Officer of América Móvil

 

 

Other directorships:

 

  

Director of Grupo Carso and Telmex

 

 

Business experience:

 

  

Chief Executive Officer of Compañía Hulera Euzkadi, S.A. de C.V.

 

 

LUIS ALEJANDRO SOBERÓN KURI

Director

 

 

Born:

 

  

 

1960

 

 

First elected:

 

  

2000

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Chief Executive Officer and Chairman of the Board of Serinem México, S.A. de C.V. (a subsidiary of Corporación Interamericana de Entretenimiento, S.A.B. de C.V. (“CIE”))

 

 

Other directorships:

 

  

Director of CIE; Director of Banco Nacional de México, S.A.

 

 

Business experience:

 

  

Various positions at CIE

 

 

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FRANCISCO MEDINA CHÁVEZ

Director

 

 

Born:

 

  

 

1956

 

 

First elected:

 

  

2018

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Chief Executive Officer and Chairman of Grupo Fame, S.A. de C.V., and Chairman of Grupo Altozano

 

 

Other directorships:

 

  Director of Banamex Citigroup México and Telmex
 

Business experience:

 

  

Director of Aeromexico and Mitsui Mexico

 

 

ERNESTO VEGA VELASCO

Director, Chairman of the Audit and Corporate Practices Committee

 

 

Born:

 

  

 

1937

 

 

First elected:

 

  

2007

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Retired. Member of the board of directors and audit and corporate practices, planning and finance and evaluation and compensation committees of certain companies.

 

 

Other directorships:

 

  

Director of Kuo, S.A.B. de C.V., Dine, S.A.B. de C.V., Inmuebles Carso, IDEAL; and Industrias Peñoles, S.A.B. de C.V.

 

 

Business experience:

 

  

Various positions in Desc Group, including Corporate Vice-President

 

RAFAEL MOISÉS KALACH MIZRAHI

Director and Member of the Audit and Corporate Practices Committee

 

 

Born:

 

  

 

1946

 

 

First elected:

 

  

2012

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Chairman and Chief Executive Officer of Grupo Kaltex, S.A. de C.V.

 

 

Other directorships:

 

  

Director of Telmex and Grupo Carso

 

 

Business experience:

 

  

Various positions in Grupo Kaltex

 

 

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ANTONIO COSÍO PANDO

Director

 

 

Born:

 

  

 

1968

 

 

First elected:

 

  

2015

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Vice President of Grupo Hotelero las Brisas, S.A. de C.V. (“Grupo Brisas”), Compañía Industrial Tepeji del Río, S.A. de C.V., and Bodegas de Santo Tomás, S.A. de C.V.

 

 

Other directorships:

 

  

Director of Grupo Financiero Inbursa, Inmuebles Carso, Grupo Carso, Grupo Sanborns, Corporación Actinver S.A.B. de C.V., Grupo Aeromexico S.A.B. de C.V., and Telmex

 

 

Business experience:

 

  

Various positions in Grupo Brisas and Compañía Industrial Tepeji del Río, S.A. de C.V.

 

 

ARTURO ELÍAS AYUB

Director

 

 

Born:

 

  

 

1966

 

 

First elected:

 

  

2011

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Head of Strategic Alliances, Communications and Institutional Relations of Telmex; Chief Executive Officer of Fundación Telmex

 

 

Other directorships:

 

  

Chairman of the Board of Publicidad y Contenido Editorial, S.A. de C.V.; Director of Grupo Carso and its subsidiaries

 

 

Business experience:

 

  

Chief Executive Officer of Sociedad Comercial Cadena, President of Pastelería Francesa (El Globo) and President of Club Universidad Nacional, A.C.

 

 

OSCAR VON HAUSKE SOLÍS

Director

 

 

Born:

 

  

 

1957

 

 

First elected:

 

  

2011

 

 

Term expires:

 

  

2021

 

 

Principal occupation:

 

  

Chief Fixed-line Operations Officer of América Móvil

 

 

Other directorships:

 

  

Member of Telekom Austria’s Supervisory Board

 

 

Business experience:

 

  

Chief Executive Officer of Telmex Internacional S.A.B. de C.V., Chief Systems and Telecommunications Operators Officer of Telmex and member of KPN’s supervisory board

 

 

VANESSA HAJJ SLIM

Director

 

 

Born:

 

  

 

1997

 

 

First elected:

 

  

2018

 

 

Term expires:

 

  

2021

 

 

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Directors elected by holders of Series L Shares

 

 

PABLO ROBERTO GONZÁLEZ GUAJARDO

Director and Member of the Audit and

Corporate Practices Committee

 

 

Born:

 

 

 

1967

 

 

First elected:

 

 

2007

 

 

Term expires:

 

 

2021

 

 

Principal occupation:

 

 

Chief Executive Officer of Kimberly Clark de México

 

 

Other directorships:

 

 

Director of Kimberly Clark de México, S.A.B de C.V. (“Kimberly Clark de México”), Grupo Sanborns, Grupo Lala, S.A.B. de C.V. and Acciones y Valores Banamex S.A. de C.V. Casa de Bolsa

 

 

Business experience:

 

 

Various positions in the Kimberly Clark Corporation and Kimberly Clark de México

 

 

DAVID IBARRA MUÑOZ

Director

 

 

Born:

 

 

 

1930

 

 

First elected:

 

 

2000

 

 

Term expires:

 

 

2021

 

 

Principal occupation:

 

 

Retired

 

 

Other directorships:

 

 

Director of Grupo Financiero Inbursa, IDEAL and Grupo Carso

 

 

Business experience:

 

 

Chief Executive Officer of Nacional Financiera, S.N.C., served in the Mexican Ministry of Finance and Public Credit

 

 

The annual ordinary general shareholders’ meeting held on April 24, 2020, determined that the following directors are independent: Messrs. Ernesto Vega Velasco, Pablo Roberto González Guajardo, David Ibarra Muñoz, Antonio Cosío Pando, Rafael Moisés Kalach Mizrahi, Luis Alejandro Soberón Kuri and Francisco Medina Chávez.

Alejandro Cantú Jiménez, our General Counsel, serves as Corporate Secretary and Rafael Robles Miaja as Corporate Pro-Secretary.

Patrick Slim Domit and Carlos Slim Domit are brothers. Daniel Hajj Aboumrad and Arturo Elías Ayub are brothers-in- law of Patrick Slim Domit and Carlos Slim Domit. Vanessa Hajj Slim is the daughter of Daniel Hajj Aboumrad.

EXECUTIVE COMMITTEE

Our bylaws provide that the Executive Committee may generally exercise the powers of the Board of Directors, with

certain exceptions. In addition, the Board of Directors is required to consult the Executive Committee before deciding on certain matters set forth in the bylaws, and the Executive Committee must provide its views within 10 calendar days following a request from the Board of Directors, the Chief Executive Officer or the Chairman of the Board of Directors. If the Executive Committee is unable to make a recommendation within ten calendar days, or if a majority of the Board of Directors or any other corporate body duly acting within its mandate determines in good faith that action cannot be deferred until the Executive Committee makes a recommendation, the Board of Directors is authorized to act without such recommendation. The Executive Committee may not delegate its powers to special delegates or attorneys-in-fact.

The Executive Committee is elected from among the directors and alternate directors by a majority vote of the

 

 

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holders of common shares (AA Shares and A Shares). The majority of its members must be Mexican citizens and elected by Mexican shareholders. The current members of the Executive Committee are Messrs. Carlos Slim Domit, Patrick Slim Domit and Daniel Hajj Aboumrad. See “Major Shareholders” under Part IV of this annual report.

AUDIT AND CORPORATE PRACTICES COMMITTEE

Our Audit and Corporate Practices Committee is comprised of independent members of the Board of Directors. The Audit and Corporate Practices Committee consists of Messrs. Ernesto Vega Velasco (Chairman), Rafael Moisés Kalach Mizrahi and Pablo Roberto González Guajardo. The mandate of the Audit and Corporate Practices Committee is to assist our Board of Directors in overseeing our operations, establish and monitor procedures and controls in order to ensure that the financial information we distribute is useful, appropriate and reliable and accurately reflects our financial position. In particular, the Audit and Corporate Practices Committee is required to, among other things:

 

 provide opinions to the Board of Directors on certain matters as provided by the Mexican Securities Market Law;

 

 call shareholders’ meetings and recommend inclusion of matters it deems appropriate on the agenda;

 

 inform the Board of Directors of our internal controls and their adequacy;

 

 select our auditors, review and pre-approve the scope and terms of their engagement and determine their compensation;

 

 monitor the performance of our auditors and re-evaluate the terms of their engagement;

 

 recommend procedures for preparing financial statements and internal controls;

 

 monitor internal controls and accounting for specified types of matters;

 

 propose procedures for the preparation of financial statements for internal use that are consistent with the published financial statements;
 assist the Board of Directors in preparing reports as provided by the Mexican Securities Market Law;

 

 discuss with our auditors the annual financial statements and the accounting principles being applied in the annual and the interim financial statements and, based on such discussions, recommend their approval to the Board of Directors;

 

 resolve disagreements between our management and auditors relating to our financial statements;

 

 request the opinion of independent experts when deemed appropriate or when required by law;

 

 approve services to be provided by our auditors or establish policies and procedures for the pre-approval of services by our auditors;

 

 obtain from our auditors a report that includes a discussion of critical accounting policies used by us, any alternative accounting treatments for material items that have been discussed by management with our auditors and any other written communications between our auditors and management;

 

 report to the Board of Directors on its activities;

 

 develop procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, including for the confidential submission of concerns regarding such matters by employees;

 

 evaluate the performance of the external auditors;

 

 review and discuss our financial statements and advise the Board of Directors of the committee’s recommendations for approval of such financial statements;

 

 receive and analyze recommendations and observations to its functions from shareholders, members of the Board of Directors and senior management and receive the authority to act upon such recommendations and observations;

 

 recommend to the Board of Directors procedures for the selection and succession of our Chief Executive Officer and our other principal executives;
 

 

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 propose criteria for evaluating executive performance;

 

 analyze the proposals of the Chief Executive Officer concerning the structure and amount of compensation for our senior executives and raise them with the Board of Directors;

 

 review new executive compensation programs and the operations of existing programs; assist the Board of Directors in developing appropriate personnel policies;

 

 participate with the Board of Directors in developing a plan for employees to invest in our L Shares and review the implementation of such plan; and

 

 perform any other functions the Board of Directors may delegate to the Audit and Corporate Practices Committee.

Under certain circumstances specified in our bylaws, the Audit and Corporate Practices Committee is required to provide its opinion to the Board of Directors. The Company is required to make public disclosure of any Board action

that is inconsistent with the opinion of the Audit and Corporate Practices Committee.

In addition, pursuant to our bylaws, the Audit and Corporate Practices Committee is in charge of our corporate governance functions under the Mexican securities laws and regulations and is required to submit an annual report to the Board of Directors with respect to our corporate and audit practices. The Audit and Corporate Practices Committee must request the opinions of our executive officers for purposes of preparing this annual report. The Board of Directors must seek the opinion of the Audit and Corporate Practices Committee regarding any transaction with a related party that is outside the ordinary course of our business as defined under the Mexican Securities Market Law. Each member of the Audit and Corporate Practices Committee is independent, as determined by our shareholders pursuant to the Mexican Securities Market Law and as defined under Rule 10A-3 under the Exchange.

 

 

SENIOR MANAGEMENT

The names, responsibilities and prior business experience of our senior officers are as follows:

 

DANIEL HAJJ ABOUMRAD

Chief Executive Officer

  Appointed:  2000
  Business experience:  Director of Telmex; Chief Executive Officer of Compañía Hulera Euzkadi, S.A. de C.V.

CARLOS JOSÉ GARCÍA MORENO ELIZONDO

Chief Financial Officer

  Appointed:  2001
  Business experience:  General Director of Public Credit at the Ministry of Finance and Public Credit; Managing Director of UBS Warburg; Associate Director of Financing at Petróleos Mexicanos (Pemex); Member of Telekom Austria’s Supervisory Board; Member of KPN Supervisory Board

ALEJANDRO CANTÚ JIMÉNEZ

General Counsel

  Appointed:  2001
  Business experience:  Member of Telekom Austria’s Supervisory Board; Attorney at Mijares, Angoitia, Cortés y Fuentes, S.C.

 

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OSCAR VON HAUSKE SOLÍS

Chief Fixed-line Operations Officer

  Appointed:  2010
  Business experience:  Chief Executive Officer of Telmex Internacional S.A.B. de C.V.; Chief Systems and Telecommunications Officer of Telmex; Head of Finance at Grupo Condumex, S.A. de C.V.; Director of Telmex, Telmex Internacional, Empresa Brasileira de Telecomunicações S.A. (“Embratel”), and Net Serviços de Comunicação S.A. (“Net Serviços”); Member of Telekom Austria’s Supervisory Board

ANGEL ALIJA GUERRERO

Chief Wireless Operations Officer

  Appointed:  2012
  Business experience:  Various positions in América Móvil

 

AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Ernesto Vega Velasco qualifies as an “audit committee financial expert,” and Mr. Vega Velasco is independent under the definition of independence applicable to us under the rules of the NYSE.

 

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

The aggregate compensation paid to our directors (including compensation paid to members of our Audit and Corporate Practices Committee) and senior management in 2019 was approximately Ps.5.2 million and Ps.75 million, respectively. None of our directors is a party to any contract with us or any of our subsidiaries that provides for benefits upon termination of employment. We do not provide pension, retirement or similar benefits to our directors in their capacity as directors. Our executive officers are eligible for retirement and severance benefits required by Mexican law on the same terms as all other employees, and we do not separately set aside, accrue or determine the amount of our costs that is attributable to executive officers.

 

 

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SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT

Carlos Slim Domit, Chairman of our Board of Directors, holds 647 million (or 3.2%) of our AA Shares and 1,567 million (or 3.5%) of our L Shares directly. Patrick Slim Domit, Vice Chairman of our Board of Directors, holds 323 million (or 1.6%) of our AA Shares and 859 million (or 1.9%) of our L Shares directly. In addition, according to beneficial ownership reports filed with the SEC, Patrick Slim Domit and Carlos Slim Domit are beneficiaries of a trust that owns shares of the Company. See “Major

Shareholders” under Part IV and “Bylaws—Shareholders’ Equity” under Part IV of this annual report.

Except as described above, according to the information provided to us by our directors and members of senior management, none of our directors or executive officers is the beneficial owner of more than 1.0% of any class of our capital stock.

 

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CORPORATE GOVERNANCE

 

Our corporate governance practices are governed by our bylaws, the Mexican Securities Market Law and the regulations issued by the CNBV. We also comply with the Mexican Code of Best Corporate Practices (Código de Mejores PrácticasCorporativas). On an annual basis, we file a report with the Mexican Banking and securities Commission and the Mexican Stock Exchange regarding our compliance with the Mexican Code of Best Corporate Practices.

The table below discloses the significant differences between our corporate governance practices and those required for U.S. companies under the NYSE listing standards.

 

NYSE STANDARDS

  OUR CORPORATE GOVERNANCE PRACTICES

DIRECTOR INDEPENDENCE

Majority of board of directors must be independent. §303A.01. “Controlled companies” are exempt from this requirement. A controlled company is one in which more than 50.0% of the voting power is held by an individual, group or another company, rather than the public. §303A.00. As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.  

Pursuant to the Mexican Securities Market Law, our shareholders are required to appoint a board of directors of no more than 21 members, 25% of whom must be independent. Certain persons are per se non-independent, including insiders, control persons, major suppliers and any relatives of such persons. In accordance with the Mexican Securities Market Law, our shareholders’ meeting is required to make a determination as to the independence of our directors, though such determination may be challenged by the CNBV. There is no exemption from the independence requirement for controlled companies.

 

Currently, the majority of our Board of Directors is independent.

 

EXECUTIVE SESSIONS

Non-management directors must meet at regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03.

 

  Our non-management directors have not held executive sessions without management in the past, and they are not required to do so.

NOMINATING/CORPORATE GOVERNANCE COMMITTEE

Nominating/corporate governance committee composed entirely of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04.  

Mexican law requires us to have one or more committees that oversee certain corporate practices, including the appointment of directors and executives. Under the Mexican Securities Market Law, committees overseeing certain corporate practices must be composed of independent directors. However, in the case of controlled companies, such as ours, only a majority of the committee members must be independent.

 

“Controlled companies” are exempt from these requirements. §303A.00. As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.  

Currently, we do not have a nominating committee, and we are not required to have one. Our Audit and Corporate Practices Committee, which is composed of independent directors, oversees our corporate practices, including the compensation and appointment of directors and executives.

 

 

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CORPORATE GOVERNANCE

 

NYSE STANDARDS

  OUR CORPORATE GOVERNANCE PRACTICES

COMPENSATION COMMITTEE

Compensation committee composed entirely of independent directors is required, which must evaluate and approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.02(a)(ii) and §303A.05. “Controlled companies” are exempt from this requirement. §303A.00.

 

  

We currently do not have a compensation committee, and we are not required to have one. Our Audit and Corporate Practices Committee, which is comprised solely of independent directors, evaluates and approves the compensation of management (including our CEO) and directors.

 

AUDIT COMMITTEE

Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the additional requirements under the NYSE standards is required. §§303A.06 and 303A.07.  

We have an audit and corporate practices committee of three members. Each member of the Audit and Corporate Practices Committee is independent, as independence is defined under the Mexican Securities Market Law, and also meets the independence requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended. Our Audit and Corporate Practices Committee operates primarily pursuant to (1) a written charter adopted by our Board of Directors, which assigns to the Committee responsibility over those matters required by Rule 10A-3 (2) our bylaws and (3) Mexican law. For a more detailed description of the duties of our Audit and Corporate Practices Committee, see “Management” under Part V of this annual report.

