America Movil SAB de CV (AMX) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the JP Morgan Chase America Movil third quarter 2002 conference call. During the presentation all participants will be a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Wednesday, October 16, 2002. I would now like to turn the conference over to Mr. Jose Linares, Latin American telecommunications analyst. Please go ahead, sir.

Thank you, Operator. Hi, everyone. On behalf of JP Morgan I want to thank you all for participating in this conference call to discuss America Movil's third quarter results. Now, today with us we have the pleasure of having Mr. Daniel Hajj, the company's CEO, and Mr. Carlos Garcia Moreno, the CFO. Without further introduction, let me now pass the line to Mr. Daniel Hajj. Daniel?

Good morning, Jose. Thank you for the conference, and I'm going to pass to Carlos. He's going to make his remarks from Rio for the results of this quarter.

Good morning, everyone. I'd like to thank Jose and JP Morgan for hosting the conference call. As you can see, we have had a quarter with much stronger-than-expected revenues and with much, much stronger than the consensus EBITDA number. I think that was the main highlight of the quarter. We are seeing that the improvements have really been fairly broadbased. If we were to look at revenues, practically all of the operations had important increases quarter-on-quarter over the year-on-year, but they're ranging from 4.2 percent to 14 percent. In the case of EBITDA, again, practically all of the operations had very marked improvements in EBITDA, and I think that all of them, save one, improved their EBITDA margins in the period.

So we are seeing now what some people a few months ago were expecting to see if and when the slowdown in subscriber growth started to materialize, more or less in line with the expected growth that we have for the year of 3.5 million subscribers. So what we have seen is, number one, an important increase in the EBITDA margin, which came out to 37.4 percent, and this is driven, to a lesser extent, by Telcel's EBITDA margin, which have hit a high of 39.3 percent in this quarter.

One thing that is important is, until recently, there has been some talk about the effects of the consolidation of Telecom Americas. There has been the inspiration that Telecom America was going to track down America Movil's EBITDA margins. That was not the situation in this quarter, which is the first one which we are consolidated in Telecom Americas. In fact, the EBITDA margin of Telecom Americas was very solid. It was better than 36 percent. What we have seen, however, is a certain impact of Telecom Americas in the actual operating profits in E-B-I-D, EBID, to the extent that in Brazil the depreciation that we had, depreciation charges, are more rapid than what we have most everywhere in Brazil or the infrastructure depreciated over five years, which, by the way, has very important tax implications - fiscal implications - which are beneficial for us. So all in all, we have had a growth of subscribers for the total of America Movil that were in line with expectations. I think that we have seen somewhat slower growth in Mexico and Brazil, which were compensated by more rapid growth in San Paolo, Colombia, and Guatemala, but the financial results really have been quite satisfactory.

The only thing that is important to highlight is that our position peaked in July upon the agreement with BCI to purchase their interest in Telecom America. It has been coming down since July, and we expect it to continue to come down in the remainder of the year. It is already at a lower level than most people in America are expecting. I think that initially the expectation was a net debt was going to be in the neighborhood of $4.2 billion or thereabouts, and we are now seeing net debt in a range closer to about $3.8 billion or at the end of September.

Another thing to note is that the debt has been extensively refinanced to a point that we have very little short-term debt left and practically none coming due in the rest of this year. So, really, the obligations that we have to pay are essentially the one to BCI in March of next year and a couple of other obligations that take place in March and April of next year.

I think the launching of GSM is very important. It is evidently something that is going to provide additional support to our operations in Mexico. They provide a competitive advantage that nobody will have for some period of time, and I think that it is important to highlight, in this case, that we are somewhat ahead of schedule already in terms of the coverage, having completed already coverage in 57 cities.

The other thing that I would like to mention here, last thing, is the cash flow. We are providing you a number of free cash flow for the quarter for the first time and, obviously, we are seeing a very strong number, which is obviously the results, on the one hand, of a very high EBITDA, at almost 5.8 billion pesos. On the other hand, from a seasonal perspective, we don't have other important capex numbers in this particular quarter, but I think the free cash flow that we have had is really reflective of what we have had in practically all of the operations, so far, of America Movil.

So I would like to leave it here and open the question-and-answer session.

