America Movil SAB de CV (AMX) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the America Movil Fourth Quarter 2003 earnings conference call.

My name is Kelly, and I will be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press star, followed by zero and the coordinator will be happy to assist you.

I would now like to turn the presentation over to the moderator for today's call, Ms. Whitney Johnson of Merrill Lynch. Please proceed ma'am.

Thank you, Kelly. Good morning to those of you in the U.S. Good afternoon to all of you who have dialed in from Europe and to those of you in Asia, good evening.

I'm Whitney Johnson, Merrill's Senior Latin (ph) Telecom Media Analyst. My colleagues Mauricio Fernandes, Mike Cupplemen (ph), and I are pleased to be hosting America Movil's 4Q '03 Earnings Conference Call.

Speaking on behalf of American Movil today will be Daniel Aboumrad, Chief Executive Office, Carlos Garcia Moreno, Chief Financial Officer. They will be joined by Jose Briones, the Controller, and Lionel Chulfecture (ph), the Head of Investor Relations.

Daniel, you've had another very solid quarter. We look forward to your prepared remarks, which we will follow with a Q&A session, ending at the top of the hour.

Please go ahead.

Thank you Whitney, and good morning everybody. Thank you for bringing the call. I want to thank also Merrill Lynch for hosting the call, and I'm going to pass to Carlos Garcia Moreno to make a summary of the results of 2003.

Hello and good morning everyone. We have had a solid quarter that has been marked by quite strong subscriber growth. With the subscriber growth that we obtained in the quarter has allowed us to finish the year with 12 million more subscribers than the ones that we begun the year with.

Roughly the one-third of this amount was due to acquisitions, two-thirds was due to organic growth. All in all, we have finished the year with nearly 44 million subscribers, of which the vast majority particularly 43 million are equity subscribers. If we were to include the number of fixed lands that we have essentially in Guatemala and the (inaudible), we have a total number of lines that exceed now 45 million.

The quarter was particularly strong in subscriber growth in Mexico, (inaudible) and I would also say in the United States. In Mexico we've had 1.3, 1.34 million net ops, which allowed us to finish the year with 23.4 million subscribers. This meant that the net subscriber additions for the year as a whole ended up being 3.4 million and with this respect, I just like to comment that the initial guidance that we had provided for the year had been 2.5 million subscribers. We started changing the view towards the end of the year in the last quarter, we were saying that we probably would end up closer to three million than to two-and-a-half, that was the initial guidance for the year.

And what has happened is that we ended up being much close to 3.5 million than to the original 1.5 million. So we have had very, very strong, good subscriber growth in Mexico.

Now (inaudible) was also quite strong. We (inaudible) had high seasonality to the effect that roughly 40 percent of these previous years made us have been generated in the last quarter, but we saw this year is that we picked up 765,000 new subscribers in the last quarter, and these were potential, almost exactly half of the year's net subscriber additions.

So the typical seasonality that we've had always in (inaudible) was, if anything, were marked in this particular year.

In the United States, platforms managed to grow by 675,000 subscribers, (inaudible) subscriber base last quarter. This brought net of the year to one million and the company finished the year with a total of three million subscribers.

So that's I think the more important, you know, we have to say on the operations front. In terms of being something that is helping us drive revenue.

Total consolidated revenues of America Movil were 86 billion pesos. Here I'd just like to comment that in the year 2003, we started consolidating (inaudible) on February, DSE in Brazil from May. We consolidated BCP also in Brazil for the last month of the year, and in the case of El Salvador and Argentina, we consolidated beginning in November.

So obviously it makes for more difficult comparisons with our previous years, but nevertheless, the total amount of consolidated revenues at 86 billion pesos, of which 26 billion were generated in the last quarter, was a good 44 percent increased in revenues, right up to the ones that we have been in the year 2002.

If you were to focus only on tariff (ph) revenues, we increased of 2003 versus 2002 was nearly 41 percent, which was very much in line with the subscriber growth that we would have had if you computed the increase of the total subscriber that (inaudible) was roughly 78 percent.

So the growth of revenues was somewhat faster than the growth of consolidated subscribers.

In the case of the EBITDA of America Movil, it finished at 32 billion pesos, this also means an increase over the year 2003 versus 2002 of 48 percent, operating profits increasing 40 percent in the time (inaudible) 18 billion pesos. We had a very good net profit for the year. It was driven both by the operational results that we have mentioned, as well as the fact that we had some benefits on the financial side, mostly due to foreign exchange gains, which was in contract with some points (inaudible) that we had reflected in the year 2002.