 

EQUITY COMPENSATION PLANS

Equity compensation plans and all material revisions thereto require shareholder approval, subject to limited exemptions. §§303A.08 and 312.03.  

Shareholder approval is expressly required under Mexican law for the adoption or amendment of an equity compensation plan. Such plans must provide for similar treatment of executives in comparable positions.

 

SHAREHOLDER APPROVAL FOR ISSUANCE OF SECURITIES

Issuances of securities (1) that will result in a change of control of the issuer, (2) that are to a related party or someone closely related to a related party, (3) that have voting power equal to at least 20.0% of the outstanding common stock voting power before such issuance or (4) that will increase the number of shares of common stock by at least 20.0% of the number of outstanding shares before such issuance requires shareholder approval. §§312.03(b)-(d).

 

  Mexican law requires us to obtain shareholder approval for any issuance of equity securities. Under certain circumstances, however, we may sell treasury stock subject to the approval of our Board of Directors.

CODE OF BUSINESS CONDUCT AND ETHICS

Corporate governance guidelines and a code of business conduct and ethics are required, with disclosure of any waiver for directors or executive officers. The code must contain compliance standards and procedures that will facilitate the effective operation of the code. §303A.10.

 

  We have adopted a code of ethics, which applies to all of our directors and executive officers and other personnel. For more information, see “Corporate Governance—Code of Ethics” under Part V of this annual report.

 

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NYSE STANDARDS

  OUR CORPORATE GOVERNANCE PRACTICES

CONFLICTS OF INTEREST

Determination of how to review and oversee related party transactions is left to the listed company. The audit committee or comparable body, however, could be considered the forum for such review and oversight. §314.00. Certain issuances of common stock to a related party require shareholder approval. §312.03(b).  

In accordance with Mexican law, an independent audit committee must provide an opinion to the board of directors regarding any transaction with a related party that is outside of the ordinary course of business, which must be approved by the board of directors. Pursuant to the Mexican Securities Market Law, our Board of Directors may establish certain guidelines regarding related party transactions that do not require specific board approval.

 

SOLICITATION OF PROXIES

Solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations are to be provided to NYSE. §§402.01 and 402.04.  We are not required to solicit proxies from our shareholders. In accordance with Mexican law and our bylaws, we inform shareholders of all meetings by public notice, which states the requirements for admission to the meeting. Under the deposit agreement relating to our ADSs, holders of our ADSs receive notices of shareholders’ meetings and, where applicable, instructions on how to instruct the depositary to vote at the meeting. Under the deposit agreement relating to our ADS, we may direct the voting of any ADS as to which no voting instructions are received by the depositary, except with respect to any matter where substantial opposition exists or that materially and adversely affects the rights of holders.

 

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CONTROLS AND PROCEDURES

 

A) DISCLOSURE CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2019. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

B) MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and other personnel, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of the inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

Our management’s assessment and conclusion on the effectiveness of internal control over financial reporting as of December 31, 2019 excludes, in accordance with applicable guidance provided by the SEC, an assessment of the internal control over financial reporting of Nextel Telecomunicações Ltda. and subsidiaries, which we acquired in 2019. Nextel Telecomunicações Ltda represented 2.1% and 5.1% of our total and net assets, respectively, as of December 31, 2019, and represented 0.0% of revenues and net income by 0.0% for the year then ended. No material changes in our internal control over financial reporting were identified as a result of this acquisition.

Mancera, S.C. (“Mancera”), a member practice of Ernst & Young Global Limited, an independent registered public accounting firm, our independent auditor, issued an attestation report on our internal control over financial reporting on April 29, 2020.

C) ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

América Móvil, S.A.B. de C.V.

 

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Opinion on Internal Control Over Financial Reporting

We have audited América Móvil, S.A.B. de C.V. and subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, América Móvil, S.A.B. de C.V. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Nextel Telecomunicações Ltda. and its subsidiaries (Nextel Brazil), acquired in 2019, which is included in the 2019 consolidated financial statements of América Móvil, S.A.B. de C.V. and subsidiaries and constituted 2.1% and 5.1% of total and net assets, respectively, as of December 31, 2019, and represented 0.0% of revenues and net income by 0.0% for the year then ended. Our audit of internal control over financial reporting of América Móvil, S.A.B. de C.V. and subsidiaries also did not include an evaluation of the internal control over financial reporting of Nextel Brazil excluded from the scope of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of three years in the period ended December 31, 2019, and the related notes, and our report dated April 29, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company´ s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

 

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that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ MANCERA, S.C.

Mexico City, Mexico

April 29, 2020

D) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.

There has been no change in our internal control over financial reporting during 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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CODE OF ETHICS

 

Our Code of Ethics codifies the ethical principles that govern our business and promotes, among other things, honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics and accountability for adherence to the Code of Ethics. Our Code of Ethics applies to all of our officers, senior management, directors and employees.

The full text of our Code of Ethics may be found on our website at www.americamovil.com.

 

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CORPORATE SUSTAINABILITY REPORT

We have a corporate sustainability committee that seeks to foster greater operational efficiencies, promote social responsibility and adopt environmentally friendly initiatives.

Our corporate sustainability reports are available on our website at www.americamovil.com.

 

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MEXICO

Legal Framework

The legal framework for the regulation of telecommunications and broadcasting services is based on constitutional amendments passed in June 2013, the Federal Law on Telecommunications and Broadcasting (Ley Federal de Telecomunicaciones y Radiodifusión) enacted in July 2014 and the Federal Law on Economic Competition (Ley Federal de Competencia Económica) enacted in May 2014.

Under the framework, the IFT may determine whether there is a “preponderant economic agent” in the telecommunications sector, based on number of customers, traffic or network capacity. In 2014, the IFT determined that an “economic interest group” consisting of us and our Mexican operating subsidiaries (Telcel, Telmex and Telnor) as well as Grupo Carso and Grupo Financiero Inbursa, constitutes the “preponderant economic agent” in the telecommunications sector, based on a finding that we serve more than half of the customers in Mexico, as measured by the IFT on a national basis.

The IFT has authority to impose on any preponderant economic agent a special regulatory regime. The special regime is referred to as “asymmetric” regulation because it applies to one sector participant and not to the others. Pursuant to the IFT’s determination that we are part of a group constituting a preponderant economic agent, we are subject to extensive asymmetric regulations in the telecom sector, which impacts our Mexican fixed-line and wireless businesses. See “—Asymmetric Regulation of the Preponderant Economic Agent” and “—Functional Separation of Telmex and Telnor Wholesale Services” under this Part VI. This legal framework has had a substantial impact on our business and operations in Mexico.

Principal Regulatory Authorities

The IFT is an autonomous authority that regulates telecommunications and broadcasting. It is headed by seven commissioners appointed by the President, and ratified by the Senate, from among candidates nominated by an evaluation committee. The IFT has authority over the application of legislation specific to the telecommunications

and broadcasting sectors, and also over competition legislation as it applies to those sectors. The Mexican Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes) retains regulatory authority over a few specific public policy matters.

The Mexican government has certain powers in its relations with concessionaires, including the right to take over the management of an operator’s networks, facilities and personnel in cases of imminent danger to national security, public order or the national economy, natural disasters and public unrest, as well as to ensure continuity of public services.

Telecommunications operators are also subject to regulation by the Federal Consumer Bureau (Procuraduría Federal del Consumidor) under the Federal Consumer Protection Law (Ley Federal de Protección al Consumidor), which regulates publicity, quality of services and information required to be provided to consumers.

Asymmetric Regulation of the Preponderant Economic Agent

We are currently subject to extensive specific asymmetric measures based on the IFT’s determination that we, our Mexican operating subsidiaries (Telcel, Telmex Telnor,RedNacional Ultima Milla S.A.P.I. de C.V.andRed Ultima Milla Del NoroesteS.A.P.I. de C.V.) and certain affiliates constitute the preponderant economic agent in the telecommunications sector. Below is a summary of what we believe are the most important measures applicable to us.

 

 Interconnection Rates.The Federal Law on Telecommunications and Broadcasting provides that we are not permitted to charge other carriers for the termination services we provide in our networks. These provisions were declared unconstitutional by the Mexican Supreme Court (Suprema Corte de Justicia de la Nación) in August 2017 with respect to wireless services and in April 2018 with respect to fixed services. As a result, the IFT ruled that, as of January 1, 2018, in the case of Telcel, and as of January 1, 2019, in the case of Telmex, we are able to charge other carriers for terminating calls to our networks at asymmetric rates established by the IFT. We continue to pay such carriers for their interconnection services in accordance with the fixed and mobile rates set by the IFT.
 

 

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 Sharing Of Wireless Infrastructure and Services.We must provide other carriers access to (i) passive infrastructure, including towers, sites, ducts and rights of way, (ii) elements of our network that allow other carriers and mobile virtual network operators (“MVNOs”) to use our network or resell those services we provide to our customers and (iii) domestic roaming services, in each case, pursuant to IFT pre-approved reference terms (ofertas públicas de referencia). If we cannot reach an agreement with other carriers or MVNOs, our rates may be determined by the IFT using a long-run average incremental costs methodology or, in the case of MVNOs, a “retail-minus” methodology.

For mobile services, the IFT has the right to verify, through a replicability test, that MVNOs can match our end user rates.

 

 Sharing of Fixed Infrastructure and Services.We must provide other carriers access to (i) passive infrastructure, including towers, sites, ducts and rights of way, (ii) elements of our network that allow other carriers to use our network or resell those services we provide to our customers and (iii) our dedicated links. If we cannot reach an agreement with other carriers, our rates may be determined by the IFT using a long-run average incremental cost methodology.

For fixed services, the IFT has the right to verify, through a replicability test, that other competitors can match our end user rates.

 

 Access to Local Loop.We must offer other carriers access to elements of our local network separately on terms and conditions (including rates) pre- approved by the IFT. The IFT has also ordered the legal and functional separation of the provision of wholesale regulated fixed services related to local loop (acceso local) and shared access and use of passive infrastructure. See “Functional Separation of Telmex and Telnor Wholesale Services” under this Part VI.

 

 Certain Obligations Relating to Retail Services.Rates for the provision of telecommunications services to our customers are subject to the IFT’s prior authorization.

We are also subject to certain obligations and restrictions relating to the sale of our services and products; such obligations include unlocking mobile devices for our customers and offering individually all services that we previously offered under a bundled plan.

 

 Content.We are subject to specific limitations on acquisitions of exclusive transmission rights to “relevant” content (contenidos audiovisuales relevantes), as determined from time to time by the IFT, including the Mexican national team soccer matches, the opening and closing ceremonies and certain matches of the FIFA World Cup, the semifinal and final matches of the Liga MX soccer tournament and the Super Bowl.

 

 Publication of Reference Terms.We are subject to obligations related to the publication of reference terms for all wholesale and interconnection services that are subject to asymmetric regulation.

The measures are transitory and may be amended or eliminated by the IFT, or terminated if it determines effective competition conditions exist in the telecommunications sector or if we cease to be considered a preponderant economic agent. The IFT reviews the impact of the asymmetrical measures every two years and may modify or eliminate measures or set forth new measures. In March 2017, the IFT issued a resolution that modified and added asymmetrical regulations for mobile and fixed services, including the legal and functional separation of Telmex and Telnor wholesale services, among other measures. The IFT already began a new review in the second quarter of 2019, which is expected to be completed in the first quarter of 2020. The new review may result in changes, which could include additional or reduced asymmetric regulations or the structural separation or divesture of assets of the preponderant economic agent.

We have challenged the determination that we are a preponderant economic agent and the asymmetric regulations in court. These challenges were denied in the case of Telmex, Telnor and the Company, and a final resolution is still pending in the case of Telcel. However, IFT’s determinations are not suspended while legal challenges against them are resolved.

 

 

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Functional Separation of Telmex and Telnor Wholesale Services

In March 2018, we received notice of an IFT resolution directed to the Company setting forth the terms under which we are required to separate the provision of wholesale regulated fixed services by Telmex and Telnor (the “Separation Plan”).

In compliance with the Separation Plan and as of the date of this annual report, we have complied with all milestones of the Separation Plan including the following:

 

 New Companies.Telmex and Telnor established separate new corporations,Red Nacional Ultima MillaandRed Ultima Milla Del Noroeste(the “New Companies”), to provide local wholesale services related to the elements of the access network, including local access dedicated links, as well as those services related to passive infrastructure associated with the access network, such as ducts, poles and rights of way. The New Companies are subsidiaries of Telmex and they began operations as separated entities on March 6, 2020. The main features of the New Companies are as follows:

 

  Price of Services.The prices and terms of the services provided by the New Companies are subject to IFT regulation, which could affect the viability and financial requirements of the New Companies.

 

  Corporate Governance.The New Companies have their own corporate governance, including: (i) a board of directors with at least seven members, of which a majority (including the Chairman) is independent; (ii) a Chief Executive Officer and senior officers appointed by the boards of directors, different and independent from those of our Mexican concessionaire subsidiaries; (iii) an independent external auditor; (iv) an Audit Committee chaired by an independent member of the board of directors; and (v) a Regulatory Compliance Committee entirely composed of independent members. The bylaws of the New Companies were approved by the IFT. Independence for these purposes is used as defined under Mexican Securities Market Law.

 

  Personnel. Subject to the discussion under “Services Through Union Employees” below, the New Companies have independent personnel necessary to provide wholesale services required by the Separation Plan.
  Assets. The New Companies have the resources necessary to comply with their obligations and provide services.

 

  Systems and Procedures. The New Companies have their own procedures, operating and management systems that are independent from those of Telmex and Telnor.

 

  Branding. The New Companies have their own branding distinct from América Móvil’s concessionaire subsidiaries. The brands must be dissociated from those of Telmex and Telnor by March 2022.

 

  Principal Offices. The New Companies have their own principal offices distinct from those of América Móvil’s concessionaire subsidiaries.

 

  Services Through Union Employees.Certain employees that are members of a labor union provide services to the New Companies. These employees are functionally independent from Telmex and Telnor, and are under the operational control of the New Companies, however, their labor contracts remain with Telmex and Telnor.

 

 Wholesale Unit. Telmex and Telnor established a business unit to provide the remaining wholesale services to other concessionaires, including interconnection, co- location for interconnection, inter-city and international long-distance dedicated links, resale of telephone lines, broadband and bundles, as well as certain passive infrastructure services, including shared use of towers.

The implementation of the Separation Plan has been complex, and some features remain uncertain and may require further development. As a result, we are not yet able to identify all the possible consequences, but some of the consequences could have a material adverse impact on us.

We have challenged the resolution in the Mexican courts. However, legal challenges will not suspend the implementation of the Separation Plan and final determinations are pending.

Substantial Market Power Investigations

In 2007, the Federal Antitrust Commission (Comisión Federal de Competencia Económica, or “Cofeco”) initiated two substantial market power investigations against Telcel

 

 

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and determined that Telcel had substantial market power in the mobile termination services market and in the nationwide wireless voice and data services market. Telcel filed challenges against both decisions, and a final resolution of these challenges is still pending. If upheld, these decisions would allow the IFT to impose additional requirements as to rates, quality of service and information, among other matters.

In 2007, Cofeco initiated various investigations to evaluate whether Telmex and its subsidiary Telnor have substantial power in the markets for termination, origination, transit and wholesale dedicated-link circuits. Cofeco issued final resolutions concluding that Telmex and Telnor have substantial power in all four markets, which were challenged by Telmex and Telnor. The challenges related to each one of these markets have been denied, effectively upholding Cofeco’s findings. Consequently, the IFT may impose specific tariff requirements or other special regulations with respect to the matters for which the challenges were denied, such as additional requirements regarding disclosure of information or quality of service.

In the case of the market for wholesale dedicated- link leasing, the IFT’s predecessor, Cofetel, published an agreement in the Official Gazette, establishing requirements regarding tariffs, quality of service and information for dedicated-link circuits. Telmex and Telnor have filed petitions for relief against such resolutions, which are still pending. The regulation that could arise from these investigations has been already implemented by the IFT through the special regulatory regime for preponderant agents. However, given the uncertainty of the IFT’s actions, we are not able to identify all possible consequences and as a result an adverse resolution could have an impact on the Company’s future revenues in this market.

Concessions

Under the current legal framework, a carrier of public telecommunications networks, such as Telcel or Telmex, must operate under a concession. The IFT is an autonomous federal agency that grants new or extends existing concessions, which may only be granted to a Mexican citizen or corporation that has agreed to the concession terms and may not be transferred or assigned

without the approval of the IFT. There are two types of concessions:

 

 NETWORK CONCESSIONS.Telcel, Telmex and its subsidiary Telnor hold network concessions, granted under the previous regulatory framework, to provide specified types of services. Their ability to migrate to the new regime of unified concessions and, consequently, to provide any and all telecommunications and broadcasting services, is subject to conditions, as described under “Migration of Concessions and Additional Services” below.

 

 SPECTRUM CONCESSIONS.Telcel holds multiple concessions, granted under both the previous and current regulatory frameworks, to provide wireless services that utilize frequencies of radio-electric spectrum. These concessions have terms of 15 to 20 years and may be extended for an additional term of equal length.

A public telecommunications concessionaire is required by law to establish an open-network architecture that permits interconnection and interoperability.

Termination of Concessions

Mexican legislation provides that under certain circumstances, some assets of a concessionaire may be acquired by the federal government upon termination of these concessions.

There is no specific guidance or precedent for applying these provisions, so the scope of assets covered, the compensation to the concessionaire and the procedures to be followed would depend on the type of concession, the type of assets and the interpretation of applicable legislation by the competent authorities at the time.

Migration of Concessions and Additional Services

The new legislative framework established the unified concession (concesión única), which allows the holder to provide all types of telecommunications and broadcasting services, and a regime under which an existing concession can be migrated to the new unified concession at the end of its term or upon request by the concession holder. A unified concession has a term of up to 30 years, extendable for up

 

 

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to an equal term. Also, under this new framework a current concession may be modified to add services not previously contemplated therein.