I'll take the first question. What we saw in the quarter was two conflicting forces on one hand, a slowdown in subscriber growth, primarily in Brazil, and on the other hand, I think it was, at least from our perspective, a surprise massive increase in free cash flow in this quarter. So can you give a little bit of perspective what do you see subscriber growth for next year, taking into consideration, obviously, what is happening in Brazil and, on the other hand, provide also a little bit of perspective on free cash flows for the remainder of this year, next year, and what would you do with that free cash flow?

Okay. What we are seeing, Jose, is that, obviously, the - we are seeing two things that are likely to continue to happen, going forward. One is EBITDA numbers will continue to go up. Remember that even in a relatively quick environment, we have seen strong revenue growth so far. And then the second thing is that likely capex numbers will keep on coming down. As we have proceeded with the completion of some of the major projects that we have, like the overlay of GSM in Mexico.

So that's essentially two things that we are likely to see for the aggregate of Telecom Americas going forward - EBITDA numbers are still going up - I mean, I'm not talking about it in the terms of each quarter, but the trend is for EBITDA numbers to go up with capex numbers coming down in the aggregate for the year.

Let me tell you, Jose, remember that in Brazil the fourth quarter is a very important quarter in net additions. So maybe in the next quarter the EBITDA will be a little bit lower or slow down a little bit, but what Carlos is saying, I see for the next year, growth in EBITDA in all our subsidiaries on all America Movil.

And in terms of capex, there is two things - the cost, I think, infrastructure is coming down, the prices of infrastructure is coming down, and the GSM is cheaper than TDMA. It's all the reason why we are going best to build [it let], and in Mexico that is a huge investment. We already invest 70 or 65 or 70 percent of the GSM project. So that's why we see capex is slowing down next year.

Now, in terms of how it will be used, free cash flow, it's mostly the reduction of debt. We expect to continue reducing our debt to a point in which, by the end of next year, we will be at levels of net debt to EBITDA are not going to be materially different from what we had at the beginning of this year. That's essentially what we expect to have. Obviously, there will continue to be some share buyback, but I think that we will pay - put the accent on the payment of debt.

Again, another thing that you are a call choice in Telcel subscribers. What we're seeing in the third quarter is a little bit more of churn than in the second quarter. The second quarter, we have low churn. It increased a little bit in the third quarter, and that's why we have less net than what we expected but remember that the seasonality of these sales in the third quarter, we always have lower sales than in the rest of the quarters, but we expect to have, in the fourth quarter, around 900,000 net, 850, 900 net at. That gives us almost 95 percent or 90 percent of our projects that we have.

Thank you very much. Operator, could you please open up for Q&A?

Yes, sir. Ladies and gentlemen, if you have a question, please press the star followed by the 1 on your pushbutton phone. If you'd like to remove your question from the polling process, please press the star followed by the 2. You will hear a three-tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press the 1 followed by the 3. If you are using a speakerphone, please lift the handset before entering your request. One moment, please, for our first question. Our first question comes from the line of [Vera Rossi] with Morgan Stanley. Please go ahead.

Hi, good morning, everyone. I have two questions - one about Mexico and the other one about Brazil. In Mexico I would like to know if AMX is offering the incentive for the users to move to the GSM network like in terms of handsets or maybe, like, pricing plans, different pricing plans, for the GSM network. And in Brazil, I would like to know if AMX or Telecom Americas is looking to the new Spectrum auctions that will happen next month in Brazil, and if it's interested in buying any licenses in Brazil in the upcoming auction. Thank you.

Hello, Vera.

Hello.

The first question in Mexico is, as I told you, we have better plans -- in GSM - we already launched GSM in October, and how we launched GSM, we launched GSM with data services. So if you are only going to use voice, maybe it's the same for tels as for TDMA than for GSM, but if you are going to use voice plus data, I think it's convenience - a little bit more convenient to you to move to GSM. So that's the offering that we're making in GSM. As I told you, we're offering photos, data, sending mail - so all the people that wants to use those services are going to move to GSM. The other people who are only using voice or FMA, they can stay in TDMA and when the contract finish and when they want to change the phone, then they maybe change the phone to a GSM phone. That's the strategy that we have in Mexico.

And in Brazil, we are making the analysis - we want to buy some other license. We are doing some analysis to see where our other places where we want to be, but definitely we want to buy the Spectrum in our own territories, in our own places. We're going to buy the C-Band where we are allowed to buy 800 megahertz frequencies, and we are checking in other places where - we're making numbers to see where we are going to buy. We are not sure today. And it's depending on the price of the license, also.

