Wireless prices are "too low in Mexico," as rising competition has led rivals to offer ever-larger discounts and subsidies on handsets, Daniel Hajj, chief executive of América Móvil SAB, said Wednesday.
But the discounts are likely coming to an end, Mr. Hajj said Wednesday in a conference call with analysts.
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Competition in the Mexican wireless market has increased significantly since a 2013 constitutional reform that led to strict regulations on dominant operator América Móvil and helped its rivals.
Since then, AT&T Inc., the world's largest mobile phone operator, has entered the market and expanded its network, while other competitors including Spain's Telefonica SA have raced to the bottom on prices for cellular services.
Prices have fallen by more than 40% since the beginning of 2013, according to Mexico's telecommunications regulator.
While rates aren't likely to fall further, some competitors are still subsidizing handsets a lot, Mr. Hajj added.
"We expect competition to remain more rational over the near term given AT&T's focus on regional profitability in 2017," analysts at Barclays said in a report.
América Móvil reported Tuesday its net profit nearly doubled in the second quarter, thanks to higher sales and operating gains, coupled with smaller exchange losses that kept a lid on financial costs.
The company, which is controlled by billionaire Carlos Slim, Mexico's richest man, reduced its debt by nearly 13% to 550 billion pesos in June from 630 billion pesos in December, Mr. Hajj said, largely as a result of the strengthening of the Mexican currency.
The peso has appreciated 15% against the U.S. currency since the beginning of the year when one dollar bought 20.7 pesos. Today the greenback buys 17.5 pesos.
Revenue rose 6.9% to 249.4 billion pesos in the second quarter, including a 1.1% increase in Mexico. América Móvil ended the quarter with 280 million wireless subscribers world-wide, a net increase of 215,000 thanks to 565,000 new postpaid subscribers and the loss of 350,000 prepaid customers. Mr. Hajj said nearly all of the company's cash from operations in Mexico was consumed by capital expenditures aimed at improving service.
Telcel, América Móvil's Mexican mobile unit, plans to invest more in its network to accommodate a rise in the number of prepaid wireless customers using smartphones and therefore more data.
"It's not all about rates. It's important the service you give to the customer," Mr. Hajj said. "In my view, the networks are very important, and the customer care centers."
América Móvil has also challenged a pillar of Mexico's 2013 telecom reform that reduced the interconnection fees paid by competitors to complete calls to América Móvil's network to zero.
Mr. Slim's company has filed an injunction saying that Mexico's Congress doesn't have the authority to make such a change, which currently awaits a ruling from Mexico's Supreme Court.
If América Móvil wins the case, competitors could be forced to pay hundreds of millions of dollars in retroactive interconnection fees, according a report released this month by the Competitive Intelligence Unit, a pro-market consultancy in Mexico City.
"We strongly believe that (changes) related to the zero interconnectivity rate interfere with the constitutional reform of 2013," Mr. Hajj said.
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(END) Dow Jones Newswires
July 19, 2017 13:31 ET (17:31 GMT)