However, as a result of our preponderant economic agent status, Telcel, Telmex and Telnor are subject to additional conditions for the migration to a unified concession or the addition of a service, such as Pay TV, to a current concession, including in certain cases (i) payment of any new concession fee to be determined by the IFT,

(ii) compliance with current requirements under the network concession, the 2013 constitutional amendments, the 2014 legislation and any additional measures imposed by the IFT on the preponderant economic agent and (iii) such other requirements, terms and conditions as the IFT may establish in the concession itself. We expect the process of migration or additional services to be lengthy and complex. Consequently, Telcel, Telmex and Telnor may not be able to provide certain additional services, such as Pay TV and broadcasting, in the near term.

 

 

Telcel’s Concessions

 

Telcel operates under several different network and spectrum concessions covering particular frequencies and regions, holding an average of 232.7 MHz of capacity in

Mexico’s nine regions in the 850 MHz, 1900 MHz,1.7/2.1 GHz, 2.5 GHz and 3.5 GHz bands. The following table summarizes Telcel’s concessions.

 

 

FREQUENCY

  COVERAGE AREA  INITIAL DATE  TERMINATION DATE
    

Band A (1900 MHz)

  Nationwide  Sep. 1999  Oct. 2039
    

Band D (1900MHz)

  Nationwide  Oct. 1998  Oct. 2038
    

Band B (850 MHz)

  Regions 1, 2, 3  Aug. 2011  Aug. 2026
    

Band B (850 MHz)

  Regions 4, 5  Aug. 2010  Aug. 2025
    

Band B (850 MHz)

  Regions 6, 7, 8  Oct. 2011  Oct. 2026
    

Band B (850 MHz)

  Region 9  Oct. 2015  Oct. 2030
    

Band F (1900MHz)

  Nationwide  Apr. 2005  Apr. 2025
    

Bands A and B (1.7/2.1 GHz)

  Nationwide  Oct. 2010  Oct. 2030
    

Bands H, I and J (1.7/2.1 GHz)

  Nationwide  May 2016  Oct. 2030
    

Band 7 (2.5 GHz)

  88% of the population  Jul. 2017  Sep. 2020(1) -Nov.  2028
    

Band 3.5 GHz

  Nationwide  Oct. 2020(2)  Oct. 2040

(1) A request for extension has already been filed with the IFT.

(2) The term of this concession is currently in force and was extended by IFT in favor of Telmex until 2040 and afterwards it was assigned by Telmex to Telcel as of March 11, 2020.

 

 

Concessions Fees

All of Telcel’s concessions granted or renewed on or after January 1, 2003 are required to pay annual fees for the use and exploitation of radio spectrum bands. The amounts payable are set forth by the annual Federal Fees Law (Ley Federal de Derechos) and vary depending on the relevant region and radio spectrum band.

Telmex’s Concessions

Telmex’s concession was granted in 1976 and is currently set to expire in 2026. In December 2016, the IFT granted Telmex a 30-year extension of this concession, which will

become effective in 2026 and will be valid until 2056. The new terms of this concession will be issued in early 2023.

Telmex’s subsidiary, Telnor, holds a separate concession, which covers one state and two municipalities in northwestern Mexico and will expire in 2026. The IFT also granted Telnor a 30-year extension of its concession, which will be effective in 2026 and will be valid until 2056. The material terms of Telnor’s concession are similar to those of Telmex’s concession.

In addition, Telmex currently holds concessions for the use of frequencies to provide point-to-point and point-to-multipoint transmission. Telmex obtained these

 

 

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concessions, including the 3.5 GHz band assigned in favor of Telcel, for a term of up to 20 years and were extended by the IFT for additional 20-year terms.

In 2018, Telmex was notified of a resolution issued by the IFT, through which the IFT imposed a fine of Ps.2.5 billion derived from an alleged breach in 2013 and 2014 of certain minimum quality of service goals for dedicated link services. Telmex has exercised all legal remedies challenging such resolution and a final resolution is pending.

Rates for Wireless Service

Wireless services concessionaires are generally free to establish the prices they charge customers for telecommunications services. Wireless rates are not subject to a price cap or any other form of price regulation. The interconnection rates concessionaires charge other operators are also generally established by agreement between the parties and, if the parties cannot agree, may be imposed by the IFT, subject to certain guidelines, cost models and criteria. The IFT publishes at the end of the year the rates they would impose in the event of a dispute, eliminating all incentives for a negotiation among the parties. The establishment of interconnection rates has resulted, and may in the future result, in disputes between carriers and with the IFT.

As a result of the preponderance determination, Telcel’s retail prices are subject to pre-approval by the IFT before they can take effect.

The IFT is also authorized to impose specific rate requirements on any carrier that is determined by the IFT to have substantial market power under the Federal Antitrust Law (Ley Federal de Competencia Económica) and the 2014 legislation. For more information on litigation related to the Federal Antitrust Law and the 2014 legislation, see “—Substantial Market Power Investigations” under this Part VI.

Rates for Fixed Service

Telmex’s concessions subject its rates for basic retail telephone services in any period, including installation, monthly rent, measured local-service and long-distance service, to a ceiling on the price of a “basket” of such services, weighted to reflect the volume of each service provided by Telmex during the preceding period. Telmex is required to file a survey with the IFT every four years with its projections of units of operation for basic services, costs and prices. Telmex is free to determine the structure of its own rates, with the exception of domestic long-distance rates, which were eliminated in 2015 under the 2014 legislation, and of the residential fixed-line rates, which have a cap based on the long-run average incremental cost. As a result of the preponderance determination, Telmex’s retail prices are subject to pre-approval by the IFT before they can take effect.

The price ceiling varies directly with the Mexican National Consumer Price Index (Indice Nacional de Precios al Consumidor), allowing Telmex to raise nominal rates to keep pace with inflation (minus a productivity factor set for the telecommunications industry), subject to consultation with the IFT. Telmex has not raised its nominal rates for many years. Under Telmex’s concession, the price ceiling is also adjusted downward periodically to pass on the benefits of Telmex’s increased productivity to its customers. The IFT sets a periodic adjustment for every four-year period to permit Telmex to maintain an internal rate of return equal to its weighted average cost of capital.

In addition, basic retail telephone services, as well as broadband services and “calling party pays” charges, are subject to a separate price ceiling structure based on productivity indicators. In each case, Telmex is required to submit a survey on productivity indicators to the IFT every two years, including a total factor productivity. The IFT establishes the productivity factor that will apply over the next two years, and, based on this, the IFT will approve the customer prices before they can take effect.

Prices for Telmex’s wholesale services are established by the IFT based on the long-run average incremental cost model methodology.

 

 

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BRAZIL

Legal Framework and Principal Regulatory Authorities

The Brazilian Telecommunications Law(Lei Geral das Telecomunicações Brasileiras) provides the framework for telecommunications regulation. The primary telecommunications regulator in Brazil is the Telecommunications Agency (Agência Nacional deTelecomunicações, or “Anatel”), which has the authority to grant concessions and licenses in connection with telecommunications services and the use of orbits, except broadcasting, and to adopt regulations that are legally binding on telecommunications services providers.

The Brazilian Congress has approved an updated legislation to modernize the current concession-based model to an authorization-based model. The updated law brings the possibility of allowing fixed-line concessionaires, such as Claro Brasil, to provide services under an authorization rather than a concession, as long as certain investment-related obligations are met. Under the new legislation, it is possible to extend the current concessions, as well as radio frequency licenses and orbital positions, for more than one period. The legislation also permits the possibility of a secondary market for trading cellphone frequencies. The legislation will be implemented by regulations promulgated by Anatel. We are currently evaluating the potential impact of this legislation on our operations.

Licenses

In 2014, we simplified our corporate structure, and our subsidiaries Embratel, Embratel Participações S.A. (“Embrapar”) and Net Serviços were merged into Claro Brasil, with all licenses previously granted to our subsidiaries transferred to Claro Brasil. Following its acquisition of Brasil Telecomunicações S.A. in 2016, Claro Brasil relinquished the cable TV and data services licenses it had been transferred by Embrapar and Net Serviços.

In 2018, subsidiary Star One merged into Claro Brasil. As a result, all Brasilian satellite operation rights previously granted to Star One were transferred under the same terms and conditions to Claro Brasil. The satellite operation rights(AMC-12) covering regions outside of Brazil were relinquished by Star One before the merger.

In December 18, 2019, AMX announced the acquisition of 100% of the shares of Nextel Brazil and Sunbird Telecomunicações Ltda. (“Sundbird”), as well as its correspondent subsidiaries in Brazil. Nextel Brazil had authorizations to provide personal mobile services, specialized mobile services, multimedia communication services, paid fixed telephony services (national and international long-distance) and radiofrequency services in Brazil that were granted by Anatel. Sunbird had authorizations to provide specialized mobile services and radiofrequency services. Derived from the acquisition of Nextel Brazil and Sunbird by AMX, Anatel provided AMX with: (i) a term of 18 months to consolidate and cancel the overlapped authorizations granted in favor of Nextel Brazil and Sunbird; and (ii) a term of 2 months to adjust the radiofrequency thresholds.

In 2019, the subsidiary Primesys was merged into Claro Brasil. As a result, service authorizations granted to Primesys were transferred under the same terms and conditions to Claro Basil.

Our Brazilian subsidiaries hold licenses for the telecommunications services listed below and expect to continue acquiring spectrum if Anatel conducts additional public auctions, although Claro Brazil, like all of its peer competitors, is subject to a cap on the additional spectrum it may acquire per frequency band.

 

 

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SUBSIDIARY

 LICENSE TERMINATION DATE

Claro Brasil

 Fixed Local Voice Services Indefinite
   
  Domestic and International Long-Distance 2025
   
  Voice Services Indefinite
   
  Personal Communication Services Indefinite
   
  Data Services Indefinite
   
  Cable TV Services Indefinite
   
  Mobile Maritime Services Indefinite
   
  Global Mobile Satellite Services Indefinite
   

Claro TV

 DTH TV Services Indefinite
   
  Data Services Indefinite
   

Americel S.A.

 Data Services Indefinite
   

Telmex do Brasil

 Data Services Indefinite
   

Nextel Brazil

 Personal Communication Services Indefinite
   
  Domestic and International Long-Distance Indefinite
   
  Data Services Indefinite
   
  Trunking Services Indefinite
   

Sunbird

 Trunking Services Indefinite

In addition, Claro Brasil has various orbital position authorizations for our satellite operations, which expire between 2022 and 2033, and radio frequency licenses to provide PCS, which expire between 2020 and 2032.

Nextel Brazil has radio frequency licenses to provide PCS, which expire between 2026 and 2031, and, radio frequency licenses to provide Trunking Services, which expire between 2020 and 2025, Sunbird has radio frequency licenses to provide Trunking Services, which expire in 2024.

Concessions

Claro Brasil holds two fixed-line concessions to provide domestic and international long-distance telephone services. The remaining telecommunications services

provided by Claro Brasil are governed by a system of licenses instead of concession arrangements.

Concession Fees

Claro Brasil is required to pay a biennial fee equal to 2.0% of net revenues from wireless services, except for the final year of the 15 year term of its PCS authorizations, in which the fee equals 1.0% of net revenues from wireless services.

Claro Brasil is also required to pay a biennial fee during the term of its domestic and international long-distance concessions equal to 2.0% of the revenues from long- distance telephone services, net of taxes and social contributions, for the year preceding the payment.

Termination of Concessions

Our domestic and international long-distance fixed-line concessions provide that certain of our assets deemed “indispensable” for the provision of these services will revert to the Brazilian state upon termination of these concessions. Compensation for those assets would be their depreciated cost. See Note 17 to our audited consolidated financial statements included in this annual report.

Regulation of Rates

Anatel regulates rates (tariffs and prices) for all telecommunications services, except for fixed-line broadband services, Pay TV and satellite capacity rates, which are not regulated. In general, PCS license holders and fixed local voice services license-holders are authorized to increase basic plan rates annually. Domestic long-distance concession-holders may adjust rates annually only for inflation (less a factor determined by Anatel based on the productivity of each operator during the year). Claro Brasil may set international long-distance and mobile rates freely, provided that it gives Anatel and the public advance notice.

Regulation of Wholesale Market Competition

In November 2012, Anatel approved the General Competition Plan (Plano Geral de Metas da Competição, or “PGMC”), a comprehensive regulatory framework aimed at increasing competition in the telecommunications sector. The PGMC imposes asymmetric measures upon economic groups determined by Anatel to have significant market

 

 

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power in any of the five wholesale markets in the telecommunications sector, on the basis of several criteria, including having over 20.0% of market share in the applicable market.

In 2012, Claro Brasil and three of its primary competitors were determined to have significant market power in the mobile wireless termination and national roaming markets. As a result, Claro Brasil was required to reduce mobile termination rates to 75.0% of the 2013 rates by February 2014, and to 50.0% of the 2013 rates by February 2015. In July 2014, Anatel established termination rates for mobile services applicable to operators with significant market power through 2019, based on a cost model, and in December 2018, Anatel established termination rates for mobile services applicable to operators with significant market power through 2023. Claro Brasil is also required to publish its reference roaming prices for voice, data and SMS on an annual basis, among other measures. These prices must be related to the Anatel reference values and need to be approved by Anatel before they can take effect. The approval of such prices by Anatel took place on January 2020.

In addition, Embratel was determined to have significant market power in the market for long-distance leased lines, Claro Brasil and Embratel were determined to have significant market power in the telecommunications infrastructure market, and Net Serviços was determined to have significant market power in the local coaxial transmissions market, together with several of their mobile and fixed-line competitors. Following the merger of Embratel and Net Serviços into Claro Brasil in 2014, Claro Brasil is required to publish, and Anatel approved its reference offers in each of these markets. Moreover, wholesale contracts entered into by operators determined to have significant market power for the sale of such operators’ services are overseen for compliance purposes by independent third-party companies.

In 2018, Anatel approved Claro Brasil’s most recent wholesale reference offers with respect to national roaming, telecommunications duct infrastructure, long- distance leased lines, high capacity transport above 34 Mbps, wireless networks interconnection, fixed network interconnection, internet network interconnection and internet links, which are reviewed and approved by Anatel on an annual basis.

Anatel also reviews its determination of which operators have significant market power on a quadrennial basis. Anatel began its first review of all telecom operators in 2014 and published the most recent list of operators with significant market power for each of the relevant markets in 2018. In addition to the review, in 2018 Anatel changed some of the asymmetric measures applicable under the PGMC and added two new wholesale markets covering high capacity transport and fixed network interconnection. Anatel has determined that Claro Brasil has significant market power in eight wholesale markets.

Network Usage Fees and Fixed-Line Interconnection Rates

In July 2014, Anatel approved a resolution establishing the reference terms for fees charged by operators in connection with the use of their mobile network and leased lines and set a price cap on fees charged for fixed network usage by operators deemed to have significant market power. Such fees, based on costs of allocation services (coubicación), have been applicable since February 2016.

Fixed-line operators determined by Anatel to have significant market power in the local fixed-line market may freely negotiate interconnection rates, subject to a price cap established by Anatel.

Other Obligations

Under applicable law and our concessions, Claro Brasil has an obligation to (i) comply with certain coverage obligations to ensure universal access to its fixed-line voice services, (ii) contribute to the funding of the country’s transition from analogue to digital TV, (iii) meetquality-of-service targets and (iv) comply with applicable telecommunications services consumer rights.

COLOMBIA

Legal Framework and Principal Regulatory Authorities

The Information and Communications Ministry (Ministerio de Tecnologías de la Información y las Comunicaciones, or “ICT Ministry”) and the Communications Regulatory Commission (Comisión de Regulación de Comunicaciones, or “CRC”) are responsible for overseeing and regulating the

 

 

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telecommunications sector. The main audiovisual regulatory authorities in Colombia with respect to Pay TV services are the CRC, the ICT Ministry and the Industry and Commerce Superintendence (Superintendencia de Industria y Comercio, or “SIC”). Claro is also subject to supervision by other government entities responsible for enforcing other regulations, such as antitrust rules or those protecting consumer rights.

Concessions

Comunicación Celular S.A. (“Comcel”) is qualified to provide fixed and mobile services and was included in the registry of networks and services administered by the ICT Ministry. Such general authorization superseded all of Comcel’s former concession contracts, and, consequently, such former concessions were terminated.

As a result of the termination of Comcel’s former concessions, the ICT Ministry and Comcel began discussions with respect to the liquidation of the agreements governing those concessions. In light of the decision of the Colombian Constitutional Court (Corte Constitucional de Colombia) holding that certain laws limiting the reversion of assets of telecommunications providers did not apply to concessions granted prior to 1998 and, consequently, that reversion of assets under those earlier concessions would be governed by their contractual terms, the ICT Ministry obtained a domestic award ordering Comcel to revert assets under its earlier concessions to the Colombian government. Comcel challenged such award and the Company filed an international arbitration claim against Colombia arising from Colombia’s measures.

Licenses and Permits

Comcel holds licenses to provide mobile services in the spectrum frequency bands shown in the table below.

FREQUENCY

 BANDWIDTH TERMINATION
DATE

850 MHz

 25 MHz Mar. 2024

1900 MHz

 10 MHz Dec. 2039
  5 MHz Sept. 2021
  15 MHz Apr. 2024

2.5 GHz

 30 MHz Aug. 2023
  10 MHz Feb. 2021(1)
  10 MHz Mar. 2040
  10 MHz Mar. 2040
  10 MHz Mar. 2040

700 MHz

 20 MHz Pending

 

(1) Refers to a temporary license, which we renew on an annual basis.