Okay. I just have one follow-up question, and it's regarding your free cash flow that you reported this quarter. My understanding, when Carlos was explaining the free cash flow is that this quarter the capex was seasonally lower than the other quarters. So should I expect the same level of free cash flow, like, not the next quarter but for 2003. What is the level of free cash flow that AMX is expecting to present?

Vera, the next year depends a lot on taxes, on repurchase of shares, but what I can tell you is that, more or less, our capex investing next year, including some changes to GSM in some places, is going to be around $1 billion to $1.2 billion or a little bit less than that - maybe $1 billion for all the companies all around the regions and moving some companies to GSM, like Colombia and Ecuador. So that's what you pay interest, taxes, and that's what you're going to have for cash flow for next year. But the capex, as Carlos is saying, we already invest - make big investments in Mexico in GSM. We already have 57 cities. So the next year GSM is going to be more for capacity, a little bit more for coverage.

I think, in that regard, Vera, if I may, I think there is an important comment. I've seen some analyses that tend to generalize the tax rate, but the companies here pay -- we don't have the same tax rates in various countries, because in some countries we have so much tax losses, which essentially means that the effective tax rate there is going to ECO is to ACO or is likely to remain for some time, and, in some cases, what we would see as maximum tax rates are probably below the ones we've had in Mexico. So I think that is also important that you kind of factor that in your analysis - the fact that not all the operations are really subject to same kind of tax regimes.

Okay, thank you.

Our next question comes from the line of [Whitney Johnson] with Merrill Lynch. Please go ahead.

Hi, Carlos, a couple of questions for you. First of all, yes, your margins did expand, so congratulations on that. First question is on the 5-percent royalty that you pay to the government. Can you tell me which line item that is embedded in? Is that in your tax line or is it somewhere else?

In Telcel, it's in the - down the revenue - let me tell you - it's in the cost of service.

It's in the cost of service? Okay.

And it's between 5 percent to 10 percent, depending on the region where we operate, and it's only on the TDMA frequency. The GSM frequency doesn't have any tax.

Okay. All right, and can you then give us a quick rundown of total capex year-to-date through the end of third quarter broken down by country as well as your working capital use year-to-date?

We don't have it here, but later we can give it to you, no problem.

Okay. Can you give us just an update on what your capex budget for 2002 is and how does it split out between GSM and TDMA?

The capex for this year is going to be around $1.2 billion. I don't have here also what's going to be - in all the places are TDMA. The exception is Mexico, where it's GSM, and maybe Mexico is happened to have that it's TDMA and GSM this year. It's around $400 million in GSM and $400 million in TDMA in Mexico, more or less. Remember that in GSM it's only the Ericsson equipment or the Nokia equipment, because we already have the civil works, the tower, the links, everything - so we are co-location in our own sites. That's why that's exactly. So it's around 400 this year. For next year, we are talking about $1 billion of capex for all America Movil operation. That includes Telcel GSM - we are only going to invest in GSM in Telcel next year. We are going to invest in Colombia and Ecuador to move from TDMA to GSM. We are going to still invest a little bit on TDMA, but the huge investment is going to be on GSM and then Brazil, depending what's going to happen in Brazil, which license we buy and if we move in our own regions to GSM.

Now, does the 1 billion of capex that you're considering for next year - that is exclusive of any equity or debt contributions that you'll make to Telecom Americas, is that correct?

No, that is including of everything. We are not expecting to make any further contributions to Telecom Americas next year.

Okay. One final question for you - on your churn, when you switch a subscriber from TDMA to GSM, or from postpaid or prepaid or vice versa, is that subscriber considered to be churned?

Yes. From prepaid to postpaid - yes, it's churn, and from TDMA to GSM, if they changed their number, it's also churn. We consider that churn.

Is that part of the reason why churn was so high for the quarter?

Yes, maybe it's part of the reason, of course.

Okay, thank you very much.

Thank you, Whitney.

The next question comes from the line of [Daniel Hariques] with Goldman Sachs. Please go ahead.

Hi, good morning, everybody. My question is about RPU. Your RPU increased for the second consecutive quarter - good performance there, and as your subscriber growth, which is slowing down, becomes even more important, do you have any - could you give us an outlook on your RPU? What should we expect on RPU, going forward? This is the first question. And, second, if you could give us an EBITDA guidance - EBITDA margin guidance - for Telcel for next year. Thank you.

