America Movil, Latin America's biggest phone company, on Thursday reported a 17 percent drop in first-quarter profit as it spent more on Internet-enabled handsets to attract new customers.
The company, owned by the world's richest man Carlos Slim, said first-quarter profit slipped to 26.87 billion pesos ($2.18 billion) from 32.53 billion pesos a year ago.
The results showed the company increased subsidies for expensive new handsets in order to attract customers from competitors and transfer existing customers to more lucrative mobile data packages.
Still, America Movil's profit was slightly better than analysts' expectations of 24.46 billion pesos, although its core profit and revenue missed those expectations.
Core profit, or earnings before interest, taxes, depreciation and amortization (EBITDA), fell 7 percent to 63.8 billion pesos.
Revenue rose less than 1 percent to 192.96 billion pesos, hurt by the stronger peso in the quarter.
Shares in America Movil (Mexico City, Mexico) closed up 2.04 percent at 12.49 pesos on Thursday ahead of the report. The shares have slid 16 percent this year on worries about an effort by Mexico's government to reform the country's telecom sector to increase competition.
Speaking before the results were announced, analysts said concerns about the regulatory reform will likely continue to drag on America Movil's shares.
"That's definitely a bigger deal than whatever the quarterly results are going to show," said Imari Love, analyst at Morningstar in Chicago.
Lawmakers in Mexico's upper house are currently discussing the bill that seeks to dilute the dominance of billionaire Slim's America Movil in the mobile and fixed-line markets.
An additional drag on the company is its investments in European phone companies Telekom Austria (Vienna, Austria) and KPN (The Hague, Netherlands), analysts said.
America Movil last year spent 84.9 billion pesos accumulating shares in the firms.
The company holds nearly 30 percent of KPN and Telekom Austria, which are down 26 percent and 13 percent this year.
"They spent a lot of money in Europe with these minority investments that I don't think they've done a good job of explaining," said Stifel analyst Christopher King, also speaking before the company reported the results.
"I think there's a general sense they would have been far better off using that cash to buy back stock as well."
($1 = 12.3339 pesos at end March)
(Reporting by Elinor Comlay; Editing by Kenneth Barry, Lisa Shumaker and Bob Burgdorfer)