The overall, the cash flow of the company was fairly strong during the year. And it allowed us to finish the year with a net debt of only 40 billion pesos with what, roughly the same amount in pesos that we've had at the end of 2002 and in fact, in dollar terms, the net debt was practically unchanged in the year.

Now, this is the case, even after having saved 13.7 billion pesos in Capex, and which was well within the body that we've had (inaudible) for this year.

The (inaudible) America Movil obviously have reflecting the strong growth in revenues (inaudible) here, (inaudible). We ended up the year with 52 billion pesos in revenue. These were, this implies a 23.7 percent increase year on year for the full year of 2003, but if were to focus solely on the last quarter, its increase was even faster. The fourth quarter revenues was 25 percent greater than the ones that we have seen in the fourth quarter of the year 2002. This is not only a consequence of equipment sales, if we were to look at sales revenues, it became (inaudible) hold, which means that we have partial growth fourth quarter, fourth quarter of 2002 and we have had for the year, so there's seems to be an acceleration of revenue growth, which is not people (ph).

The case (inaudible), we had some seasonal promotion, the growth started, more or less over the middle of the quarter. They were effective really, for the most part in parts of November and in December. These involved the reduction in the effective (inaudible) of various plans that (inaudible).

What we have to say is that the volume of traffic increased by approximately 20 percent. In the case of ARPU, obviously, when we are looking at the blended ARPU of (inaudible), what (inaudible) is most decline of 0.4 percent. But this blended ARPU is one that is generated at the growth in the subscriber base, 6 percent in the quarter and which, as I mentioned before, net one increasing traffic of 20 percent, and in the case of the prepaid AARPU, the increase was, quarter-on-quarter increased in prepaid ARPU, I mean in prepaid MOU was nearly 16 percent. That meant that the increase prepaid ARPU was roughly 1 percent, which gave us the eighth consecutive quarter in which we have seen increases in prepaid ARPU.

So again, the blended ARPU (inaudible) likely, this is more than anything a consequence of the change in the mix of prepaid and post-paid, with prepaid overall having grown so rapidly in the last quarter of the year.

In the case of Rafil (ph), we also have had fairly good revenue growth, on year-on-year, the revenues of the consolidated Brazilian operation came to an increase of 46 percent quarter on quarter, and again, this is, with only one month of vis-a-vis (ph) in the last quarter, we are reflecting a fourth quarter revenue that are 73 percent greater than the revenues that we had in the same period of 2002.

So we are seeing also very, an acceleration in the rate of revenue growth.

I think that from the point of the different subsidiaries, that it would be the main elements to highlight and with that said, I think it is time to move on to the question-and-session. Thank you Whitney.

Thank you sir. We will now begin the question-and-answer session with our first question coming from Whitney Johnson of Merrill Lynch, and then continue with the queue.

[OPERATOR INSTRUCTIONS]

Carlos, I wanted to just delve into the usage a little bit more. You just mentioned a moment ago that the prepaid MOU was up by about 15 percent, the prepaid ARPU up by about 1 percent. Would that suggest that the elasticity on the prepaid side is starting to get closer to one? And then on the post-paid, if you can give us an idea of what the post-paid MOU did as well as the post-paid ARPU?

Sure. Whitney, in the case of these promotions, what we have is a partner that is very similar to (inaudible). If you were to look at what happened in 2002, when we announced for the first time with this more aggressive promotions, in terms of price (inaudible) a third time. We can tell you that the increase in sales revenue that we had this time around was actually larger than what we had in the year 2002 in the same period. OK? So it seems that if anything, we are developing a bigger bond for the bulk that was the case a year before. Again, this is simply by the expansion, we've had promotions for a shorter period of time, than we have had in 2002 and they gave us a bigger boost of revenue than they gave us in 2002.

Now as you may recall, to the extent that it is late in the quarter, then when you start selling all of these cards, the part that people have greater profit that they can generate with their own cards, doesn't mean that they have to regenerate all of that in the calendar month of December. A lot of this is spilled over until the first quarter of the year.

And this is simply because of the fact that we are not booking revenues from the basis of the cards that have been sold, but actually on the basis of the actual consumption of the (inaudible). So obviously, we sold that many more cards and a lot of the projects that we picked up in November, certainly December, was on the basis of these cards, but I think a lot of that if it spills over into the first quarter of the year.

That's why I think that we will see very many similarities (inaudible) and with the promotions lately in 2002 and the impact that they have on revenue growth in the first and second quarters of 2003, and we expect that something quite similar can happen this time around.