Well, I think the RPU is coming up the last two quarters. I think the next quarter is going to maintain or going up. I don't see RPUs going down. I'm not seeing a big slowdown in subscriber growth in Telcel. We are growing good. We have a little bit more of disconnections, but I think at the end of the year we're going to reach the budget that we have on Telcel, and - what was the last question?

EBITDA guidance.

The EBITDA guidance for Telcel, I think, is going to be in the up 30s or low 40s, maybe 40 percent or high 30s is what we're going to see next year in Telcel.

Okay, thank you.

Thank you very much.

Our next question comes from the line of [Ruber Brandt] with [FNC Management]. Please go ahead.

Yeah, hi, guys. Good free cash flow generation, well done. Could you comment on your likely acquisitions over the next six to 12 months, particularly with regard to possible deals in Colombia and in Argentina? Thanks.

I don't hear you very well. Can you repeat the question, please?

Yeah. Could you comment on your likely acquisition strategy over the next six to 12 months, particularly related to - I believe there are some TDMA assets for sale in Colombia. And also can you talk about whether you're likely to make a deal in Argentina?

Well, today we are not having nothing, as we're going to buy something only if it's - and give us - it's in good conditions and it makes a good fit in America Movil. So today we are not talking anything. In Colombia what we are doing is we're discussing with the government to see if they are going to auction some license, because we are in two regions, and we want the third region in Colombia. So we are discussing with the government if we can get the third license in there. So that's the only thing that we are doing today.

I understand the operator in the third region is up for sale in Colombia. Would it not be easier just to take out the operator and get their existing subscribers?

Well, first of all, we haven't had any contact with them. So I don't know if it's for sale and if it's not for sale, but the last time that we talked with them, we were in a very different price terms and so that's why we decide to go to the auction and buy the third region, but I don't know today if they are changing their minds and are willing to sell the company, I don't know.

Okay, thanks. What about Argentina? Any plans down there?

No, we are not talking with nobody. Argentina is a - a lot of rumors, but they are also rumors for me. We are not talking with anybody from Telecom Argentina or CPI. Today we are not having any talks with nobody.

Okay, thanks.

Thank you very much.

Our next question comes from the line of [Eric Conrad] with ING Investment Management. Please go ahead.

Yes, good morning, everybody. Three questions - the first question will be probably more related to Mexico and the next one to Brazil. You were early on mentioning the churn ratio and the competitive landscape in Mexico, so as far as I understand, it looks like your churn went up a bit because of migration from prepaid to postpaid within Mexico. Is this related to any competitive pressure in Mexico? Is there any strategy that you are implementing for the moment to move some of your prepaid into postpaid to keep your margin higher because maybe of more competition in Mexico? That would be the first question.

The second would be related to your buyback program, which has been substantial so far. Would you give us an update of what do you plan to do, looking forward? And the third question related to Brazil - we talk about early on another question was about the [DNE] auctions in Brazil, but I would be interested to know what is going to be your policy in the next couple of months regarding potential acquisitions in some of other deep end financial troubles. It is no secret that you would like eventually to expand into other region. So maybe you can give us an update on that front. Thank you very much.

Well, the first question is - we don't hear you very well - but the first question I understand is the competition in Mexico. I can tell you that the new competition, Telefonica, that's where our good competitors are very strong, and they are doing good things, and but I think that's market for everybody - Mexico is still in low penetration. I think we are going to grow next year - all the market is going to grow, and that's the only question that I have to tell you, that I think they are also growing. And I don't think I'm - my customers are changing to Telefonica. What I'm seeing is that there is new customers for them and new customers for us, and it's what I'm seeing in the market today. So in use of [tel], it's again doing - it's being a little bit more aggressive. They are focusing more on cost base, but I think we have good competition in Mexico, and we are trying to have, again, the things that Telcel has. We have a very good technology, we have a very good coverage, we have a very good brand, so we have very good distribution. Therefore, we have some things that it's going to give us some time more, and the competitors they are going to have to work a lot on that to take the part of our market. But, at the end of the day, what I can tell you, that we have strong and good competitors in Mexico.

In the second question was related to cost base. It's - well, it's what I told you, no, that there is some customers that enter in prepaid that likes the sale of the wireless that we get our custom to be in the wireless, and then they want to move to our cost base, and then they have to - that's churn - what we do is that we disconnect this guy, and we give them other numbers. So we do that at the churn, because we don't have exactly, because maybe they disconnect today and then in three or four days, they are going to reconnect. So I don't know if they are going to reconnect - remember that prepaid, I don't have the name of the people, and I don't have some of the - I don't have the detail of the customer on prepaid. So that's why when they move to postpaid, then I do it as a churn.