 

In 2013, Telmex Colombia S.A. obtained permission to provide Pay TV services under any available technology, pursuant to the ICT Ministry’s unified licensing system. The permission will expire in 2020 and may be renewed at the appropriate time for another10-year term. On May 31, 2019, Telmex Colombia, S.A. merged into Comcel. The permission to provide Pay TV services granted in favor of Telmex Colombia, S.A. was simultaneously transferred to Comcel without modifications in connection with the merger. On July 30, 2019, Comcel’s permission to provide Pay TV was incorporated under Comcel’s general power to provide Pay TV granted to it under Law 1978 of 2019.

In 2017, the ICT Ministry issued a decree approving a higher cap on spectrum acquisitions by operators in low and high frequency bands. This new cap allows Comcel to participate in future spectrum auctions. The ICT Ministry has released its plan to conduct spectrum auctions in the 700 MHz, 1900 MHz and 2.5 GHz bands. The final resolution containing the auctions’ terms and conditions was published by the ICT Ministry during the fourth quarter of 2019. The auction took place on December 20, 2019. A subsidiary of Novator Partners LLP, a London-based private equity firm (the “Novator Subsidiary”), participated in the auction as a new competitor in the market. The Novator Subsidiary was granted a 20MHz license to operate in the 700MHz frequency band and three blocks of 10MHz for the 2,500MHz frequency band. Colombia Telecomunicaciones (Movistar) and Colombia Movil (Tigo) also participated in the auction. Tigo was granted a 40MHz license to operate in the 700MHz frequency band. Colombia Telecomunicaciones was not granted any licenses in the auction.

 

 

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Subsequently, the Novator Subsidiary resigned and refused to exercise its rights under the license to operate one block of 10MHz for the 2,500MHz frequency band. As a consequence, on February 11, 2020, the ICT Ministry initiated an administrative proceeding to evaluate and

decide on the effects caused by such resignation. Comcel was notified by the ICT Ministry and was considered an interested third party in the administrative proceeding.

Asymmetric Charges

In 2012, the CRC issued resolutions seeking to correct an alleged market failure and imposing the following measures on Comcel: (i) asymmetric charges for mobile and incoming long-distance call terminations by other operators on Comcel’s wireless network, with access rates lower than the rates we pay our competitors, and (ii) restrictions on the rates we charge our users for calls outside our network(off- net calls), which must not exceed the rates we charge for calls within our network(on-net calls). These asymmetric access charges ended in December 2016.

In January 2017, the Colombian government approved symmetrical access charges among established operators like Comcel, Movistar and Tigo. However, under current regulation, new market entrants continue to receive a higher rate than operators for a limited period.

In 2017, the CRC issued a resolution updating the list of relevant telecommunication markets by adding the mobile services market (including bundled mobile voice and data services) and by also including the mobile service market in the list of relevant markets subject toex-ante regulation. In connection with the mobile services market, the CRC initiated a proceeding to evaluate Comcel’s substantial market power in this new market and, if applicable, the imposition of asymmetric regulatory measures that could affect Comcel. As of the date of this annual report, a resolution is pending.

SOUTHERN CONE

ARGENTINA

The National Communications Agency (Ente Nacional de Comunicaciones, or “Enacom”) is the main telecommunications regulatory authority in Argentina and became operational in 2016.

Fixed and mobile services providers are prohibited from providing DTH technology, which is currently the fastest way to provide Pay TV services. In 2017, the Argentine government issued a decree allowing telecommunications providers, including AMX Argentina S.A. (“AMX Argentina”), to provide Pay TV services via cable within a limited number of territories as of January 2018 and to the rest of the country as of January 2019. AMX Argentina has obtained the permissions necessary to provide Pay TV services via cable in accordance with the decree.

AMX Argentina holds licenses in the 700 MHz, 900 MHz, 1700/2100 MHz (AWS), 1900 MHz and 2600 MHz frequency bands, some of which expire in 15 years and some of which have no expiration date. Each license also contains certain coverage parameters, reporting and service requirements and provides Enacom a revocation right upon a material breach of the license terms.

All telecommunications providers in Argentina must contribute approximately 1.0% of their monthly revenues to finance the provision of telecommunications services in underserved areas and to underserved persons. All providers must also meet certainquality-of-service requirements.

CHILE

The General Telecommunications Law (Ley General de Telecomunicaciones) establishes the legal framework for telecommunications services in Chile, including the regulation of concessions, permits, rates and interconnection. The main regulatory agency of the telecommunications sector is the Chilean Transportation and Communications Ministry (Ministerio de Transportes y Telecomunicaciones), which acts primarily through the Undersecretary of Telecommunications (Subsecretaría de Telecomunicaciones, “SUBTEL”).

Claro Chile S.A. (“Claro Chile”) holds concessions to provide mobile and fixed-line services in the 700MHz, 850 MHz, 1900 MHz, 2.6 GHz, 3.4 GHz and 5.8 GHz frequency bands. Except for the concession to provide services in the 850 MHz frequency, which has an indefinite termination date, the concessions to provide services in the 700 MHz, 1900 MHz, 2.6 GHz, 3.4 GHz and 5.8 GHz frequencies have termination dates that vary from 2027 to 2045. Claro Chile also holds license to provide DTH technology services until

 

 

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2024 and a license with an indefinite term to provide Pay TV services. In 2018, the Chilean Supreme Court (Corte Suprema de Justicia) issued a ruling requiring Claro to return 20 MHz of spectrum acquired through a band auction because Claro supposedly exceeded the limit of spectrum any given operator is permitted to hold. The return of such spectrum is currently being implemented before the Competition Court (Tribunal de Defensa de la Libre Competencia, or the “TDLC”). In addition, pursuant to the ruling, and in order to increase the maximum limit, SUBTEL initiated a review of such limit of spectrum through a regulatory proceeding before the TDLC, which shall now be reviewed by the Chilean Supreme Court.

Some of Claro Chile’s concessions impose additional requirements, such as coverage, reporting and service quality requirements. The Chilean Transportation and Communications Ministry is authorized to terminate any concession in the event of specified breaches under the terms of such concessions. Additionally, Claro Chile’s concession in the 700 MHz band imposes certain obligations to expand mobile and data services in rural areas. In 2017, the Undersecretary of Telecommunication approved Claro Chile’s expansion project in connection with its obligations under its concession in the 700 MHz band.

PARAGUAY

The National Telecommunications Commission of Paraguay (Comisión Nacional de Telecomunicaciones de Paraguay) is in charge of supervising the telecommunications industry in Paraguay. It is authorized to cancel licenses in the event of specified breaches of the terms of a license.

AMX Paraguay, S.A. (“AMX Paraguay”) holds licenses to operate in the 1900 MHz and the 1700/2100 MHz bands. AMX Paraguay also holds a nationwide internet access and data transmission license. In addition, AMX Paraguay holds licenses to provide DTH services and cable TV services. Additionally, in January 2018, AMX Paraguay participated in a spectrum auction and was awarded a license to provide telecommunications services in the 700 MHz band. In November 2018, the Telecommunications Commission of Paraguay granted the renewal of spectrum license in the 1900 MHz band. These licenses are renewable, subject to regulatory approval, and contain coverage, reporting and service requirements.

In November 2019, the Telecommunications Commission of Paraguay granted AMX Paraguay a license to provide internet access and data transmission services in the 3,500 MHz frequency band, effective until January 12, 2024

URUGUAY

The Regulatory Unit of Communications Services (Unidad Reguladora de Servicios de Comunicaciones) is in charge of the regulation of the telecommunications industry in Uruguay.

AM Wireless Uruguay, S.A. holds licenses to operate in the 1900 MHz, 1700/2100 MHz and 700 MHz frequency bands that expire in 2024, 2033, 2037, 2039 and 2045, and Telstar S.A. holds licenses to provide international long- distance communications and international and national data services that have no expiration date.

The license initially granted to Flimay S.A. (“Flimay”) to provide DTH technology services in Uruguay has been contested by the government since 2012. In 2017, the executive branch of Uruguay held under a new ruling that Flimay does not have a valid license to provide DTH services in the country. Flimay requested this ruling be voided, but in February 2018, the executive branch of Uruguay, with support from the Administrative Court (TCA), requested the process be closed. As of the date of this annual report, a decision on Flimay’s appeal is pending.

ANDEAN REGION

ECUADOR

The primary regulatory authorities for our mobile and fixed-line operations are the National Telecommunications, Regulation and Control Agency (Agencia de Regulación y Control de las Telecomunicaciones, or “Arcotel”) and the Telecommunications and Information Society Ministry (Ministerio de Telecomunicaciones y Sociedad de la Información, or “Mintel”). Arcotel is responsible for the licensing and oversight of radio-electric spectrum use and telecommunications services provisions. Mintel is responsible for the promotion of equal access to telecommunications services.

The Telecommunications Law (Ley Orgánica de Telecomunicaciones), adopted in 2015, serves as the legal framework for telecommunications services. It established

 

 

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new regulations for operators with significant market power, new penalties based on their gross incomes as well as additional fees also based on an operator’s gross income, but that can vary depending on the size of their market share. Consorcio Ecuatoriano de Telecomunicaciones, S.A. (“Conecel”) has been deemed to have significant market power in the advanced wireless services market, and as a result, such fee payments are made on a quarterly basis on the dates established by Arcotel.

Conecel paid to the Ecuadorian government U.S. $29.7 million, which corresponds to 3.0% of its wireless services revenues generated in 2019. An arbitration proceeding to partially void the payment by Conecel of such fees was conducted and a decision in favor of the government was reached. Conecel has appealed this decision and, as of the date of this annual report, a decision of the Constitutional Court is pending.

Conecel holds concessions to operate in the 850MHz, 1900 MHz and AWS bands, which include concessions for PCS that expire in 2023. The PCS concession containsquality-of- service requirements for successful call completions, SMS delivery times, customer service, geographic coverage and other service conditions.

Conecel also holds licenses to provide internet value- added services, Pay TV Services (through DTH technology) and bearer services, expiring in 2021, 2023 and 2032, respectively.

Conecel, following the acquisition of Ecuador Telecom, S.A. in 2016, also holds a concession to offer fixed-line voice, public telephone and domestic and international long- distance wholesale services, as well as a license to provide Pay TV (through HFC technology) that expires in 2031.

Recalculation of Concession Fees

Arcotel initiated several proceedings to recalculate the variable portion of the concession fees payable under Conecel’s concessions, which, as of the date of this annual report, is equivalent to 2.93% of Conecel’s annual subscriber base revenues, in addition to its contribution for Universal Service (Servicio Universal 1%). These recalculation proceedings with Arcotel remain ongoing.

In 2018, Conecel paid Arcotel U.S.$11.9 million based on its annual revenues for the 2015 period and was required to pay U.S.$13 million based on its annual revenues for the 2016 period.

For its Universal Service contribution, Conecel was required to pay U.S.$5 million for the 2015 period and U.S.$6 million for the 2016 period. Conocel obtained a judicial order that suspended the collection process for the 2015 and 2016 periods.

All these recalculation proceedings are under dispute with Arcotel and subject to arbitration proceedings where resolutions are pending.

PERU

The Supervisory Agency for Private Investment in Telecommunication (Organismo Supervisor de la Inversión Privada en Telecomunicaciones, or “OSIPTEL”) is in charge of the regulation of the telecommunications industry in Peru. The Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones or “MTC”) grants concessions, permits and licenses. The Telecommunications Law (Decreto Supremo N°013-93-TCC Ley de Telecomunicaciones), adopted in 1993, serves as the legal framework for telecommunications services.

América Móvil Perú, S.A.C. (“Claro Perú”) holds nationwide concessions to provide wireless, PCS, fixed-line, local wholesale, domestic and international long-distance, Pay TV services (through DTH and HFC technologies), public telephone and value-added services (including internet access). The concessions allow Claro Perú to operate on the 450 MHz, 700 MHz, 850 MHz, 1900 MHz, 3.5 GHz and 10.5 GHz bands. As part of Claro Perú’s acquisition of Olo del Perú S.A.C., TVS Wireless S.A.C. and their respective subsidiaries in 2016, Claro has a resale agreement with such companies to operate in certain regions on the 2.5 GHz band.

Spectrum reframing is the process conducted by the MTC to properly order the assignment of a frequency band in order to have continuous coverage nationwide and adequate bandwidth. The MTC issued the final decision on the spectrum reframing for the 2.5 Ghz band, granting 80 Mhz to TVS Wireless, S.A.C. (Lima and Callao) and Olo del Peru, S.A.C. (rest of the country).

 

 

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Each of the concessions was awarded by the MTC and covers a20-year period. The concessions contain coverage, reporting, service requirement and spectral efficiency goals. The MTC is authorized to cancel any of the concessions in the case of specified breaches of its terms.

EUROPE AND OTHER JURISDICTIONS

European Legal Framework and Principal Regulatory Authorities

The telecommunications regulatory framework in the EU is currently based on five Directives (“Framework”, “Access and Interconnection”, “Authorization”, “Universal Service and Users’ Rights” and “Privacy and Data Protection”) that apply to all EU member countries and regulate all forms of fixed and wireless services, internet, broadcasting and transmission services. Austria, Bulgaria, Croatia and Slovenia are EU member countries. Macedonia and Serbia, candidates for accession to the EU, are expected to gradually harmonize their regulatory frameworks with the EU’s framework. The framework is going to be replaced by the European Electronic Communications Code which is to be transposed into national law before December 21st, 2020.

In each European country in which we operate, we are also subject to a domestic telecommunications regulatory framework and to oversight by one or more local regulators.

Licenses

 

COUNTRY

FREQUENCYTERMINATION DATE
   

AUSTRIA

 800 MHz Dec. 2029
   
 900 MHz Dec. 2034
   
 1800 MHz Dec. 2034
   
 2100 MHz Dec. 2020
   
 2600 MHz Dec. 2026
   
 3500 MHz Dec 2039
   

BELARUS

 900 MHz Dec. 2020
   
 1800 MHz Dec. 2020
   
 2100 MHz Dec. 2020
   

BULGARIA

 900 MHz June 2024
   
 1800 MHz June 2024
   
 2100 MHz Apr. 2025
   

CROATIA

 800 MHz Oct. 2024
   
 900 MHz Oct. 2024
   
 1800 MHz Oct. 2024
   
 2100 MHz Oct. 2024
   

MACEDONIA

 800 MHz Dec. 2033
   
 900 MHz Sept. 2023
   
 1800 MHz Dec. 2033
   
 2100 MHz Feb. 2028
   

SERBIA

 800 MHz Jan. 2026
   
 900 MHz Nov. 2026
   
 1800 MHz Nov. 2026
   
 2100 MHz Nov. 2026
   

SLOVENIA

 800 MHz May 2029
   
 900 MHz Jan. 2031
   
 1800 MHz Jan. 2031
   
 2100 MHz Sept. 2021
   
 2600 MHz May 2029
 

 

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OTHER JURISDICTIONS

 

COUNTRY

 PRINCIPAL REGULATORY AUTHORITIES CONCESSION AND LICENSES
   

COSTA RICA

 

Superintendency of Telecommunications (Superintendencia de Telecomunicaciones)

 

Ministry of Science, Technology and Telecommunications (Ministerio de Ciencia, Tecnología y Telecomunicaciones)

 

  Concessions in the AWS and 1800 MHz bands that expire in 2032

  Concessions in the 2100 MHz band that expire in 2026

  License to operate Pay TV services using DTH technology that will expire in 2026

   

EL SALVADOR

 Electricity and Telecommunications Superintendency (Superintendencia General de Electricidad y Telecomunicaciones) 

  Concession of 50 MHz in the 1900 MHz band of which 30 MHz that expire in 2038, 10 MHz that expire in 2041 and 10 MHz that expire in 2028

  Concession to provide public telephone service that expires in 2027

  Licenses to provide Pay TV Services through HFC and DTH technologies have an indefinite term

   

GUATEMALA

 Guatemalan Telecommunications Agency (Superintendencia de Telecomunicaciones) 

  Licenses to use 12 MHz in the 900 MHz band and 120 MHz in the 1900 MHz band that all expire in 2033

  Concession of 175 MHz in the 3.5 GHz band that will expire in 2033

   

NICARAGUA

 Nicaraguan Telecommunications and Mailing Institute (Instituto Nicaragüense de Telecomunicaciones y Correos) 

  Concessions in the 700 MHz, 850 MHz, 1900 MHz and 1700/2100 MHz bands that all expire in 2032

  Concession of 50 MHz in the 3.5 GHz band that will expire in 2042

  Licenses to provide DTH technology that will expire in January 2028 (renewal granted in 2018) and Pay TV services that has an indefinite term

   

HONDURAS

 Honduran National Telecommunications Commission (Comisión Nacional de Telecomunicaciones) 

  Concessions to use 80 MHz in the 1900 MHz PCS band and 40 MHz in theLTE-4G 1700/2100 MHz band that all expire in 2033

  Licenses to operate Pay TV services through (i) HFC technology that will expire in 2027 and (ii) DTH technology that will expire in 2020

   

PANAMA

 National Authority of Public Services (Autoridad Nacional de los Servicios Públicos) 

  License to use 40 MHz in the 1900 MHz and 20 MHz in the 700 MHz bands that all expire in 2028

  Licenses to provide fixed local and long-distance services that expire in 2030

 

 

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COUNTRY

 PRINCIPAL REGULATORY AUTHORITIES CONCESSION AND LICENSES
    

  License to provide internet service that expires in 2033

  Licenses to provide international long-distance, value-added services, interactive television, and Pay TV service through DTH and IPTV technologies, which expire in 2028, 2030, 2037 and 2034, respectively

  License for data transportation, Service No. 200, which expires in 2023

   

UNITED STATES

 The FCC 

  International Section 214 Authorization (Claro Enterprise Solutions)

   

DOMINICAN REPUBLIC

 Dominican Institute of Telecommunications (Instituto Dominicano de las Telecomunicaciones) 

  Concession to provide fixed and wireless services, internet and pay TV services through DTH and IPTV technologies that expire in 2030

  Licenses to use 25 MHz in the 800 MHz band, 30 MHz in the 1900 MHz band, 80 MHz in the 2.5/2.7 GHz band, 30 MHz in the 3.5 GHz band and 40 MHz in the 1.7/2.1 GHz (AWS) band that expire in 2030

   

PUERTO RICO

 Federal Communications Commission (FCC) and the Telecommunications Bureau of Puerto Rico 

  Concessions to use the 700 MHz, 1900 MHz and the 28 GHz bands that expire in 2021, 2027 and 2029, respectively

  Concessions to use the 800 MHz that expire in, 2020, 2021 and 2026 and 2028.