Again, I do not see just looking at fourth quarter of '03 versus fourth quarter of '02, it doesn't seem that the demand is getting less likely to achieve. The short answer to your question.

But one thing that I also want to comment Whitney that also the new customers that we're having, you have to remember that that's the low segment of the market, OK, so that's also very important to check what's going to be there, ARPU and the MOU for next year because every time you penetrate more, you have a customer that at the beginning, use less the funds. So they have less money to use the fund.

So just following up that, when you sell the card, are you booking the MOU but then you don't actually book the revenue until they've --

No, when we sell a card, we don't book anything of revenue. We only book the revenue when and traffic, at least a lot of which card is being consumed.

OK, but you're confident that we're going to see a pickup in ARPU based on what you're seeing thus far in the quarter as you saw last year?

Again, we are seeing the similarity between two years in which we run special promotions, in both cases and that we've used in the effective price per minute (ph). We saw what was impact in the last quarter of 2002, but we can tell is that the impact in 2003 was even larger than what we saw a year before.

If last year is anything to go by, then this would imply that we would see very healthy revenue growth in the first and probably second quarter of the years of growth.

All right, one last question and then I'll turn it back over to Kelly. On Brazil, we saw a similar trend where they MOU trended up and ARPU was down. Are you saying or seeing similar dynamics in Brazil as with Mexico that could long-term be worrisome in that you potentially have costs going up with no incremental return.

No, what we saw in Brazil and what you're saying about the cost going up is because we do a lot of things these last quarter in Brazil. First, we have good growth, so, in subscribers we have toward the expenses on selling and marketing are higher.

The second is we launched a collateral brand in Brazil. It was very successful. It's very good brand and so we spend money.

The other thing also is that we are putting GSM network all around Brazil and we were working for around six to seven months, and we just finished some regions in October, other regions in November, other regions in December. So we're having other expenses there without using the network, so also that's why the expenses are going.

And the last one is that we're doing the amalgamation between BCP and the other companies and also take us some extra expenses to do that. But I think Brazil this year, 2004 you're going to see control costs and growth on revenues, and I'm sure that we're going to see that thing.

OK, terrific, thanks Daniel. Kelly, back to you.

Thank you. Your first question comes from Vera Rossi of Morgan Stanley. Please proceed.

Thank you. I have a question about ARPUs, and what are the major lessons that you learn in Mexico and that you can replicate for the other countries in Latin America in terms of the growth, the increase in ARPU that we have seen in the last 12 months?

And basically what is driving the elasticity above one in this country and what do you think, where we can see the same phenomenal in the other countries at America Movil it is today?

Thank you.

What we're seeing incremental ARPUs on Mexico. I think that in the next year, as Carlos is saying, we're going to see the same, more or less the same things, but also one other thing that we have in Mexico is the new subscriber, that the new subscribers are low segment of the market, so that will be a little bit different than what we have in 2003, because the penetration is getting higher and higher in Mexico, so we have less customers with less money, OK.

But what you could see that we're doing in Mexico Vera, we're also doing that in Argentina. In Argentina, we have 11 percent ARPU growth. We've having that also in Ecuador, that we have in Ecuador, in Central America, we have around 6 percent growth on ARPU and in Ecuador we have around 6 percent also, 6.6 percent from ARPU.

So I think we're doing more or less what we're doing in Mexico, we're doing that in other countries and I hope that Brazil and Columbia, we would see better ARPUs in this 2004.

I think still we have in Mexico room, I don't think the elasticity is getting to the bottom. I think we still have room to increment, (inaudible) you've lost ARPU in Mexico and all around Latin America.

And do you think in Brazil for example, that it is a very important country in revenue generation and potentially (inaudible) generation. Do you think you'll be able to increase the ARPUs in what we'll take in Brazil and Argentina, because I think these two countries had significant reduction in real wages, more than the other countries in Latin America.

What I can, my feeling is that in Brazil, with all the GSM network, we're going to get more (inaudible) prospect customers and that will help us a lot on this Vera. I think we're going to work a lot on (inaudible) in Brazil, to have better customers with more usage. And in Argentina, I think there's no doubt that the economic, the economics in Argentina are getting better and I think we're going to see a recovery on ARPU all around Argentina.

OK, I just have a last question. I realized that you're MOU use in Brazil increased last quarter, sequentially by around 10 percent. What was the reason for this increase in MOUs in Brazil?

Well the promotions that we do, I think we do good promotions in the last quarter and that's the reason why the MOU are growing in Brazil.