And the third thing, in Brazil, what we're going to see in Brazil is we have three options. Now, the C band that are for the actual competitor, the people who are there - the actual companies, and then the D and E band. The D and E bands, as I told you, in the C band, we are interested in buying the C band in our regions, and then the D and E bands, we are making some analysis to seeing which places and which regions are convenient for us to get in and making how much it's going to cost us to implement a GSM project and we're making everything. We are not totally sure to migrate to SMB today. We are also - we have some gains but we have some risks. The gains are in [ATO]. We have a better interconnection, but then we have to negotiate with [Telemark] that interconnection, and the risk is that we're going to lose some lumpy revenues. So we are also evaluating that with [Anatel]. We are talking with them, and today everything is delayed, so we have more time to make our analysis and to discuss with the government to see what are the things - why - if they make some changes, then we are going to migrate to SMB.

And could you venture to give us some more light on your buyback program?

Well, my buyback program is - as I told you, is before we are going to buy when we think that the prices are down. So depending on the price, depending on the cash flow, depending on a lot of things is what we're going to do on buybacks. Thank you.

Our next question comes from the line of [Joe Imus] with State of Michigan Retirement Systems. Please go ahead.

Okay, thank you. There's a lot that goes on below the operating line. I was wondering if you could tell us what's in the other category. Is that primarily monetary changes or some other things? Just give us a little bit more light on that?

Yeah, the comprehensive financial results is essentially the monetary and so the FX losses.

Okay, so have you done any hedges to keep that from moving around so much? Or is that just something that's going to be a volatile number?

I think that is likely to be less volatile in the future. What has happened is that you have got a couple of orders - this was one for we had movements - in fact, all of [inaudible] and that is truly affecting that particular line of - in the case of FX losses. I think that overall, you know, the - we are likely - let me put it this way - we are likely not to see anymore FX losses, going forward, from Brazil. There is practically no more total debt remaining in Brazil, and the amount that remains of total debt outside of Mexico is relatively little. So here in Mexico we will be moving decision depending on how we see the exchange rate [audio fade].

Okay, and as far as a normalized tax rate goes, is there any normalized level that we should be thinking about, or is that just something - you're in so many different countries that it's just going to change a lot, and that's just the way it is?

I think what you have here is that there were a number of accumulated tax losses in some of the operations that we have acquired. To some extent there was an incentive for us to participate because we had some foreign benefits. But I think it should report on factor being the analysis of the returns that we will be making out of this operation. So I can tell you, of the last two major acquisitions that we have had, the effective tax rates today are nearly zero, no, and at least in one of them, they are likely to remain for five years, and in the other case, they are likely to remain very close to zero and eventually the long-term for about 20 percent. So I think that is a material thing to be considering.

Okay, all right, thank you very much.

Thank you.

Ladies and gentlemen, if there are any additional questions, please press the 1, 4 at this time. [Andrew Campbell] with CS First Boston, please go ahead.

Yes, thank you. Hi, Carlos. I just wanted to clarify a point on the capex - the 1 billion to 1.2 billion that you mentioned for next year - you said there was GSM in there for Colombia and Ecuador. Is there any GSM overlay capex included in that for Brazil?

Yes - I'm Daniel. Hi, Andrew. What we're doing is we're moving in Colombia and Ecuador, and we put some capex in Brazil, but we don't know exactly how much is going to be TDMA and how much is going to be GSM because, to date, we don't have the license. We don't know exactly when there's going to be the auction. They have delayed the auction two times. What we have in the capex that I told you for next year, I'm giving you the number in the capex of Brazil. I don't know exactly it's going to be TDMA or GSM, but it's inside that.

Okay, great. And then, also, just on this license that you purchased in Nicaragua - is the intention to go ahead and build out on that very rapidly or is that something that you're just holding to make a decision on later and if you're planning to move ahead, is that a significant amount of capex? Or is it quite small?

No, it's a quite small capex. We're doing that from - it's going to be a GSM technology there, and with the subsystems we are being helping from Mexico and from [Telewar Manisol]. The investment is not going to be big, but we want to do it very fast.

Okay, perfect. Thank you very much.

Thank you.