  Concessions to use the AWS-1 and AWS-3 bands (1.7/2.1 GHz) that expire in 2026 and 2028, respectively

  Long-term transfer lease concessions to use 35.6 MHz of the 2.5 GHz band that expire in 2020, 2022, 2023, 2025 and 2026

  Franchise to operate Pay TV services using IPTV technology that expires in 2030

 

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EMPLOYEES

 

Many of our employees are members of labor unions with which we conduct collective negotiations on wages, benefits and working conditions. We believe that we have good current relations with our workforce.

The following table sets forth the total number of employees and a breakdown of employees by main category of activity and geographic location, as of the end of each year in the three-year period ended December 31, 2019.

 

  DECEMBER 31, 
  2017  2018  2019 

NUMBER OF EMPLOYEES

  191,851   189,448   191,523 

CATEGORY OF ACTIVITY:

            

Wireless

  78,910   77,845   83,091 

Fixed

  94,496   92,429   87,034 

Other businesses

  18,445   19,174   21,398 

GEOGRAPHIC LOCATION:

            

Mexico

  88,417   88,613   89,539 

South America

  64,619   62,500   61,058 

Central America

  9,694   9,586   10,372 

United States

  852   848   859 

Caribbean

  9,311   9,195   11,351 

Europe

  18,958   18,706   18,344 

 

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LEGAL PROCEEDINGS

In each of the countries in which we operate, we are party to various legal proceedings in the ordinary course of business. These proceedings include tax, labor, antitrust, contractual matters and administrative and judicial proceedings concerning regulatory matters such as interconnection and tariffs. We are party to a number of proceedings regarding our compliance with administrative rules and regulations and concession standards.

Our material legal proceedings are described in Note 17 to our audited consolidated financial statements included in this annual report and in “Regulation” under Part VI of this annual report.

 

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PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

AUDIT ANDNON-AUDIT FEES

The following table sets forth the fees billed to us and our subsidiaries by our independent registered public accounting firm, Mancera, during the fiscal years ended December 31, 2018 and 2019:

 

   YEAR ENDED DECEMBER 31, 
   2018   2019 
    (in millions of Mexican pesos) 
   

Audit fees(1)

   Ps.         248    Ps.         250 
   

Audit-related fees(2)

   23    17 
   

Tax fees(3)

   30    34 
   

Total fees

   Ps.         301    Ps.         301 

(1) Audit fees represent the aggregate fees billed by Mancera and its Ernst & Young Global affiliated firms in connection with the audit of our annual financial state- ments and statutory and regulatory audits.

(2) Audit-related fees represent the aggregate fees billed by Mancera and its Ernst & Young Global affiliated firms for the review of reports on our operations submitted to IFT and attestation services that are not required by statute or regulation.

(3) Tax fees represent fees billed by Mancera and its Ernst & Young Global affiliated firms for tax compliance services, tax planning services and tax advice services.

 

AUDIT AND CORPORATE PRACTICES COMMITTEE APPROVAL POLICIES AND PROCEDURES

Our audit and corporate practices committee has established policies and procedures for the engagement of our independent auditors for services.

Our audit and corporate practices committee expressly approves any engagement of our independent auditors for audit ornon-audit services provided to us or our subsidiaries. Prior to providing any service that requires specificpre-approval, our independent auditor and our Chief Financial Officer present to the audit committee a request for approval of services in which they confirm that the request complies with the applicable rules.

 

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We file reports, including annual reports on Form20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers.

Any filings we make electronically will be available to the public over the internet at the SEC’s web site at www.sec.gov and at our website at www.americamovil.com. This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not incorporated into this annual report.

The following documents have been filed with the SEC as exhibits to this annual report:

 

1.1  Amended and Restated Bylaws (estatutos sociales) of América Móvil, S.A.B. de C.V., dated as of April  16, 2018 (together with an English translation) (incorporated by reference to Exhibit 1.1 of our annual report on Form20-F FileNo. 001-16269, filed on April  26, 2018).
2.1  Description of Rights of Each Class of Securities
8.1  List of certain subsidiaries of América Móvil, S.A.B. de C.V.
12.1  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1  Certification pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
15.1  Code of Ethics (incorporated by reference to Exhibit 14.1 of our annual report on Form20-F, FileNo. 001-16269, filed on April 26, 2018).
15.2  Consent of independent registered public accounting firm.
101.INS  XBRL Instance Document.
101.SCH  XBRL Taxonomy Extension Schema Document.
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB  XBRL Taxonomy Extension Label Linkbase Document.
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF  XBRL Taxonomy Extension Definition Document.

Omitted from the exhibits filed with this annual report are certain instruments and agreements with respect to long-term debt of América Móvil, none of which authorizes securities in a total amount that exceeds 10% of the total assets of América Móvil. We hereby agree to furnish to the SEC copies of any such omitted instruments or agreements as the Commission requests.

 

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FORWARD-LOOKING STATEMENTS

 

Some of the information contained or incorporated by reference in this annual report constitutes “forward- looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we have based these forward-looking statements on our expectations and projections about future events, it is possible that actual events may differ materially from our expectations. In many cases, we include, together with the forward-looking statements themselves, a discussion of factors that may cause actual events to differ from our forward-looking statements.

Examples of forward-looking statements include the following:

 

 

projections of our commercial, operating or financial performance, our financing, our capital structure or our other financial items or ratios;

 

statements of our plans, objectives or goals, including those relating to acquisitions, competition and rates;

 

statements concerning regulation;

 

the impact ofCOVID-19;

 

or regulatory developments;

 

statements about our future economic performance or that of Mexico or other countries in which we operate;

 

competitive developments in the telecommunications sector;

 

other factors and trends affecting the telecommunications industry generally and our financial condition in particular; and

 

statements of assumptions underlying the foregoing statements.

We use words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should” and other similar expressions to identify forward-looking statements, but they are not the only way we identify such statements.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors, some of which are discussed under “Risk Factors,” include the impact of theCOVID-19 pandemic, economic and political conditions and government policies in Mexico, Brazil, Colombia, Europe and elsewhere, inflation rates, exchange rates, regulatory developments, technological improvements, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. You should evaluate any statements made by us in light of these important factors.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.

 

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FORM 20-F CROSS REFERENCE GUIDE

 

ITEM

 FORM 20-F CAPTION  LOCATION IN THIS REPORT  PAGE
    
1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS  Not applicable  
    
2 OFFER STATISTICS AND EXPECTED TIMETABLE  Not applicable  
    
3 KEY INFORMATION      
    
  3A Selected financial data  Selected financial data  2
    
  3B Capitalization and indebtedness  Not applicable  
    
  3C Reasons for the offer and use of proceeds  Not applicable  
    
  3D Risk factors  Risk factors  45
    
4 INFORMATION ON THE COMPANY      
    
  4A History and development of the Company  Information on the Company  5
   Note 10—Property, Plant and Equipment, Net  F-39
   Liquidity and capital resources  36
   Additional Information  109
    
  4B Business overview  Information on the Company  5
  Regulation  89
    
  4C Organizational structure  Exhibit 8.1  
    
  4D Property, plant and equipment  Information on the Company  5
  Note 10—Property Plant and Equipment, Net  F-39
  Liquidity and capital resources  36
  Regulation  89
    
4A Unresolved staff comments  None  
    
5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS      
    
  5A Operating results  Overview  20
    
    Results of operations  22
    
    Regulation  89
    
    Liquidity and capital resources  36
    
  5B Liquidity and capital resources  Note 14—Debt  F-51
    
  5C Research and development, patents and licenses, etc.  Not applicable  
    
  5D Trend information  Overview  20
    
     Results of operations  22
    
  5EOff-balance sheet arrangements  Off-balance sheet arrangement  36
    
  5F Tabular disclosure of contractual obligations  Contractual obligations  37
    
6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES      
    
  6A Directors and senior management  Management  70
    
  6B Compensation  Management  70
    
  6C Board practices  Management  70
   Management  70
    
  6D Employees  Employees  107
    
  6E Share ownership  Major shareholders  60
   Management  70

 

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ITEM

 FORM 20-F CAPTION  LOCATION IN THIS REPORT  PAGE 
    
7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS        
    
  7A Major shareholders  Major shareholders   60 
    
  7B Related party transactions  Related party transactions   61 
    
  7C Interests of experts and counsel  Not applicable    
    
8 FINANCIAL INFORMATION        
    
  8A Consolidated statements and other financial information  Consolidated Financial Statements   116 
   Dividends   62 
   Note 17—Commitments and Contingencies   F-59 
    
  8B Significant changes  Not applicable    
    
9 THE OFFER AND LISTING        
 9A Offer and listing details  Trading markets   62 
 9B Plan of distribution  Not applicable    
 9C Markets  Trading markets   62 
 9D Selling shareholders  Not applicable    
 9E Dilution  Not applicable    
 9F Expenses of the issue  Not applicable    
    
10 ADDITIONAL INFORMATION        
 10A Shareholders’ equity  Bylaws   62 
 10B Memorandum and articles of association  Bylaws   62 
 10C Material contracts  Information on the Company   5 
    Results of operations   22 
    Related party transactions   61 
    Regulation   89 
    
  10D Exchange controls  Additional information   109 
    
  10E Taxation  Taxation of shares and ADSs   64 
    
  10F Dividends and paying agents  Not applicable    
    
  10G Statement by experts  Not applicable    
    
  10H Documents on display  Additional information   109 
    
  10I Subsidiary information  Not applicable    
    
11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Risk management   41 
    Note 2 a)—Basis of Preparation of the Consolidated Financial Statements and Summary of Significant Accounting Policies and Practices   F-7 
    
12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES        
 12A Debt securities  Not applicable    
    
  12B Warrants and rights  Not applicable    
    
  12C Other securities  Not applicable    
    
  12D American Depositary Shares  Bylaws   62 
    
13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  Not applicable    

 

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FORM 20-F CROSS REFERENCE GUIDE

 

ITEM

 FORM 20-F CAPTION  LOCATION IN THIS REPORT  PAGE
    
14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY      
    
  HOLDERS AND USE OF PROCEEDS  Not applicable  
    
15 CONTROLS AND PROCEDURES  Controls and procedures  82
    
16A AUDIT COMMITTEE FINANCIAL EXPERT  Management  70
    
16B CODE OF ETHICS  Code of ethics  85
    
16C PRINCIPAL ACCOUNTANT FEES AND SERVICES  Principal accountant fees and services  108
    
16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES  Not applicable  
    
16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS  Purchases of equity securities by the issuer and affiliated purchasers  63
    
16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT  Not applicable  
    
16G CORPORATE GOVERNANCE  Corporate governance  79
    
16H MINE SAFETY DISCLOSURE  Not applicable  
    
17 FINANCIAL STATEMENTS  Not applicable  
    
18 FINANCIAL STATEMENTS  Consolidated Financial statements  116
    
19 EXHIBITS  Additional Information  109

 

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SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Dated: April 29, 2020

AMÉRICA MÓVIL, S.A.B. DE C.V.

 

By: /s/ Carlos José García Moreno Elizondo
Name:   Carlos José García Moreno Elizondo
Title: Chief Financial Officer

 

By: /s/ Alejandro Cantú Jiménez
Name:   Alejandro Cantú Jiménez
Title: General Counsel

 

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PART VIII CONSOLIDATED FINANCIAL STATEMENTS


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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Financial Statements

Years Ended December 31, 2017, 2018 and 2019

with Report of Independent Registered Public Accounting Firm


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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Financial Statements

Years Ended December 31, 2017, 2018 and 2019

Contents:

 

Report of Independent Registered Public Accounting Firm

   F-2 

Audited Consolidated Financial Statements:

  

Consolidated Statements of Financial Position

   F-6 

Consolidated Statements of Comprehensive Income

   F-7 

Consolidated Statements of Changes in Shareholders’ Equity

   F-8 

Consolidated Statements of Cash Flows

   F-9 

Notes to Consolidated Financial Statements

   F-10 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

América Móvil, S.A.B. de C.V.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of América Móvil, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 29, 2020 expressed an unqualified opinion thereon.

Adoption of International Financial Accounting Standard (IFRS) 16

As discussed in Note 2 a), item i) to the consolidated financial statements, effective January 1, 2019, the Company changed its method of accounting for leases, as a result of the adoption of International Financial Accounting Standard 16, “Leases” (IFRS 16), applying the modified retrospective approach. As explained below, auditing the Company’s adoption of IFRS 16 was a Critical Audit Matter.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

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Deferred tax assets, realizability of Net Operating Loss Carryforwards

Description of

the Matter

 

As discussed in Note 13 to the consolidated financial statements, at December 31, 2019, the balance of deferred tax assets was $106,167,897 thousands of Mexican pesos. The Company has recognized deferred tax assets arising from net operating loss carryforwards (NOLs) of approximately $26,630,407 thousands of Mexican pesos, the majority of which arises from one of its subsidiaries.

 

Auditing management´s assessment of the realizability of the deferred tax assets arising from NOLs involved complex auditor judgement because management´s estimate of realizability was based on assessing the probability, timing and sufficiency of expected reversals of taxable temporary differences, future taxable profits and available tax planning opportunities. These projections are sensitive because they are affected by future operating results and future market and economic conditions.

How We

Addressed the

Matter in Our

Audit

 

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement related to the realizability of the deferred tax assets. We tested controls over management’s analyses of the reversal of existing taxable temporary differences, their projections of future taxable income and related assumptions used in developing the projected financial information and their identification of available tax planning opportunities. Our audit also included the evaluation of controls that address the completeness and accuracy of the data utilized in the valuation models.

 

Our audit procedures to test the realizability of the deferred tax assets arising from NOLs also included, among others, the review of management´s estimates of future taxable income, the methodology used, the significant assumptions and the underlying data used by the Company in developing the projected financial information, such as the weighted average cost of capital, customer attrition rates, growth rates, and other key assumptions by comparing them with historical, economic and industry trends and evaluating whether changes to the Company´s business model and other factors would significantly affect the projected financial information. We also involved specialists to evaluate the methodologies and assumptions used, and to test the calculations used by the Company.

 

In addition, with the assistance of our tax professionals, we assessed the application of relevant tax law, including assessing the Company’s future tax planning opportunities and scheduling of the timing and amounts of expected reversals of taxable temporary differences.

 Impairment of goodwill

Description of

the Matter

 

As discussed in Notes 2 item i) and 11 to the consolidated financial statements, at December 31, 2019, the Company’s goodwill balance was $152,899,801 thousands of Mexican pesos, the Company tests goodwill at least annually at the Cash Generating Unit (CGU) level. Impairment exists when the carrying value of a CGU exceeds its recoverable amount, which is the higher of its fair value less cost to sell and its value-in-use.

 

Auditing management´s assessment of impairment of goodwill involved complex auditor judgement because the estimations required to determine the fair value and value-in-use of the CGUs, including revenue growth rates, operating margins and weighted average cost of capital, are sensitive to, and affected by, economic factors, technological changes and market conditions, among other factors.

 

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How We

Addressed the

Matter in Our

Audit

 We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement related to the determination of the impairment of goodwill, including controls over management’s review of the significant assumptions described above, projected financial information and the valuation model used to develop such estimates.
 

Our audit procedures to test the impairment of goodwill also included, among others, evaluating the methodology used, testing the significant assumptions mentioned above and the underlying data used by the Company. We assessed the historical accuracy of management’s estimates and projections by comparing them to actual results and obtaining appropriate explanations for the variances; examined management’s support for the current estimates and projections, by comparing them to industry and economic trends, including market participant data; evaluated management’s methodology for determining that the weighted average cost of capital that reflects the economic conditions impacting CGUs; and also tested the completeness and accuracy of the underlying data, and evaluated other factors that would significantly affect the projected financial information and thus the fair value and value-in-use of the CGUs.

 

We also involved our valuation specialist to evaluate the methodologies and assumptions used, and to test the calculations used by the Company.

 Valuation of Employee Benefit Obligations

Description of

the Matter

 

As discussed in Note 2, item q) to the consolidated financial statements, at December 31, 2019, the defined benefit pension obligation balance was $152,507,058 thousands of Mexican pesos. The Company assessed and updated its estimates and assumptions used to actuarially measure and value the defined benefit pension obligation as of December 31, 2019, using the assistance of independent actuarial specialists.

 

Auditing the defined benefit pension obligation involved complex auditor judgement and required the involvement of actuarial specialists because of the highly judgmental nature of the actuarial assumptions, such as discount rates, inflation rates, future compensation levels, mortality rates and longevity, among others. These assumptions have significant effects on the amount of the projected benefit obligation.

How We

Addressed the

Matter in Our

Audit

 

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the measurement and valuation of the defined benefit pension obligation. We tested controls over management’s review of the defined benefit pension obligation calculations, the significant actuarial assumptions used and the data inputs provided to the independent actuary. We also evaluated the objectivity and competence of the specialists used by management.