OK, similar to what we are seeing Mexico?

Yes, more or less.

OK, thank you.

In fact, back to what you're saying, Vera, the (inaudible) blended MOU in Mexico this quarter, quarter on quarter, was roughly the same as what we had in Brazil. In both cases, we blended MOU rose by 10 percent quarter on quarter.

Yes sir. OK, thank you.

Your next question comes from Daniel Henriques from Goldman Sachs. Please proceed.

Hi, good morning. Couple questions. First of all, if you could give us an update on the competitive environment in Mexico, I mean, how did Telephonica react to the special promotions you had this quarter in terms of tariffs. Apparently they had a good quarter in terms of nets adds (ph). So just give us an update on what you're seeing in terms of fine acquisition costs and market share, if that adds in Mexico?

And the second question is, you had a number of somewhat non-recurring costs or one-time costs in Brazil, like branding and other things like that. How long do you think it will take for margins to go back to, you know, more, let's say more normal levels in the case of Brazil? Thank you.

Well, in Mexico the competitive environment is competitive, I think in December, prices of handsets are going down a lot, subsidies are growing as the, we don't go so far as my competitors, because we feel that if you go too far, maybe you have some customers that at the end of the day, they are not going to use the phone, so that's why we decide not to go so far and I think it's, I feeling that we're happy of what we're doing.

And on terms of rates, tariffs, everybody was as aggressive as we are, and that sizing, that's the reason why the market is growing and why the MOU is growing and why we have a - everybody's having a good nets adds (ph) for the quarter. So I think we're living in our competitive environment in Mexico, but I'm still very happy with my coverage in Telcel, with the brand of Telcel with my distributors, the net of distributors that we have.

So I'm still feeling that I have advantage against my competitive, the competitor. So I'm happy of how this fourth quarter was developed. I think, and I'm going to repeat it again, I think the ARPU on the first quarter, I'm happy with that, because the big net ops that we have, I'm seeing that they are going to start to use the phone on the first quarter of this year. So I'm going to see how good are the new customers that we're getting in this quarter and see how are going to be the competitors new customers.

And in Brazil, I think we're doing a big job. I think we're going to return to the margins that we used to have. I don't think it's going to be immediately, but we're going to see improvements as the quarter-by-quarter to get to the levels of adita (ph) that we're having last year.

Thank you.

Thanks.

Your next question comes from Miguel Garcia of Bear Stearns. Please proceed.

Yes, good morning. My question is, I noticed that Com cell (ph) has reported a clean up of subscribes, I wanted to know if you guys are planning something similar with other subsidiaries, what you consider that subscribers are not quality you're expecting or are you are doing something to avoid this problem and those subsidiaries.

And the second question is about the taxes, why they were so low?

On Columbia we cleaned some base, it's not because we cleaned the bases. I think we have a promotion and that promotion that we used to have at the beginning of the year wasn't so good, so the customers at the end of the day, they don't use the service as we think.

But we have a politic on this connections. We have a calendar. We have a politic and we're following that all around Latin America with all the companies of America Movil, and today, I'm not seeing that we're going to have another clean up in other company, but maybe some promotions that we do and they are not so successful then we're going to see this connection, is not like the cleanup, it's, at the end of the day, there's a good promotion, that's a promotion that we do in May by an example, and four or five months later, we see that the promotion is not so good, because the customers are not using the phone. So that's the reason why we have the disconnections in Columbia.

But we're checking all the day, we're checking that and I don't see that's going to be another cleanup of the subscribers, but I don't see it short time, but I don't know if some of the promotion of December, there's not going to work and then we're going to see in May or in that month, so another higher disconnection of subscribers, no.

And on the taxes, maybe Carlos can comment to you.

On the taxes, we have mentioned in previous calls, we have been auditing on two things. One is that obviously, as a greater percentage of the operating profit of the company comes from countries where we have a strong operating or you know, carry-forward tax office, obviously we are not, we will be seeing reduction in the effective tax rate as a greater percentage of our operating profits is produced in this country that have go forward (ph) tax office. That's number one.

Number two, is that we have been working on various structure that should allow us to more efficient location of our resources to taxes and we have mentioned I think it last quarter, some (inaudible) there, that we have involving (inaudible) and I think that's basically one of they things that explains (ph) the reduction in tax rate.

So I think for the most part, it really has to do with the greater share of other operations that are not generating the, that are not generating, that do not help to pay taxes.

OK, great, thank you. Just to clarify, on the first question, do you guys have the same disconnection policy in every subsidiary right?