Our next question comes from the line of [Alberto Rodriguez] with GBS. Please go ahead.

[no response]

Mr. Rodriguez, your line is open, please go ahead with your question.

Good morning, Carlos and Daniel. Congratulations on your strong EBITDA numbers. This is a follow-up question regarding the normalized tax rate. I am hearing a lot about some incentives in this regards, however, the tax rate for the quarter was - I mean - were, I think, 90 percent, 95.8 percent. So I am getting a little bit lost here. I don't know if you could follow up on that?

I couldn't hear the question. Could you repeat it, please?

Yes, regarding the tax rate - the tax rate for the quarter, in my numbers, is around 96 percent. I think you positioned around 1.2 billion pesos during the quarter. I'm a little bit lost, because you are talking about some tax incentives, going forward.

What Carlos is talking, [Alberto], is that we have some - when we purchased Colombia and we purchased Brazil, we have some losses in that company. So the rate is going to be zero for the next. So what we're trying to do is to make some - so that companies are not going to pay taxes until they finish their losses that they have. Then the rates in Brazil and Colombia are different than the rates in Mexico and the rates in Guatemala and so the only thing that we're doing is we're trying to make more efficient the payment on the taxes. It's what Carlos is saying.

But we shouldn't expect this tax rate for around 96 percent in the next quarter, right?

No, 96 percent -

As far as I have is you had around earnings before taxes of around 1.1 billion pesos, and the tax provisions were on the same numbers, but we can follow that and I can call you later, I guess.

Okay.

Yes, and my other question would be regarding the equity loss. You mentioned something on your press release - I don't know if you could tell me a little bit more about the percentage of one or for both reasons of the equity losses during the quarter?

Again, I couldn't hear you very well.

Okay, you mentioned - in your press release you mentioned and equity loss of around 12 billion pesos. Is that correct?

I think that is what we are showing here is the effect of the consolidation of Telecom Americas [background noise] into America Movil and there were some things that I explained to you in the document.

Actually, you give two reasons for that. I was wondering if you could tell us what percentages would be for the first - I guess -

No, I don't have that, but you follow up with me - just call me later, if you want.

Okay, thank you very much.

Thank you.

Our next question comes from the line of [Andre Guadala] from [Bechtel]. Please go ahead.

Hi. My question is regarding some of the companies of Telecom Americas. This was the first quarter for your operations, the player from [Telemar] - the mobile player of [Telemar], and we can see that [ATL] had a very low growth there, and I'd like to get your view on the entrance of [OE]. And, also, I would like to understand what happened in [TAS], where your growth was 2.1 negative in that region, and the third question is regarding the C band. I understand that you said that you really want to buy the C band, but I also understand that you are not totally sure to migrate to SNB, but you will only be able to use the C band frequency if you migrate. I'd just like to clarify this. Thank you very much.

To start with that question, it's okay - we want to purchase the C band, but we want to negotiate good conditions to migrate to SNB, so that's what we're doing today. So it is very interesting to move to GSM but also moving in good conditions not in bad conditions.

The second question is - the first question was [OE]. I think [OE] gets very strong in the market. They make a very - the way they enter in the market, making a very big promotion selling weekends for free make some of our people change - our prepaid people change to [OE], because that promotion was very aggressive, but today we are still having very good customers, we're growing the cost base customers, and I think that promotion that they do was not good for them and was not good for the market. I don't think they are willing to do free weekends in the future. So I think [Telemar] is a good competitor. [OE] is competing very strong, but I think we can compete with them.

And in [TAS], what we are having in [TAS], is that we are cleaning and checking all our prepaid base, so that's why you are seeing - we're still growing, but in the net ads we're taking out some of the customers that they are not talking. So we're cleaning our base of customers. It's what we're seeing a small growth there.

Okay, thank you very much.

Thank you.

Our next question comes from the line of [Mercio Hernandez] with Merrill Lynch. Please go ahead.

Thank you, good morning. A couple of questions - first, on the - could you give us an update, Carlos, please, on what is the total debt, as you bring subsidiaries in Brazil at the end of third quarter as well as at the Teleco Americas level, and also how much of that total debt is eliminated in reales and how much is in dollars? Also, how much has AMX contributed to Teleco Americas in either equity of long-term debt, refinancing, with the restructuring at Teleco Americas that has been taking place there? Thank you.