 

Our audit procedures to test the measurement and valuation of the defined benefit pension obligation included, among others, evaluating the methodology used, assessing the significant actuarial assumptions noted above and testing the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from prior year due to changes in service cost, interest cost, actuarial gains and losses, benefit payments, contributions and other activities; we involved our specialists to assist in the assessment of the actuarial model and the evaluation of the Company´s key assumptions by comparing them with publicly available market data and historical experience; in addition, our specialists evaluated management’s methodology for determining discount rates which reflect the maturity and duration of the benefit payments.

 

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 To evaluate the future compensation levels, the mortality rate and the longevity, we assessed whether the information is consistent with publicly available information, and whether any market data adjusted for entity-specific adjustments were applied. We also tested the completeness and accuracy of the underlying data, including the market participant data provided by management to its actuarial specialists.
 Adoption of IFRS 16—“Leases”

Description of

the Matter

 

As discussed in Note 2 a), item i) to the consolidated financial statements, the Company adopted the IFRS 16 effective January 1, 2019, which included recognizing a right-of-use asset and corresponding lease liability. Upon adoption, the Company recorded $119,387,660 thousands of Mexican pesos of right-of-use assets and lease liabilities using the modified retrospective method with no material impact on equity.

 

Auditing the adoption of IFRS 16 involved complex auditor judgement and required the involvement of specialists because of the highly judgmental nature of the methodology, assumptions and other factors, such as the estimation of the incremental borrowing rate, lease terms and the large volume of contracts which vary per business units and locations. These assumptions and factors have a significant effect on the lease liability and right-of-use asset values.

How We

Addressed the

Matter in Our

Audit

 

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the measurement, valuation and completeness of the implementation of the standard. We tested controls over the Company’s process for evaluating the completeness of their lease population, assessed the terms of lease agreements and assumptions used to determine the incremental borrowing rate.

 

Our audit procedures to test the implementation of IFRS 16 included, among others, evaluating the methodology used, the significant assumptions noted above and the underlying data used by the Company. To test the completeness and accuracy of the underlying data used to calculate the right of use asset and lease liability, we selected a sample of contracts with recurring payments and assessing their inclusion in the Company’s analysis and evaluating the Company’s conclusions on whether such arrangements were leases, in addition, we corroborated lease terms of leases to determine whether these attributes were considered and computed in the calculation; we involved our valuation specialists to assist in evaluating significant assumptions and management´s methodology for determining the incremental borrowing rate. We tested the Company’s calculations to determine the right-of-use asset and lease liability as of adoption.

/s/ Mancera, S.C.

We have served as the Company’s auditor since 1993.

Mexico City, Mexico

April 29, 2020

 

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands of Mexican pesos)

 

     Note    At December 31, 
  2018  2019  2019
Millions of
U.S. dollars
 

Assets

      

Current assets:

      

Cash and cash equivalents

  3  Ps.21,659,962  Ps.19,745,656  US$1,048 

Equity investments at fair value through other comprehensive income (OCI) and other short-term investments

  4   49,015,934   47,718,025   2,532 

Accounts receivable:

      

Subscribers, distributors, recoverable taxes, contract assets and other, net

  5   216,226,920   204,706,296   10,863 

Related parties

  6   1,263,605   1,273,140   68 

Derivative financial instruments

  7   5,287,548   6,825,760   362 

Inventories, net

  8   40,305,362   41,102,012   2,181 

Other current assets, net

  9   15,296,193   9,473,434   503 
    

 

 

  

 

 

  

 

 

 

Total current assets

    Ps.349,055,524  Ps.330,844,323  US$17,557 

Non-current assets:

      

Property, plant and equipment, net

  10  Ps.640,000,720  Ps.639,343,370  US$33,926 

Intangibles, net

  11   122,137,703   125,169,389   6,642 

Goodwill

  11   145,566,497   152,899,801   8,113 

Investments in associated companies

     3,132,707   2,474,193   131 

Deferred income taxes

  13   111,186,768   106,167,897   5,634 

Accounts receivable, subscriber, distributors and contract assets, net

  5   15,681,872   15,139,442   803 

Other assets, net

  9   42,461,601   41,892,019   2,223 

Right-of-use assets

  15   —     118,003,223   6,262 
    

 

 

  

 

 

  

 

 

 

Total assets

    Ps.1,429,223,392  Ps.1,531,933,657  US$81,291 
    

 

 

  

 

 

  

 

 

 

Liabilities and equity

      

Current liabilities:

      

Short-term debt and current portion of long-term debt

  14  Ps.96,230,634  Ps.129,172,033  US$6,854 

Short-term liability related toright-of-use of assets

  15   —     25,894,711   1,374 

Accounts payable

  16a   221,957,267   216,112,824   11,468 

Accrued liabilities

  16b   56,433,691   52,371,252   2,779 

Income tax

  13   19,232,191   33,026,606   1,752 

Other taxes payable

     23,979,334   24,373,400   1,293 

Derivative financial instruments

  7   13,539,716   9,596,751   509 

Related parties

  6   2,974,213   3,460,419   184 

Deferred revenues

     32,743,843   31,391,749   1,666 
    

 

 

  

 

 

  

 

 

 

Total current liabilities

    Ps.467,090,889  Ps.525,399,745  US$27,879 

Non-current-liabilities:

      

Long-term debt

  14  Ps.542,691,819  Ps.495,082,444  US$26,271 

Long-term liability related toright-of-use of assets

  15   —     94,702,022   5,025 

Deferred income taxes

  13   24,573,441   18,093,041   960 

Income tax

  13   7,891,042   —     —   

Deferred revenues

     3,239,301   3,425,738   182 

Derivative financial instruments

  7   3,567,863   —     —   

Asset retirement obligations

  16c   15,971,601   15,816,744   839 

Employee benefits

  18   118,325,014   152,507,058   8,093 
    

 

 

  

 

 

  

 

 

 

Totalnon-current liabilities

    Ps.716,260,081  Ps.779,627,047  US$41,370 
    

 

 

  

 

 

  

 

 

 

Total liabilities

    Ps.1,183,350,970  Ps.1,305,026,792  US$69,249 
    

 

 

  

 

 

  

 

 

 

Equity:

      

Capital stock

  20  Ps.96,338,378  Ps.96,338,262  US$5,112 

Retained earnings:

      

Prior years

     184,689,288   213,719,236   11,341 

Profit for the year

     52,566,197   67,730,891   3,594 
    

 

 

  

 

 

  

 

 

 

Total retained earnings

     237,255,485   281,450,127   14,935 

Other comprehensive loss items

     (137,598,218  (199,878,430  (10,605
    

 

 

  

 

 

  

 

 

 

Equity attributable to equity holders of the parent

     195,995,645   177,909,959   9,442 

Non-controlling interests

     49,876,777   48,996,906   2,600 
    

 

 

  

 

 

  

 

 

 

Total equity

     245,872,422   226,906,865   12,042 
    

 

 

  

 

 

  

 

 

 

Total liabilities and equity

    Ps.  1,429,223,392  Ps.  1,531,933,657  US$  81,291 
    

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands of Mexican pesos, except for earnings per share)

 

  Note For the years ended December 31 
 2017  2018  2019  2019
Millions of U.S.
dollars, except
for earnings
per share
 

Operating revenues:

     

Service revenues

  Ps.878,411,323  Ps.863,647,642  Ps.834,365,232  US$44,275 

Sales of equipment

   143,222,212   174,560,039   172,982,637   9,179 
  

 

 

  

 

 

  

 

 

  

 

 

 
  Ps. 1,021,633,535  Ps.  1,038,207,681  Ps.  1,007,347,869  US$  53,454 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating costs and expenses:

     

Cost of sales and services

   496,335,746   508,822,430   471,736,157   25,032 

Commercial, administrative and general expenses

   240,634,431   227,192,478   215,993,865   11,461 

Other expenses

   24,345,113   6,923,022   5,862,102   311 

Depreciation and amortization

 9,10,11 and 15  160,174,942   155,712,580   158,915,210   8,433 
  

 

 

  

 

 

  

 

 

  

 

 

 
  Ps.921,490,232  Ps.898,650,510  Ps.852,507,334  US$45,237 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

  Ps.100,143,303  Ps.139,557,171  Ps.154,840,535  US$8,217 
  

 

 

  

 

 

  

 

 

  

 

 

 

Interest income

   2,925,648   10,646,169   6,284,672   333 

Interest expense

   (30,300,781  (31,771,433  (37,911,339  (2,012

Foreign currency exchange (loss) gain, net

   (13,818,951  (7,261,956  5,226,071   277 

Valuation of derivatives, interest cost from labor obligations and other financial items, net

 22  (1,943,760  (10,176,316  (7,075,342  (375

Equity interest in net result of associated companies

   91,385   267   (17,609  (1
  

 

 

  

 

 

  

 

 

  

 

 

 

Profit before income tax

   57,096,844   100,993,902   121,346,988   6,439 

Income tax

 13  24,941,511   46,477,079   51,033,533   2,708 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net profit for the year

  Ps.32,155,333  Ps.54,516,823  Ps.70,313,455  US$3,731 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net profit for the year attributable to:

     

Equity holders of the parent

  Ps.29,325,921  Ps.52,566,197  Ps.67,730,891  US$3,594 

Non-controlling interests

   2,829,412   1,950,626   2,582,564   137 
  

 

 

  

 

 

  

 

 

  

 

 

 
  Ps.32,155,333  Ps.54,516,823  Ps.70,313,455  US$3,731 
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic and diluted earnings per share attributable to equity holders of the parent

  Ps.0.44  Ps.0.79  Ps.1.03  US$0.05 
  

 

 

  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss) items:

     

Net other comprehensive (loss) income that may be reclassified to profit or loss in subsequent years:

     

Effect of translation of foreign entities

  Ps.(18,309,877 Ps.(64,314,032 Ps.(35,536,252 US$(1,886

Effect of fair value of derivatives, net of deferred taxes

   12,292   —     —     —   

Items that will not be reclassified to (loss) or profit in subsequent years:

     

Re-measurement of defined benefit plan, net of deferred taxes

   (7,046,089  757,278   (29,535,672  (1,567

Unrealized gain (loss) on equity investments at fair value, net of deferred taxes

   622,424   (3,765,688  883,408   47 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total other comprehensive loss items for the year, net of deferred taxes

 21  (24,721,250  (67,322,442  (64,188,516  (3,406
  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss) for the year

  Ps.7,434,083  Ps.(12,805,619 Ps.6,124,939  US$325 
  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year attributable to:

     

Equity holders of the parent

  Ps.1,201,698  Ps.(11,770,227 Ps.5,450,679  US$289 

Non-controlling interests

   6,232,385   (1,035,392  674,260   36 
  

 

 

  

 

 

  

 

 

  

 

 

 
  Ps.7,434,083  Ps.(12,805,619 Ps.6,124,939  US$325 
  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican pesos)

 

  Capital
stock
  Legal
reserve
  Retained
earnings
  Effect of
derivative
financial
instruments
acquired
for hedging
purposes
  Unrealized
gain (loss) on
equity
investment at
fair value
  Re-measurement
of defined
benefit plans
  Cumulative
translation
adjustment
  Total equity
attributable to
equity holders
of the parent
  Non-
controlling
interests
  Total
equity
 

Balance at January 1, 2017

 Ps.  96,337,514  Ps.  358,440  Ps.  157,356,860  Ps.  (12,292 Ps.  (6,669,720 Ps.  (68,005,050 Ps.  29,549,491  Ps.  208,915,243  Ps.  62,108,524  Ps.  271,023,767 

Net profit for the year

  —     —     29,325,921   —     —     —     —     29,325,921   2,829,412   32,155,333 

Effect of fair value of derivatives, net of deferred taxes

  —     —     —     12,292   —     —     —     12,292   —     12,292 

Unrealized gain on equity investments at fair value, net of deferred taxes

  —     —     —     —     622,424   —     —     622,424   —     622,424 

Remeasurement of defined benefit plan, net of deferred taxes

  —     —     —     —     —     (7,075,606  —     (7,075,606  29,517   (7,046,089

Effect of translation of foreign entities

  —     —     —     —     —     —     (21,683,333  (21,683,333  3,373,456   (18,309,877
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

  —     —     29,325,921   12,292   622,424   (7,075,606  (21,683,333  1,201,698   6,232,385   7,434,083 

Dividends declared

  —     —     (19,815,470  —     —     —     —     (19,815,470  (1,848,108  (21,663,578

Stock dividend

  1,264   —     4,902,818   —     —     —     —     4,904,082   —     4,904,082 

Repurchase of shares

  (270  —     (1,040,686  —     —     —     —     (1,040,956  —     (1,040,956

Other acquisitions ofnon-controlling interests

  —     —     (285  —     —     —     —     (285  (23,596  (23,881
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

As of January 1, 2018

  96,338,508   358,440   170,729,158   —     (6,047,296  (75,080,656  7,866,158   194,164,312   66,469,205   260,633,517 

Effect of adoption of new accounting standards

  —     —     19,598,349   —     —     —     —     19,598,349   518,440   20,116,789 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

As of January 1, 2018 (restated)

  96,338,508   358,440   190,327,507   —     (6,047,296  (75,080,656  7,866,158   213,762,661   66,987,645   280,750,306 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net profit for the year

  —     —     52,566,197   —     —     —     —     52,566,197   1,950,626   54,516,823 

Unrealized loss on equity investments at fair value, net of deferred taxes

  —     —     —     —     (3,765,688  —     —     (3,765,688  —     (3,765,688

Remeasurement of defined benefit plan, net of deferred taxes

  —     —     —     —     —     652,722   —     652,722   104,556   757,278 

Effect of translation of foreign entities

  —     —     —     —     —     —     (61,223,458  (61,223,458  (3,090,574  (64,314,032
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

  —     —     52,566,197    (3,765,688  652,722   (61,223,458  (11,770,227  (1,035,392  (12,805,619

Dividends declared

  —     —     (21,134,520  —     —     —     —     (21,134,520  (1,850,462  (22,984,982

Hyperinflation adjustment

  —     —     15,826,934   —     —     —     —     15,826,934   —     15,826,934 

Repurchase of shares

  (130  —     (518,633  —     —     —     —     (518,763  —     (518,763

Redemption of hybrid bond

  —     —     —     —     —     —     —     —     (13,440,120  (13,440,120

Other acquisitions ofnon-controlling interests

  —     —     (170,440  —     —     —     —     (170,440  (784,894  (955,334
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2018

 Ps.96,338,378  Ps.358,440  Ps.236,897,045  Ps.—   Ps.(9,812,984 Ps.(74,427,934 Ps.(53,357,300 Ps.195,995,645  Ps.49,876,777  Ps.245,872,422 

Net profit for the year

  —     —     67,730,891   —     —     —     —     67,730,891   2,582,564   70,313,455 

Unrealized gain on equity investments at fair value, net of deferred taxes

  —     —     —     —     883,408   —     —     883,408   —     883,408 

Remeasurement of defined benefit plan, net of deferred taxes

  —     —     —     —     —     (29,153,554  —     (29,153,554  (382,118  (29,535,672

Effect of translation of foreign entities

  —     —     —     —     —     —     (34,010,066  (34,010,066  (1,526,186  (35,536,252
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

  —     —     67,730,891    883,408   (29,153,554  (34,010,066  5,450,679   674,260   6,124,939 

Dividends declared

  —     —     (23,106,823  —     —     —     —     (23,106,823  (1,473,290  (24,580,113

Repurchase of shares

  (116  —     (427,212  —     —     —     —     (427,328  —     (427,328

Other acquisitions ofnon-controlling interests

  —     —     (2,214  —     —     —     —     (2,214  (80,841  (83,055
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2019

 Ps.96,338,262  Ps.358,440  Ps.281,091,687  Ps.—   Ps.(8,929,576 Ps. (103,581,488 Ps. (87,367,366 Ps.177,909,959  Ps.48,996,906  Ps.226,906,865 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands of Mexican pesos)

 

     For the years ended December 31 
  Note  2017  2018  2019  2019
Millions of
U.S. dollars
 

Operating activities

     

Profit before income tax

  Ps.57,096,844  Ps.100,993,902  Ps.121,346,988  US$6,439 

Items not requiring the use of cash:

     

Depreciation property, plant and equipment andright-of-use assets

  
10 and
15
 
 
  135,206,080   129,115,727   138,386,952   7,344 

Amortization of intangible and other assets

  9 and 11   24,968,862   26,596,853   20,528,258   1,089 

Equity interest in net income of associated companies

   (91,385  (267  17,609   1 

Loss on sale of property, plant and equipment

   145,225   664,777   119,272   6 

Net period cost of labor obligations

  18   13,636,182   13,989,100   16,609,565   881 

Foreign currency exchange loss, net

   11,699,985   6,148,612   (7,250,635  (387

Interest income

   (2,925,648  (10,646,169  (6,284,672  (333

Interest expense

   30,300,781   31,771,433   37,911,339   2,012 

Employee profit sharing

   1,751,312   1,500,342   1,618,695   86 

Loss in valuation of derivative financial instruments, capitalized interest expense and other, net

   (19,010,851  (7,518,445  (9,202,167  (488

Gain on net monetary positions

  22   —     (4,429,145  (4,267,194  (226

Working capital changes:

     

Subscribers, distributors, recoverable taxes, contract assets and other, net

   1,799,095   (15,420,291  6,800,942   361 

Prepaid expenses

   4,588,584   3,264,685   9,079,931   482 

Related parties

   (558,651  38,426   476,671   25 

Inventories

   (2,991,009  (3,232,136  (2,095,622  (111

Other assets

   (4,763,394  (6,081,740  (6,597,262  (350

Employee benefits

   (14,692,218  (14,235,549  (20,224,276  (1,073

Accounts payable and accrued liabilities

   5,190,137   23,997,632   (16,811,135  (892

Employee profit sharing paid

   (1,471,946  (1,013,799  (2,187,316  (116

Financial instruments and other

   1,515,668   5,286,290   (1,774,932  (94

Deferred revenues

   (452,913  38,243   (636,221  (34

Interest received

   819,940   1,215,800   1,008,076   53 

Income taxes paid

   (23,988,305  (33,713,753  (42,294,398  (2,244
  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash flows provided by operating activities