Yes, we have the same disconnection policy in all our subsidiaries, yes.

Thank you.

Your next question comes from Ken Watten of Commerce Bank. Please proceed.

Hi good afternoon. I'm sorry, one of my questions have already been answered, but I just wanted to ask something again on the Brazilian market. I just wondered if you could explain the big decrease in the EBITDA margin that you showed your near in the fourth quarter.

Are you able to sort of give us the promotion of that impact, which related to the rebranding, what related to the integration of BCP and what actually related to the subscriber acquisition, you know, cost environment?

What I'm trying to get at is to what extent of your margins been impacted subscriber acquisition cost per head going up and if at all? Thanks.

No, I think that this is something that we also mentioned in the last call and we have been discussing it with various investors. The more important reason for the reduction and this is what we said even before it happened was, it had to do with the rolling out of the ESM (ph) network with the rolling out of the new operations starting off in operations in the two new regions that would actually be three if you were to include the metropolitan area of Copula (ph) and then on top of that, it would have to do with the actual integration of DCP (ph), which I've also meant some costs to us that we probably had not taken into consideration initially (inaudible).

But effectively your point is acquisition cost is increasing, (inaudible) to the extent that there's advertisement there, it's very difficult to say what is the acquisition cost of the advertisement (inaudible) without the launching of saddle brands and with (inaudible) or you know, to make this statement.

(Inaudible).

If we were to focus on things like (inaudible) for instance, which is something that we could, that we can see and that is not linked to specific launching of (inaudible) and we have not increased our (inaudible).

OK, that ....

Sorry?

Subsidies have not increased ...

(Inaudible) have not increased in that.

OK, thank you very much.

Thank you.

Your next question comes from John Shaldamard (ph) of JP Morgan. Please proceed.

Yes, good morning. First, I have a question about the, you're referring to the incremental usage of the new subscribers as going down continuously, as penetration increases, which is obviously understandable. Can you tell us where, what's your estimate of the increment of ARPU right now of the subscribers that are joining your network, and out of that, how much is outgoing usage, and how much is coming of, as fixed to move on to connection?

It's a very difficult question, but what you have to differentiate is the pre-paid and the post-paid subscriber. When it's a post-paid, where they are (inaudible) ramp and then if they are, if they don't use the phone at the beginning, they still having to pay the rent and that's the ARPU you have.

On the prepaid new subscribers, the new subscribers, they need to have maybe six months to eight months to really start to use the phone is what we're seeing in the companies and so all those new subscribers have to give the phone to all the people, so they have to, because the incoming calls are very important when you have calling (inaudible).

So that's time where you need to, exactly the amount, we don't disclose the amount, the ARPU that they have at the beginning and what they end. But what I can tell you is that you need some time and the customer needs some time to really increase the ARPU and start really using the phone, no.

OK, just, just a follow-up question on this, how far, how much further down do you have to go in your sense on this incremental ARPU to get to the point where it doesn't really make sense to add more subscribers, where basically if you look at subscribers on the net present value basis, the contribution is no longer positive?

That depends a lot on the subsidy that you give to the customers, because if you are giving a high subsidy to the new subscriber, then and it's not using a lot of the phone, then it's not going to be good business for you, but there's new subscribers where you better give less subsidy or no subsidy, but I think, and then it's going to be a good business for you that new subscriber, I think it depends a lot on the subsidy that you give to your subscriber and I think in Mexico, we, in Mexico and all around Latin America, we still have lots of room to take more subscribers. I think, and any subscriber is good depending on the level of subsidy that you give to them, no.

Sometimes you don't give any, they don't put any subsidy to the new subscriber, then it's going to be a good business, even if they consume very little, no.

OK, I just have a question on Uniphone, I'd just like to understand exactly how you value this transaction with Uniphone. Can you go into a little bit into the assumptions that you use to get to the (inaudible) $268 million?

Well it's very difficult to make that analysis, but what we feel is that the efficiencies and the savings and everything that we're going to get in Telcel are much more than that, that that's the way we saw that transaction. I think to have 8.4 more megahertz, it's very good for Telcel, and that's why we decide to pay. But I don't think that's a high price on that. If you check more or less what was the price four or five years ago, what we paid on that frequencies and how, what we're going to have, what's going to be the savings on Telcel to have more frequency, I don't think that's a high price, no.

Just the last question, I understand you will save on this license fee, what about, are there any Capex implications from doing this?

Of course, of course, of course. It's the very difference that if you have 8.4 more megahertz, then you have to invest much less Capex than if you don't have that, no.

OK.

