Steady Credit Metrics in Mexican Telecom Sector
Fitch Ratings reports that the credit metrics for Mexico’s telecommunications sector will remain stable over the next two years, despite an uncertain macroeconomic environment. This stability is supported by increasing market penetration and moderate capital investments.
Market Segment Analysis
- Fixed Line: Growth prospects are backed by low market penetration and continuous expansion of the fiber-optic network, enhancing internet connectivity.
- Mobile: The shift towards postpaid services provides protection in a market still dominated by prepaid services, more sensitive to economic cycles and facing increased competition from Mobile Virtual Network Operators (MVNOs).
- Television Pay:
The segment has seen a decline in subscribers for two consecutive years, similar to trends in other countries.
Trading Strategy with Mexican Telecom Stocks
With these insights, a trading strategy with Mexican telecom stocks can be developed. Margins in the sector could improve by 2025, despite ongoing competitive pressures, driven by increased penetration, improved customer mix, and cost efficiency.
The demand for diverse services is strong, offering growth opportunities beyond traditional offerings like over-the-top (OTT) services and computing solutions. Companies that can bundle digital and streaming services are likely to succeed in reducing customer churn and increasing long-term value.
Capital Expenditure and Regulatory Uncertainty
Fitch expects capital expenditure (capex) in the sector to continue moderating over the next two years following a period of intense capital deployment for fiber-optic expansion between 2020-2023. Trade uncertainty may weaken the Mexican peso, increasing the cost of imported components and complicating investment decisions.
The creation of the Agency for Digital Transformation and Telecommunications has also increased regulatory uncertainty around existing concessions for telecom operators. These factors should be considered before trading Mexican telecom stocks.
Debt Pressure and Currency Fluctuation
The weakened Mexican peso could increase pressure on the sector’s debt service, as it depends heavily on foreign currency-denominated debt. America Movil, Televisa, and TotalPlay have over 50% of their debt in strong currencies, which could affect trading Mexican telecom stocks.
However, most foreign currency debt is at fixed rates, and Fitch expects sector leverage to decrease over the next 1-2 years due to stable operations and reduced investment intensity.
Credit Ratings and Emission Perspectives
Fitch’s outlook for most Mexican telecom emissions is stable, encouraging trading in these stocks. America Movil (A-/Positive) benefits from its strong market position, investment history, robust financial profile, and ample liquidity.
Megacable (AAA(mex)/Stable) maintains low leverage even during periods of high capital investment and has consistently expanded its subscribers to maintain market position in residential and business segments.
TotalPlay’s ratings were upgraded to ‘B-/Stable’ from ‘CCC+’ in December 2024, reflecting improved liquidity backed by positive free cash flow generation in 2024, reduced refinancing needs, and a broad debt maturity profile. However, ratings are still constrained by tight liquidity and high secured debt proportion.
Grupo Televisa’s (BBB-) Negative Outlook reflects its weak operational trends, especially in the pay-TV segment where it has lost subscribers in recent years. Its credit profile is supported by its position as Mexico’s largest pay-TV provider and second-largest fixed broadband provider.
Mexico’s Sovereign Rating and Trading Implications
Fitch reaffirmed Mexico’s foreign currency long-term sovereign rating at ‘BBB-‘ with Stable Outlook in April. This rating is backed by a prudent macro policy framework, robust external finances, and a large diversified economy—positive factors for local stock trading.
However, the rating is limited by weak long-term growth, poor governance indicators, fiscal challenges related to low tax revenues and budget rigidity, and Pemex’s contingent liabilities.
A crucial aspect when establishing a trading strategy for Mexican telecom stocks is the high trade uncertainty. Mexico’s economy heavily relies on exports to the US (27% of GDP in 2024), making it vulnerable to protectionist US trade policies.
Existing tariffs could have significant repercussions, and uncertainty weighs on business activity. The US-Mexico-Canada Agreement (USMCA) review is expected in mid-2026, leaving the trade relationship unclear for now.
Even if the US maintains a preferential trade stance towards Mexico compared to competitors, nearshoring prospects remain dim due to this uncertainty.