  Ps.217,772,375  Ps.248,330,528  Ps.234,278,468  US$  12,431 
  

 

 

  

 

 

  

 

 

  

 

 

 

Investing activities

     

Purchase of property, plant and equipment

   (119,185,137  (143,888,033  (132,884,335  (7,051

Acquisition of intangibles

   (17,538,541  (7,933,647  (18,962,856  (1,006

Dividends received

  22   2,385,559   2,622,237   1,773,336   94 

Proceeds from sale of plant, property and equipment

   133,349   178,532   344,924   18 

Acquisition of businesses, net of cash acquired

  12   (6,878,793  (310,604  (13,330,651  (707

Partial sale of shares of associated company

   340,040   548,484   36,478   2 

Investments in associate companies

   —     —     (56,985  (3
  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash flows used in investing activities

  Ps. (140,743,523 Ps. (148,783,031 Ps. (163,080,089 US$(8,653
  

 

 

  

 

 

  

 

 

  

 

 

 

Financing activities

     

Loans obtained

   143,607,726   155,263,221   118,082,256   6,266 

Repayment of loans

   (171,041,215  (189,314,144  (109,808,816  (5,827

Payment of liability related toright-of-use of assets

  15   —     —     (26,765,075  (1,420

Interest paid

   (31,196,441  (30,869,017  (28,046,695  (1,488

Repurchase of shares

   (1,233,371  (511,421  (435,713  (23

Dividends paid

   (16,091,390  (22,369,793  (24,248,145  (1,287

Derivative financial instruments

   (71,474  —     —     —   

Redemption of hybrid bond

   —     (13,440,120  —     —   

Acquisition ofnon-controlling interests

   (11,930  (115,821  (83,055  (4
  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash flows used in financing activities

  Ps.(76,038,095 Ps.(101,357,095 Ps.(71,305,243 US$(3,783
  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash and cash equivalents

  Ps.990,757  Ps.(1,809,598 Ps.(106,864 US$(5
  

 

 

  

 

 

  

 

 

  

 

 

 

Adjustment to cash flows due to exchange rate fluctuations, net

   61,333   (800,913  (1,807,442  (96

Cash and cash equivalents at beginning of the year

   23,218,383   24,270,473   21,659,962   1,149 
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of the year

  Ps.24,270,473  Ps.21,659,962  Ps.19,745,656  US$1,048 
  

 

 

  

 

 

  

 

 

  

 

 

 

Non-cash transactions related to:

     

Acquisitions of property, plant and equipment in accounts payable at end year

  Ps.18,869,210  Ps.19,099,066  Ps.19,673,706  US$1,044 

Redemption of exchangeable bond

   —     16,446,262   —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Non-cash transactions

  Ps.18,869,210  Ps.35,545,328  Ps.19,673,706  US$1,044 
  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-9


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican pesos [Ps.] and thousands of

U.S. dollars [US$], unless otherwise indicated)

1. Description of the Business and Relevant Events

I. Corporate Information

América Móvil, S.A.B. de C.V. and subsidiaries (hereinafter, the “Company”, “América Móvil” or “AMX”) was incorporated under laws of Mexico on September 25, 2000. The Company provides telecommunications services in 25 countries throughout Latin America, the United States, the Caribbean and Europe. These telecommunications services include mobile and fixed-line voice services, wireless and fixed data services, internet access and Pay TV, over the top and other related services. The Company also sells equipment, accessories and computers.

 

 

Voice services provided by the Company, both wireless and fixed, mainly include the following: airtime, local, domestic and international long-distance services, and network interconnection services.

 

 

Data services include value added, corporate networks, data and Internet services.

 

 

Pay TV represents basic services, as well as pay per view and additional programming and advertising services.

 

 

AMX provides other related services to advertising in telephone directories, publishing and call center services.

 

 

The Company also provides video, audio and other media content that is delivered through the internet directly from the content provider to the end user.

In order to provide these services, América Móvil has licenses, permits and concessions (collectively referred to herein as “licenses”) to build, install, operate and exploit public and/or private telecommunications networks and provide miscellaneous telecommunications services (mostly mobile and fixed voice and data services) and to operate frequency bands in the radio-electric spectrum forpoint-to-point andpoint-to-multipoint microwave links. The Company holds licenses in the 24 countries where it has networks, and such licenses have different dates of expiration through 2056.

Certain licenses require the payment to the respective governments of a share in sales determined as a percentage of revenues from services under concession. The percentage is set as either a fixed rate or in some cases based on certain size of the infrastructure in operation.

The corporate offices of América Móvil are located in Mexico City, Mexico, at Lago Zurich 245, Colonia Ampliación Granada, Delegación Miguel Hidalgo, 11529, Mexico City, Mexico.

The accompanying consolidated financial statements were approved for their issuance by the Company’s Chief Financial Officer on April 24, 2020, and subsequent events have been considered through that date.

2. Basis of Preparation of the Consolidated Financial Statements and Summary of Significant Accounting Policies and Practices

a) Basis of preparation

The accompanying consolidated financial statements have been prepared in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IASB”) (hereafter referred to as IFRS).

 

F-10


Table of Contents

The consolidated financial statements have been prepared on the historical cost basis, except for the derivative financial instruments, the trust assets of post-employment and other employee benefit plans and the investments in equity at fair value through other comprehensive income (OCI), which are presented at their market value.

Effective July 1, 2018, the Argentinian economy has been considered to be hyperinflationary in accordance with the criteria in IAS 29 “Financial Reporting in Hyperinflationary Economies” (“IAS 29”). Accordingly, for the Argentinian subsidiaries, we have included, adjustments for hyperinflation and reclassifications as is required by the standard for purposes of presentation of IFRS in the consolidated financial statements.

The preparation of these consolidated financial statements under IFRS requires the use of critical estimates and assumptions that affect the amounts reported for certain assets, liabilities, income and expenses. It also requires that management exercise judgment in the application of the Company’s accounting policies. Actual results could differ from these estimates and assumptions.

The Mexican peso is the functional currency of the Company’s Mexican operations and the consolidated reporting currency of the Company.

i) Changes in Accounting Policies and Disclosures in 2019

a) IFRS 16 Leases

IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease,SIC-15 Operating Leases- Incentives andSIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a singleon-balance sheet model similar to the accounting for finance leases under IAS 17.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Company is the lessor.

The Company adopted the IFRS 16 using the modified retrospective method with the date of initial application on January 1, 2019. Under this method, the Company recognizes the cumulative effect of initially adoption at the date of adoption, that is, the value of the asset byright-of-use is the same to the liability for leases. The Company applied the new requirements regarding IFRS 16 to all contracts identified as leases under the previous accounting standard and reassessed all services, in order to identify lease components or an implicit accounting lease within these contracts. Additionally, the Company chose to use the exemptions applicable to the standard on lease contracts for which the leases terms ends within 12 months as of the date of the initial application, and the lease contracts for which the underlying asset is of low value.

As of the date of the initial adoption of IFRS 16, the Company recognized an increase in theright-of-use assets and lease liabilities in the amount of Ps. 119,387,660, with no material impact on equity.

The Company identified a significant number of lease assets such as towers, physical facilities (office buildings, stores and sites, mainly), circuits, among others. Before the adoption of IFRS 16, the Company classified each of its leases (as lessee), at the inception date as either a finance lease or an operating lease.

Leases previously classified as finance leases.

The Company did not change the initial carrying amounts of the recognized assets and liabilities at the date of the initial application for leases previously classified as finance leases (ie, the right-of- use assets and lease liabilities equal the lease assets and lease liabilities recognized under IAS 17). The requirements of IFRS 16 were applied to these leases from January 1, 2019.

 

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Leases previously accounted for as operating leases

The Company recognizedright-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases oflow-value assets. Therights-of-use assets were recognized based on the amount equivalent to the lease liabilities, adjusted for any prepayment related to the previously recognized contract. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The Company also applied the available practical expedients wherein it:

 

  

Common discount rates were used for groups of contracts with reasonably similar characteristics related to the term, type of asset, currency and economic environment.

 

  

Short-term lease exemptions were applied to leases with a term that ends within 12 months after the date of initial application.

 

  

Thenon-lease components were not separated and the associatednon-lease components were accounted for as if they were a single lease component.

 

  

Retrospective reasoning was used to determine the term of the lease, if the contract contains options to extend or terminate the lease.

The lease liabilities as of January 1, 2019 can be reconciled to the operating lease commitments as of December 31, 2018, as follows:

 

Operating lease commitments as of December 31, 2018

   Ps.  137,949,821 

Lease commitments not in scope of IFRS 16

   (29,624,063

Lease payments not included in the operating lease commitments
as at 31 December 2018, resulting from differences between IAS 17
and IFRS 16 at implementation date

   60,064,406 

Short-term leases and leases oflow-value assets

   (5,498,423

Effect of discounting

   (43,504,081
  

 

 

 

Lease liabilities as of January 1, 2019

   Ps.  119,387,660 
  

 

 

 

The weighted average rate applied to lease liabilities recognized in the statement of financial position at the date of initial application was 7.29 %.

b) IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and 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 Interpretation specifically addresses the following:

 

  

Whether an entity considers uncertain tax treatments separately

 

  

The assumptions an entity makes about the examination of tax treatments by taxation authorities

 

  

How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates

 

  

How an entity considers changes in facts and circumstances

 

  

How an entity determines the amount of tax expenses to be recognized within the financial statements based in the better predict the resolution of the uncertainty (the most likely amount or the expected value).

 

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In Note 17b) to the consolidated financial statements Company is including disclosures related to uncertain tax treatments. Uncertainty in a tax treatment may arise as tax laws are subject to interpretation. Changes in circumstances, such as changes in tax laws and communications with taxing authorities may affect the amount of uncertain tax treatments; however, none of these circumstances have occurred in 2019 and for this reason the recognition and disclosure are consistent with the analysis and disclosure under IAS 37 in the previous years.

The Company determined, based on its tax compliance 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 the consolidated financial statements of the Company.

ii) Basis of consolidation

The consolidated financial statements include the accounts of América Móvil, S.A.B. de C.V. and those subsidiaries over which the Company exercises control. The consolidated financial statements for the subsidiaries were prepared for the same period as the Company´s and applying consistent accounting policies. All of the subsidiary companies operate in the telecommunications sector or related.

Subsidiaries are entities over which the Company has control. Control is achieved when the Company has power over the investee, when it is exposed to, or has rights to, variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries are consolidated on a line by line basis from the date which control is achieved by the Company. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control.

On March 6, 2020, in accordance with a resolution of the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones or IFT), the subsidiaries Teléfonos de México, S.A.B. de C.V. and Teléfonos del Noroeste, S.A. de C.V. created separate companies related to the wholesale services named Red Nacional Última Milla S.A.P.I. de C.V., Servicios de Telecomunicaciones Ultima Milla, S.A. de C.V. and Red Última Milla del Noroeste S.A.P.I. de C.V.

Changes in the Company’s ownership interests in a subsidiary that do not result in the Company losing control over the subsidiary are accounted for as equity transactions. The carrying amounts of the equity attributable to owners of the parent andnon-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the carrying amount of thenon-controlling interests and the fair value of the consideration paid or received in the transaction is recognized directly in the equity attributable to the owners.

Subsidiaries are deconsolidated from the date which control ceases. When the Company ceases to have control over a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts, derecognizes the carrying amount ofnon-controlling interests in the former subsidiary and recognizes the fair value of any consideration received from the transaction. Any retained interest in the former subsidiary is then remeasured to its fair value.

All intra-Company balances and transactions, and any unrealized gains and losses arising from intra-Company transactions, are eliminated in preparing the consolidated financial statements.

Non-controlling interests represent the portion of profits or losses and net assets not held by the Company.Non-controlling interests are presented separately in the consolidated statements of comprehensive income and in equity in the consolidated statements of financial position separately from Company’s own equity.

 

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Associates:

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those decisions.

The Company’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment losses.

The investments in associated companies in which the Company exercises significant influence are accounted for using the equity method, whereby Company recognizes its share in the net profit (losses) and equity of the associate.

The results of operations of the subsidiaries and associates are included in the Company’s consolidated financial statements beginning as of the month following their acquisition and its share of other comprehensive income after acquisition is recognized directly in other comprehensive income.

The Company assesses at each reporting date whether there is objective evidence that investment in associates is impaired. If so, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value.

The equity interest in the most significant subsidiaries at December 31, 2018 and 2019 is as follows:

 

Company name

 Country  Equity
interest at
December 31
 
 2018  2019 

Subsidiaries:

   

América Móvil B.V. a)

  Netherlands   100.0  100.0

Compañía Dominicana de Teléfonos, S.A. (“Codetel”) b)

  Dominican Republic   100.0  100.0

Sercotel, S.A. de C.V. a)

  Mexico   100.0  100.0

Radiomóvil Dipsa, S.A. de C.V. and subsidiaries (“Telcel”) b)

  Mexico   100.0  100.0

Puerto Rico Telephone Company, Inc. b)

  Puerto Rico   100.0  100.0

Servicios de Comunicaciones de Honduras, S.A. de C.V. (“Sercom Honduras”) b)

  Honduras   100.0  100.0

TracFone Wireless, Inc. (“TracFone”) b)

  USA   100.0  100.0

Claro S.A. (Claro Brasil) b)

  Brazil   98.2  98.2

NII Brazil Holding S.A.R.L a)

  Luxembourg   —     100.0

Nextel Telecomunicações Ltda b)

  Brazil   —     100.0

Telecomunicaciones de Guatemala, S.A. (“Telgua”) b)

  Guatemala   99.3  99.3

Claro Guatemala, S.A. b)

  Guatemala   —     100

Empresa Nicaragüense de Telecomunicaciones, S.A.
(“Enitel”) b)

  Nicaragua   99.6  99.6

Compañía de Telecomunicaciones de El Salvador, S.A. de C.V. (“CTE”) b)

  El Salvador   95.8  95.8

Comunicación Celular, S.A. (“Comcel”) b)

  Colombia   99.4  99.4

Telmex Colombia, S.A.

  Colombia   99.3  —   

Consorcio Ecuatoriano de Telecomunicaciones, S.A. (“Conecel”) b)

  Ecuador   100.0  100.0

AMX Argentina, S.A. b)

  Argentina   100.0  100.0

AMX Paraguay, S.A. b)

  Paraguay   100.0  100.0

AM Wireless Uruguay, S.A. b)

  Uruguay   100.0  100.0

Claro Chile, S.A. b)

  Chile   100.0  100.0

América Móvil Perú, S.A.C b)

  Peru   100.0  100.0

Claro Panamá, S.A. b)

  Panamá   100.0  100.0

Teléfonos de México, S.A.B. de C.V. b)

  Mexico   98.8  98.8

Telekom Austria AG b)

  Austria   51.0  51.0

 

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a)

Holding companies

b)

Operating companies of mobile and fixed services

iii) Basis of translation of financial statements of foreign subsidiaries and associated companies

The operating revenues of foreign subsidiaries jointly represent approximately 74%, 73% and 71% of consolidated operating revenues for the years ended December 31, 2017, 2018 and 2019, respectively, and their total assets jointly represent approximately 80% and 73% of consolidated total assets at December 31, 2018 and 2019, respectively.

The financial statements of foreign subsidiaries have been prepared under or translated to IFRS in the respective local currency (which is their functional currency) and then translated into the Company´s reporting currency as follows:

 

  

all monetary assets and liabilities were translated at the closing exchange rate of the period;

 

  

allnon-monetary assets and liabilities at the closing exchange rate of the period;

 

  

equity accounts are translated at the exchange rate at the time the capital contributions were made and the profits were generated;

 

  

revenues, costs and expenses are translated at the average exchange rate of the period, except for the operations of the subsidiaries in Argentina, whose economy is considered hyperinflationary since 2018;

 

  

the consolidated statements of cash flows presented using the indirect method were translated using the weighted-average exchange rate for the applicable period (except for Argentina), and the resulting difference is shown in the consolidated statements of cash flows under the heading “Adjustment to cash flows due to exchange rate fluctuations, net”.

The basis of translation for the operations of the subsidiaries in Argentina are described:    

In recent years, the Argentina economy has shown high rates of inflation. Although inflation data has not been consistent in recent years and several indexes have coexisted, inflation in Argentina indicates that the three-year cumulative inflation rate exceeded 100% in 2018, which is the quantitative reference established by IAS 29. As a result, Argentina was considered a hyperinflationary economy in 2018 and the Company applies hyperinflation accounting to its subsidiary whose functional currency is the Argentine peso for financial information for periods ending on or after July 1, 2018, however the calculation of the cumulative impact was measured as of January 1, 2018.

In order to restate for hyperinflation its financial statements, the subsidiary used the series of indices defined by resolution JG No. 539/18 issued by the “Federación Argentina de Consejos Profesionales de Ciencias Económicas” (FACPCE), based on the National Consumer Price Index (IPC) published by the Instituto Nacional de Estadística y Censos (INDEC) of the Argentine Republic and the Wholesale Internal Price Index (IPIM) published by FACPCE. The cumulative index at December 31, 2019 is 283.444, while on an annual inflation for 2019 is 53.83%.

The main implications are as follows:

 

  

Adjustment of the historical cost ofnon-monetary assets and liabilities and equity items from their date of acquisition, or the date of inclusion in the consolidated statements of financial position, to the end of the year, in order to reflect changes in the currency’s purchasing power caused by inflation.