You have to put less cells sites. That's why, that's why I'm talking about the efficiencies of having more DSM spectrum.

So what's your Capex guidance for Mexico for next year is last question?

I think it's going to be around $600 million, $550 million.

Thank you very much.

Thank you.

Your next question comes from Rizwan Ali of Bear Stearns. Please proceed.

Yes, again, similar to what is my question on Capex, you know, Capex this year is going to be roughly 17 percent of your revenues according to our numbers. In Europe and U.S., you know, ranges around 14-16 percent of service revenues. Do you think you'll ever get down below that range?

And the second thing is, can you tell us exactly how you plan to pay for Uniphone and will it be you know, equal payment every year or is it front-end loaded and when do you start paying this amount to Uniphone.

Hi Rizwan (ph).

Hi.

No, on the amount that we paid to Uniphone, they have already been paid and that's where we (inaudible) report. So there's no more payments to be made. And you've got Capex, if you look at Telcel revenues, you know, this year, (inaudible) $53 billion, 52 million pesos in revenues, that means that next year it is likely that the Capex to revenues (inaudible) is going to be roughly at around 10 percent. OK.

And Rizwan, it's Daniel, another thing that if you have to take a look on that is, that all around Latin America we have GSM, so we do big investments last year, because we change Ecuador from TDMA to GSM. We changed Columbia from TDMA to GSM. We're changing Argentina from CDMA to GSM. So those, to swap to GSM costs us a lot, and I think we're going to finish covering everything and, to have good foot things in each country, this year. So that's why, but I think as Carlos is saying, we're investing more or less what the market is investing.

So I mean do you think that you know, I'm less worried about this year, next year, I'm more worried about longer term trend. Do you think the trend will be around 15 percent of revenues, or do you think it would be much less than that in terms of Capex per (inaudible)?

I think it would be less than that. I don't know if it's much less than that or not, but I think it's going to be less than that. I think depending also on the prices of the infrastructure, OK, so, that's other thing that we have to see. Also the incremental on the MOU of our subscribers, so that's, you're going to see a lot of variables to get to that.

But I think it's going to be less than 15 percent.

Again, I think that the (inaudible) is going to be relevant in this case (inaudible), because we've been coming down from levels that were overly much higher and (inaudible), even 30 percent to some point down to levels that (inaudible) going to be 10 percent or maybe less than 10 percent of revenues, OK, (inaudible) this is a much of function of where the exchange rate effectively ends up in the year. But we have a good shot at having 10 percent or less of Capex to revenues (inaudible) year in Telcel and I do not see that there's anything that is immanent that would make this ratio (inaudible) percent, (inaudible) pointed out, once that all the other equations have gone to the same phase (ph), have gone in the GSM requirements behind them in terms of (inaudible) and when one that you just have to base the Capex to meet the increase in subscribers and traffic, then I think that we should see these ratios continue to trend down in the other operations.

Yes, (inaudible) had told us two weeks back that they plan to have certain (inaudible) of service targets for the Mexican operators, which will improve the quality of service in Mexico. Do you anticipate any stringent service requirements to increase your Capex requirements?

No, Cofetel wants to put on the quality requirements and we're discussing with them, because we're checking exactly what they want, but we don't think that it's going to require more Capex for Mexico. I don't think that's something that we're, that you're going to see. I don't think that the quality requirements are going to need any more Capex that what we're quoting today.

I think the quality requirements are more a function of the market, a requirement of the market than one of the authorities and we know what our market is and what it demands and we intend to satisfy that (inaudible).

Quality means (inaudible), so we don't, we don't have to put anything else, because Cofetel wants to do that, and I think in our sites, Telcel is really improving the quality of the network. In TDMA we have more stable quality and GSM, every time that we grow more, then we're going to have more and more stable quality in our network.

Thank you very much.

Your next question comes from Maria Tonado (ph) of Citigroup Asset Management. Please proceed.

Hi everyone. I have a couple of questions. First one is what percentage of your customers do you think turn to Telephonica, but are still considered active customers of Telcel?

I hope zero, no I don't think, if I know that one customer's moved to Telephonica then I'm not going to count it as a customer, so --

It depends, right, because the disconnection policy is 180 days, is it, I don't remember exactly how many.

Yes, yes, it is, it's 180 days, but it's not 180 days without using the phone, OK. You have to still have incoming calls. I think if you have two or three, I don't remember exactly the policy, but if you don't use the phone for more than 100 days, is when it's really disconnected. So but if I know that one of my customers moves to them, then immediately I disconnect it.