What we're doing is that we restructured the debt. We are having only reales in Brazil - a very small portion of that debt is in dollars, very small portion is in dollars, maybe 10 percent of what we had in Brazil is reales - is dollars - or really the rest is reales, and we have that [BND] as loans, and those [BND] as loans has to have 10 percent of that in other currency. So that's why we have. Then we have the [ATL] debentures, that it's reales also, and that's all what we have in Brazil.

The overall debt, I don't have here how much we have in each of the countries, but we're showing you that we have $3.8 million of debt total America Movil at the end of September. I don't know, Carlos, if you want to -

I think that is correct. I think that we have only [BND] loans and the [ATL] debentures in Brazil. That's almost all of that is real, and, of course, these have come down significantly in the exchange rate. So I think that's also something that maybe some people would want to consider in their analysis, because evidently the dollar cost of the position we made in Brazil, including the debt, have been lower than people had initially expected.

What is the total debt at Telecom Americas level and - I assume it's in dollars, right?

We don't look at the breakdown for that in each of the companies. All I can tell you is that it's loss and - the [ATL] debentures are public declared - they are 350 million price, and we [inaudible].

Okay. One more question - the margin expansion was significant in Brazil in the third quarter. What is the upside on the margin, going forward, and taking into account the competition, particularly [ATL] is increasing.

Yeah, we have good margins in the third quarter, but remember that in Brazil the last quarter is where we have the 40 percent of the gross in those - in this quarter. So I think the margins are going to be a little bit smaller than what we see this quarter. Next year, I think we're going to see good numbers.

All right, thank you.

Thank you very much.

Our next question comes from the line of [Michael Schwabbe] with [Arthur] Capital.

Hi, I have two questions today. The first one relates to the write-downs brought about by Brazil and just wondering if you could tell us a little bit more about what the relationship is between moves in the [ree-eye] and write-downs of equity, and also in the scenario that Brazil continues to deteriorate, whether there will be a write-down of the investment as a whole, separate from these equity write-downs? The second question is on subscriber growth in Mexico - just wondering if you can give us a number for penetration for the market for 2003, and, you know, some rough number of what you think your subscriber numbers will be in 2003?

Well, what I'm seeing is that Mexico can go to 35 to 40 percent penetration in the next years. I think the penetration is not - we have more penetration the last two years, but there's still the penetration we can have some room on that, and this slowdown, again, is because we have more churn this quarter. We have a very good churn in the second quarter, so I think it moves a little bit disconnection in this quarter. And I'm confident that we're going to make the budget that we have for this year. So I don't think - and then you have the economic situation in Mexico that makes some of our prepaid customers get disconnect.

And regarding the question on the balance sheet, I guess it's very similar to the previous question. I'm not going to give a breakdown, but essentially what you have is two pieces - one, which is really linked solely to past losses, where in the books of Telecom America, that were incorporated into our books at the moment of consolidation. So that will not move forward, that is history, no? The second component would have some kind of a link to the FX movement. It will be a link between the real and the peso as opposed to between the real and the dollar the moment initially came about. So whereas it is not - there would still - there would potentially be a movement, it would only be related to the peso and not to the dollar, and we do not expect that it will affect much. I do not have a handy breakdown of what was the effect of this translation initially, but I am not thinking it will be material, going forward.

Okay, thank you.

Thank you.

Our next question comes from the line of [Pedro Gonzales] with Bear Stearns. Please go ahead.

Good morning. Two questions - the first one touched upon the fact that the depreciation expenses went up, and did you look at the historical percent of revenues on a relative basis? You know, 10 to 13 percent? And now this quarter were, like 18 percent. Do you expect the same relative number for the expenses, moving forward, given the position in Brazil? And the second question is regarding your stake increase in Telecom Americas from initial 93 percent when you bought out your partners to 96.5. If you have a sense of how that was done and sort of the price paid for that.

I think that is likely not to move relative to [inaudible], and the second question - it is - what was - the percentage of Telecom Americas, maybe because we capitalized something that we have or, I don't know, I'm going to check - there was a capitalization that took place, roughly at the same price where we acquired the stake of Telecom America - of [BCI]. So there was a capitalization maybe [inaudible].

Thank you.

Thanks, [Pedro].

I am showing no further questions at this time. Please continue with your presentation or any closing remarks.

All right. I think that we should close, and I want to thank Jose Linares, JP Morgan, and everybody that was in the conference. Thank you.

Thank you, Daniel, and this concludes the conference call. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.