 

  

The gain on the net monetary position caused by the impact of inflation in the year is included in the consolidated statements of comprehensive income as part of the caption “Valuation of derivatives, interest cost from labor obligations and other financial items, net”. Items in the statement of comprehensive income and in the statements of cash flows are adjusted by the inflation index since their origination, with a balancing entry, and a reconciling item in the statements of cash flows, respectively.

 

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All items in the financial statements of the Argentine company are translated at the closing exchange rate, which at December 31, 2018 and 2019 were 0.5221 and 0.3147, respectively, per argentine pesos per Mexican Peso.

 

  

Financial information for financial years prior to 2018 are not restated.

The difference resulting from the translation process is recognized in equity in the caption “Effect of translation of foreign entities”. At December 31, 2018 and 2019, the cumulative translation adjustment was Ps. (53,357,300) and Ps. (87,367,366), respectively.

b) Revenue recognition

The Company revenues are derived principally from providing the following telecommunications services and products: wireless voice, wireless data and value-added services, fixed voice, fixed data, broadband and IT services, Pay TV andover-the-top (“OTT”) services.

The Company provides fixed and mobile services. These services are offered independently in contracts with customers or together with the sale of handsets (mobile) under the postpaid model. In accordance with IFRS 15Revenues from contracts with customers, the transaction price should be assigned to the different performance obligations based on their relative standalone selling price.

The Company with respect to the provided services, it has market observable information, to determine the standalone selling price of the services. On the other hand, in the case of the sale of bundled mobile phones sold (including service and handset) by the Company, the allocation of the sales is done based on their relative standalone selling price of each individual component related to the total bundled price. The result is that more equipment revenue is recognized at the moment of a sale and, therefore, less service revenue from the monthly fee are being recognized under IFRS 15.

The services provided by the Company are satisfied over the time of the contract period, given that the customer simultaneously receives and consumes the benefits provided by the Company.

Such service bundles, voice and data, accomplish the criteria mentioned in IFRS 15 of being substantially similar and of having the same transfer pattern which is why the Company concluded that the revenue from these different services offered to its customers are considered as a single performance obligation with revenue being recognized over time, except for sales of equipment.

Under IFRS 15, for those contracts with customers in which generally the sale of equipment and other electronic equipment is a single performance obligation, the Company recognizes the revenue at the moment when it transfers control to the customer which generally occurs when such goods are delivered.

The commissions are considered incremental contract acquisition costs that are capitalized and are amortized over the expected period of benefit, during the average duration of customer contracts.

Some subsidiaries have loyalty programs where the Company awards credits customer credit awards referred as “points”. The customer can redeem accrued “points” for awards such as devices, accessories or airtime. The Company provides all awards. The consideration allocated to the award credits is identified as a separate performance obligation; the corresponding liability of the award credits is measured at its fair value. The consideration allocated to award credits amount is recognized as a contract liability until the points are redeemed. Revenue is recognized upon redemption of products by the customer.

 

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c) Cost of sales

The cost of mobile equipment and computers is recognized at the time the client and distributor receives the device which is when the control is are transferred to the customer.

d) Cost of services

The cost of services represents the costs incurred to properly deliver the services to the customers, it includes the network operating costs and licenses related costs and is accounted at the moment in which such services are provided.

e) Commissions to distributors

The Company pays commissions to its distributors different than those that acquire customers. Such commissions are recognized in “commercial, administrative and general expenses” in the consolidated statements of comprehensive income at the time in which the distributor either reports an activation or reaches certain number of lines activated or obtained at a certain point of time.

f) Cash and cash equivalents

Cash and cash equivalents represent bank deposits and liquid investments with maturities of less than three months. These amounts are stated at cost plus accrued interest, which is similar to their market value.

The Company also maintains restricted cash held as collateral to meet certain contractual obligations. Restricted cash is presented as part of “Other assets” within othernon-current financial assets given that the restrictions are long-term in nature (See Note 9).

g) Equity investments at fair value through OCI and other short-term investments

Equity investments at fair value through OCI and other short-term investments are primarily composed of equity investments and other short-term financial investments. Amounts are initially recorded at their estimated fair value. Fair value adjustments for equity investments are recorded through other comprehensive income, while fair value adjustments for other short-term investments are recorded in the Consolidated Statements of Comprehensive Income as they occur.

h) Inventories

Inventories are initially recognized at historical cost and are valued using the average cost method without exceeding their net realizable value.

The estimate of the realizable value of inventorieson-hand is based on their age and turnover.

i) Business combinations and goodwill

Business combinations are accounted for using the acquisition method, which in accordance with IFRS 3, “Business acquisitions”, consists in general terms as follows:

 

(i)

Identify the acquirer

 

(ii)

Determine the acquisition date

 

(iii)

Value the acquired identifiable assets and assumed liabilities

 

(iv)

Recognize the goodwill or a bargain purchase gain

For acquired subsidiaries, goodwill represents the difference between the purchase price and the fair value of the net assets acquired at the acquisition date. The investment in acquired associates includes goodwill identified on acquisition, net of any impairment loss.

 

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Goodwill is reviewed annually to determine its recoverability or more often if circumstances indicate that the carrying value of the goodwill might not be fully recoverable.

The possible loss of value in goodwill is determined by analyzing the recovery value of the cash generating unit (or the group thereof) to which the goodwill is associated at the time it was originated. If this recoverable amount is lower than the carrying value, an impairment loss is charged to the results of operations. The recoverable amount is determined based on the higher of fair value less cost of disposal or value in use.

For the years ended December 31, 2017, 2018 and 2019, no impairment losses were recognized for goodwill.

j) Property, plant and equipment

i) Property, plant and equipment are recorded at acquisition cost, net of accumulated depreciation. Depreciation is computed on the cost of the assets using the straight line method, based on the estimated useful lives of the related assets, beginning the month after they become available for use.

Borrowing costs that are incurred for general financing for construction in progress for periods exceeding six months are capitalized as part of the cost of the asset. During the years ended December 31, 2017, 2018 and 2019, borrowing costs that were capitalized amounted to Ps. 2,875,034, Ps. 2,020,288 and Ps. 2,233,358, respectively.

In addition to the purchase price and costs directly attributable to preparing an asset in terms of its physical location and condition for operating as intended by management, when required, the cost also includes the estimated costs of dismantling and removal of the asset and for restoration of the site where it is located (See Note 16c).

ii) The net book value of property, plant and equipment is removed from the consolidated statements of financial position at the time the asset is sold or when no future economic benefits are expected from its use or sale. Any gains or losses on the sale of property, plant and equipment represent the difference between net proceeds of the sale and the net book value of the item at the time of sale. These gains or losses are recognized as either other operating income or other operating expenses upon sale.

iii) The Company periodically assesses the residual values, useful lives and depreciation methods associated with its property, plant and equipment. If necessary, the effects of any changes in accounting estimates is recognized prospectively, at the closing of each period, in accordance with IAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors”.

For property, plant and equipment made up of several components with different useful lives, the major individual components are depreciated over their individual useful lives. Maintenance costs and repairs are expensed as incurred.

Annual depreciation rates are as follows:

 

Network infrastructure

   5%-33% 

Buildings and leasehold improvement

   2%-33% 

Other assets

   10%-50% 

iv) The carrying value of property, plant and equipment is reviewed if there are indicators of impairment in such assets. If an asset’s recovery value is less than the asset’s net carrying value, the difference is recognized as an impairment loss.

During the years ended December 31, 2017, 2018 and 2019, no impairment losses were recognized.

v) Spare parts for network operation are recognized at cost.

 

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The valuation of inventory for network considered obsolete, defective or slow-moving, is reduced to their estimated net realizable value. The estimate of the recovery value of inventories is based on their age and turnover.

k) Intangibles

i) Licenses

Licenses to operate wireless telecommunications networks granted by the governments of the countries in which the Company operates are recorded at acquisition cost or at fair value at their acquisition date, net of accumulated amortization. Certain licenses require payments to the governments, such payments are recognized in the cost of service and equipment.

The licenses that in accordance with government requirements are categorized as automatically renewable, for a nominal cost and with substantially consistent terms, are considered by the Company as intangible assets with an indefinite useful life. Accordingly, they are not amortized. Licenses are amortized when the Company does not have a basis to conclude that they are indefinite lived. Licenses are amortized using the straight-line method over a period ranging from 3 to 30 years, which represents the usage period of the assets.

The Company has conducted an internal analysis on the applicability of the International Financial Reporting Interpretation Committee (“IFRIC”) No. 12 (Service Concession Agreements) and has concluded that its concessions are outside the scope of IFRIC 12. To determine the applicability of IFRIC 12, the Company analyzes each concession or group of similar concessions in a given jurisdiction. As a threshold matter, the Company identifies those government concessions that provide for the development, financing, operation or maintenance of infrastructure used to render a public service, and that set out performance standards, mechanisms for adjusting prices and arrangements for arbitrating disputes.

With respect to those services, the Company evaluates whether the grantor controls or regulates (i) what services the operator must provide, (ii) to whom it must provide them and (iii) the applicable price (the “Services Criterion”). In evaluating whether the applicable government, as grantor, controls the price at which the Company provides its services, the Company looks at the terms of the concession agreement according to all applicable regulations. If the Company determines that the concession under analysis meets the Services Criterion, then the Company evaluates whether the grantor would hold a significant residual interest in the concession’s infrastructure at the end of the term of the arrangement.

ii) Trademarks

Trademarks acquired are measured on initial recognition at cost. The cost of trademarks acquired in a business combination is their fair value at the date of acquisition. The useful lives of trademarks are assessed as either definite or indefinite. Trademarks with finite useful lives are amortized using the straight-line method over a period ranging from 1 to 10 years. Trademarks with indefinite useful lives are not amortized but are tested for impairment annually at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable, if not, the change in useful life from indefinite to definite is made on a prospective basis.

iii) Irrevocable rights of use

Irrevocable rights of use are recognized according to the amount paid for the right and are amortized over the period in which they are granted.

The carrying values of the Company’s licenses and trademarks are reviewed annually and whenever there are indicators of impairment in the value of such assets. When an asset’s recoverable amount, which is the higher of the asset’s fair value, less disposal costs and its value in use (the present value of future cash flows), is less than the asset’s carrying value, the difference is recognized as an impairment loss.

 

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iv) Customer relationships

The value of customer relations is determined and valued at the time that a new subsidiary is acquired, as determined by the Company with the assistance of independent appraisers and is amortized over a 5 year period.

During the years ended December 31, 2017, 2018 and 2019, no significant impairment losses were recognized for licenses, trademarks, irrevocable rights of use or customer relationships.

l) Impairment in the value of long-lived assets

The Company assesses the existence of indicators of impairment in the carrying value of long-lived assets, investments in associates, goodwill and intangible assets according to IAS 36 “Impairment of assets”. When there are such indicators, or in the case of assets whose nature requires an annual impairment analysis (goodwill and intangible assets with indefinite useful lives), the Company estimates the recoverable amount of the asset, which is the higher of its fair value, less disposal costs, and its value in use. Value in use is determined by discounting estimated future cash flows, applying apre-tax discount rate that reflects the time value of money and taking into consideration the specific risks associated with the asset. When the recoverable amount of an asset is below its carrying value, impairment is considered to exist. In this case, the carrying value of the asset is reduced to the asset’s recoverable amount, recognizing the loss in results of operations for the respective period. Depreciation and/or amortization expense of future periods is adjusted based on the new carrying value determined for the asset over the asset’s remaining useful life. Impairment is computed individually for each asset. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets.

In the estimation of impairments, the Company uses the strategic plans established for the separate cash-generating units to which the assets are assigned. Such strategic plans generally cover a period from 3 to 5 years. For longer periods, beginning in the fifth year, projections are based on such strategic plans while applying a constant or declining expected perpetual growth rate.

Key assumptions used in value in use calculations

The forecasts are made in real terms (net of inflation) and in the functional currency of the subsidiary as of December 31, 2019. Financial forecasts, premises and assumptions are similar to what any other market participant in similar conditions would consider.

Local synergies, that any other market participant would not have taken into consideration to prepare similar forecasted financial information, have not been included.

The assumptions used to develop the financial forecasts were validated for each of the cash generating units (“CGUs”), typically identified by country and by service (in the case of Mexico) taking into consideration the following:

 

  

Current subscribers and expected growth.

 

  

Type of subscribers (prepaid, postpaid, fixed line, multiple services)

 

  

Market environment and penetration expectations

 

  

New products and services

 

  

Economic environment of each country

 

  

Expenses for maintaining the current assets

 

  

Investments in technology for expanding the current assets

 

  

Market consolidation and synergies

 

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The foregoing forecasts could differ from the results obtained through time; however, the Company prepares its estimates based on the current situation of each of the CGUs.

The recoverable amounts are based on value in use. The value in use is determined based on the method of discounted cash flows. The key assumptions used in projecting cash flows are:

 

  

Margin on EBITDA is determined by dividing EBITDA (operating income plus depreciation and amortization) by total revenues.

 

  

Margin on CAPEX is determined by dividing capital expenditures (“CAPEX”) by total revenues.

 

  

Pre-tax weighted average cost of capital (“WACC”) is used to discount the projected cash flows.

As discount rate, the Company uses the WACC which was determined for each of the cash generating units and is described in the following paragraphs.

The estimated discount rates to perform the IAS 36 “Impairment of assets”, impairment test for each CGU consider market participants assumptions. Market participants were selected taking into consideration size, operations and characteristics of the business that were similar to those of Company.

The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Company and its operating segments. The WACC takes into account both debt and equity costs. The cost of equity is derived from the expected return on investment for each GCU. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service. Segment-specific risk is incorporated by applying individual beta factors.

The beta factors are evaluated annually based on publicly available market data.

Market participant assumptions are important because, not only do they include industry data for growth rates, but also management assesses how the CGU’s position, relative to its competitors, might change over the forecasted period.

The most significant forward-looking estimates used for the 2018 and 2019 impairment evaluations are shown below:

 

   Average margin on
EBIDTA
  Average margin on
CAPEX
  Average pre-tax
discount rate
(WACC)

2018:

      

Europe (7 countries)

  22.13% - 41.51%  8.13% - 19.40%  8.36% - 22.08%

Brazil (fixed line, wireless and TV)

  36.43%  21.88%  10.38%

Puerto Rico

  23.86%  9.89%  4.81%

Dominican Republic

  48.64%  18.43%  17.66%

Mexico (fixed line and wireless)

  36.33%  7.93%  16.30%

Ecuador

  39.83%  11.26%  24.45%

Peru

  30.29%  19.95%  11.52%

El Salvador

  45.36%  22.61%  18.01%

Chile

  25.91%  14.99%  6.62%

Colombia

  45.01%  17.14%  20.29%

Other countries

  7.90% - 45.91%  0.61% - 23.96%  9.97% - 31.63%

 

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   Average margin on
EBIDTA
   Average margin on
CAPEX
   Average pre-tax
discount rate
(WACC)
 

2019:

      

Europe (7 countries)

   29.40% - 44.50%    10.90% - 19.30%    5.77% - 14.96% 

Brazil (fixed line, wireless and TV)

   40.43%    23.50%    11.00% 

Puerto Rico

   21.94%    17.94%    4.39% 

Dominican Republic

   47.23%    16.17%    13.84% 

Mexico (fixed line and wireless)

   38.81%    9.84%    11.85% 

Ecuador

   44.98%    11.65%    19.85% 

Peru

   32.51%    18.51%    8.86% 

El Salvador

   44.04%    25.03%    16.05% 

Chile

   26.85%    18.00%    4.16% 

Colombia

   45.58%    19.25%    17.27% 

Other countries

   7.40% - 52.40%    0.57% - 31.0%    6.41% - 34.75% 

Sensitivity to changes in assumptions:

The implications of the key assumptions for the recoverable amount are discussed below:

Margin on CAPEX- The Company performed a sensitivity analysis by increasing its CAPEX by 5% and maintaining all other assumptions the same. The sensitivity analysis would require the Company to adjust the amount of its long-lived assets in its CGUs with potential impairment of approximately Ps. 2,129,800.

WACC- Additionally, should the Company increase by 50 base points in WACC per CGU and maintain all other assumptions the same, the carrying amount of the long-lived assets, would be impaired by approximately Ps. 1,819,169.

m)Right-of-use assets

The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases oflow-value assets. The Company recognizes lease liabilities to make lease payments andright-of-use assets representing the right to use the underlying assets.

 

i)

Right-of-use assets

The Company recognizesright-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost ofright-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

 

Assets Useful life
Towers and sites 5 to 12 years
Property 10 to 25 years
Other equipment 5 to 15 years

Theright-of-use assets are also subject to impairment.

 

ii)

Lease liabilities.

At the commencement date of the lease, the Company recognizes the lease liabilities measured at the present value of the lease payments to be made over the lease term. Lease payments include fixed payments (includingin-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an

 

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index or rate, and amounts expected to be paid under residual value guarantees. The lease payments also include payments of penalties for early termination of the lease, if the term of the lease reflects that the Company exercises the option to terminate early. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of the lease payments, the Company uses an incremental borrowing rate at the lease commencement date, if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of the lease liabilities is remeasured if there is a modification, a change in the lease term, a change in thein-substance fixed payments or change in the assessment to purchase the underlying asset.

 

iii)

Short-term leases and leases of low value assets.

The Company applies the short-term lease recognition exemption for its leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the recognition exemption lease oflow-value assets (that is, below US$ 5,000). Short-term lease payments and leases oflow-value assets are recognized as expenses on straight-line basis over the lease term.

n) Financial assets and liabilities

Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them, with the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

 

  

Financial assets at amortized cost (debt instruments)

 

  

Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)

 

  

Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)

 

  

Financial assets at fair value through profit or loss

Financial assets at amortized cost (debt instruments)

The Company measures financial assets at amortized cost if both of the following conditions are met:

 

  

The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and

 

  

The contractual terms of the financial asset give rise on specified dates to cash flows that a