America Movil Sells Off its US Subsidiary Tracfone

Mexican telecom giant America Movil has sold its US subsidiary Tracfone to Verizon Communications for US$6.25 billion in an apparent bid to retain financial liquidity amid the global economic crisis.

As per the deal, Movil would get another US$650 million from Verizon if its subsidiary meets certain revenue targets.

The news comes months after Moody’s, a US rating agency, warned that Movil’s bottom line could come under strain because of the economic disruptions caused by the COVID-19 pandemic in Latin America.

America Movil, which is almost a monopoly operator in the Mexican market, has recently scrapped its plan to purchase Telefonica’s El Salvador unit.

Tracfone is the largest reseller of pre-paid wireless services in the US, but more than 13 million of its subscribers rely on Verizon’s wireless network.

The Mexican firm does have enough cash on its hand to survive the financial crisis, but the Latin American market it is operating in has become intensely competitive, particularly after AT&T’s expansion into Mexico.

“America Movil faces intense competition, which limits its margin improvements; risk from foreign-exchange fluctuations; and regulatory shifts in some of its large markets,” Moody’s said in a note to investors recently.

“A downgrade of Mexico’s sovereign rating would very likely result in a downgrade of America Movil’s rating,” Moody’s added.

America Movil has 278 million wireless customers and operations in 18 countries across Latin America as well as some countries in Europe.