So how, I guess it's pretty difficult to know exactly.

In post-paid, no, in post-paid, you immediately know when they cancel and we cancel immediately. In prepaid it's a little bit more difficult.

Yes, the other question I have, I'm still ...

Maria, sorry to interrupt, that's why you should also be focusing on revenue growth.

And I think ARPU and revenue growth gives you exactly, if my customers are moving to Telephonica or to use Telcel or the customers of user cell are moving to Telcel or to Telephonica and Telephonica moves to Telcel, you need to see exactly the revenue.

Yes, I've seen in other countries that they have to sort of clean up the subscriber base, because of increased competition a few months after it. But the other thing that is not clear to me is the ARPU. You just mentioned that the margin of subscriber should generate lower ARPU, therefore, should dilute your blended ARPU, but at the same time, elasticity are higher than one, and so much higher than your ARPU should continue going up. Is that what you're saying?

More or less, more or less, but we don't know exactly, exactly the amount of new customers in that segment. We don't know exactly when we're going to reduce more our prices, so it's going to depend a lot on the market competition.

But when a customer, I guess the promotions imply more minutes for the same denomination of the card, right?

Yes.

Right, if the customer doesn't use the minutes, do they accumulate for the following quarters or not?

Depending, it's also a policy, so you have to use the minutes in x amount of days and if you don't use it, you have to, you cannot use it until you put another card, so it's very clear, the policy. So.

If I buy another card in a period of 60 days, can I get the minutes that I had on previous card?

Yes, yes, of course.

And those are booked when they're used, right?

Yes, yes.

Can I ask you what was the average price card in the December promotion?

Well, depending on the cards, it's, but it's around 20 percent.

OK. I have two short questions. The interconnection rate, the interconnection already significantly higher in Mexico than everywhere else, in Latin American and globally, I understand you negotiate that rate directly with Telmex. What are your expectations for this year and going forward?

Again, I don't hear you. I don't understand your question.

The interconnection rate is 1.9 pesos, right?

In calling, you're saying interconnection is calling (inaudible)?

Yes. That is significantly higher than Brazil, Chile and basically globally, that rate is not only coming down, but it's significantly lower than in Mexico. When do you expect that rate to come down in Mexico, if you do?

In Chile, I don't know and, but in Brazil, it's lower in Brazil and lower in Argentina, because of the valuation of the Real, because when, before they devalue their Real, there was more or less the same. I think if in my view, if they reduce that rate, what is going to happen is that we're going to see more increase on minutes, but it's going to hurt a lot, some of my competitors, because they have very cheap outgoing minutes and with that incoming minutes they more or less have a good average on that. So if they reduce that I think they are going hurt my competitors. I don't think it's going to be a problem for Telcel. What we're going to need is to put more infrastructure and to put more capacity, but I don't think we're going to have a problem of ARPU.

And do you have to negotiate that rate? You negotiate directly with Telmex right?

No, no, everything is through Cofetel, everything is through Cofetel. We don't have different rates between Telmex and Telcel and Telmex and Telephonica, those are the rates for the industry and that's what Cofetel is saying.

One important thing is we use to have one year ago, or two years ago, the exchange rate was nine. Today it's 11 and every time we have move on the exchange rate on the peso, the rate goes down, and the other thing is with the inflation, also the rate goes down, so I think we are not moving things five years that the calling (inaudible) is getting, we still have the same rate in pesos. So I think in real terms, it's reducing.

Yes, it's still a significantly higher than everywhere else. What is the interconnection rate that you pay to Telephonica? When Telcel calls Telephonica, the same, we're going to see increase in your cost of structure coming from interconnection paid to Telephonica going forward, I guess?

So I don't know, or maybe they are going to increase their calling, depending on the subscribers. You have better, you have subscribers that call more than it's better for you, if they have subscribers, it's not depending on the number of subscribers, it's the quality of the subscribers.

The traffic.

Yes.

And the last question is how do you rates compare to Telephonica?

We're more or less competitive, I think everybody's competitive. They are a little bit more aggressive on subsidies, but on rates I think we're competitive and we're going to be competitive. So Telcel is going to be competitive in the market, so if we need to reduce more of the prices, we're going to do it.

When you said the cutting interconnection rate will hurt more your competition than Telcel, because they have lower outgoing rates, how much lower are those rates?

No, by an example, Uniphone (ph), my competitor has one peso outgoing call, no they are promoting one peso outgoing calls, so, but they are having incoming calls of 190, so if they reduce that, I think it's going to be difficult for them.

It's a subsidy, yes.

Yes, yes.

OK, thank you Daniel.

Thank you very much.

Your next question comes from Patrick Brennem of Citigroup. Please proceed sir.

Good morning. Just a couple of questions, first of all, could you give guidance now on subscriber additions in Mexico, and subscriber additions in Brazil for 2004, because it looks as if the subscriber growth momentum is actually picking up.

Secondly, are you now prepared to start talking about how many of your addition are in GSM? And how the Uniphone acquisition, how much extra GSM spectrum do you now have with the Uniphone? And do you have exclusive access to the spectrum?

And then just another one on MOUs and usage, how much is SMS and data now as part of your revenues in Mexico, and is that something that's in Brazil, and how do you expect the SMS data things to grow in 2004?

Hi.

Hi, Daniel.

How are you?

Good, how are you doing?

Fine, there's a lot of questions. Let's see if I catch everyone, every question. The first, the guidance of Mexico I think, depending a lot on the economics of Mexico, but I think 2.5 million customers would be good for us. So we're budgeting 2.5 million customers and I hope to have a little bit more than that.

And I'm not, I'm not going to disclose how many of my new additions are going to be GSM, but what I can tell you that at the end of December, we have around four million customers in our GSM in Mexico.

And the spectrum, we used to have 10 megahertz and we're buying 8.2 megahertz, we'd get to 18.4 megahertz, or we write 8.4, so we get to 18.4 and I think that's enough spectrum for the next year.

But the, I think that the (inaudible) in Mexico are going to auction more spectrum during this year and we're checking as we're going to get more on that. But today we have enough, 18.4, it's enough. In TDMA we have 25 and we got 20 million subscriber. So I think that's enough. And it, what's the other question.

Well, OK, the other question was on data services and SMS services, how much they are as part of your Telcel revenues now.

In Telcel the data services and the, it's around 6 percent I think we're getting and we're growing fast. We start with 2 percent, 3 percent. We're getting to 6 percent. SMS is growing very fast in Mexico. SMS is growing very fast all around Latin American companies and I think we're getting to 6-7 percent at the end of December, on data services.

OK, just to go back for a minute to the, to where we were talking about the spectrum and you have four million subscribers. I imagine you could manage to do 20 million subscribers, TDMA subscribers on the 25 megahertz you have, but the GSM subscribers I imagine are using much more data services than the TDMA. And do you think you will be allowed to buy spectrum, or do you think the Supreme Court ruling, which says that the ESC (ph) has the right to block you?

No I think we're, we need their permission, but I think we're going to be allowed to buy spectrum, because my competitors has more spectrum than me, so I don't think they are going to block me to buy spectrum, because my competitors has more spectrum than what I have. So I think it's, everything will happen now, but I think it's a logical that it will be a problem.

Right, the other thing I just noticed in the results is your average handset pricing used to be stable to slightly up, are you charging a premium for GSM handset or are you finding that subscribers are buying the higher-end GSM handsets and you're making a profit on them?

Yes, there's a lot of new subscribers that are buying mid-segment or high-segment.

Right. OK

Yes.

That's good and last question. You're going to have an awful lot of extra cash this year, you're debt is already low, any more acquisitions in the pipeline?

Well we're always looking for new acquisitions and we're going to see, there's still some countries that we don't have in Latin America and we'll be very, we're open to see any alternative or any opportunity that we have in Latin America.

You still only a Latin American acquisition. You would not think of any in the U.S. or anything like that?

No, no, we're only seeing Latin America.

OK.

Right now.

Without acquisitions, what will you do with all the cash, buy back your stock, increase dividends ...

We're going to wait until the (inaudible) that we have, but we're starting to buy back against shares. At the end of, during December we have a good buyback, I don't know exactly, Carlos, in the quarter I think we have around one billion pesos and we're still doing buy backs today and we're going to wait until the assembly to decide what's going to be the level of dividends that we're going to have for this year, yes, for this year.

And Brazilian Capex stays the same, $300 million?

Around $300 million, yes.

No risk that that would shoot up a little bit more?

No, I think it's around 300 and 350, I don't exactly the number, but it's around that amount of money.

OK, your share in Brazil of additions seems to be have dropped in the fourth quarter, is that because the other guys have been very aggressive of the pricing?

No I think my shares in Brazil, if you see market by market, I don't think my shares are dropping. In some markets we're gaining, in other markets we're losing, but remember if you see all over Brazil will of course, we're dropping, because we start (inaudible) on December, we start by (inaudible) on December, we start it's (inaudible) on the December also saw, we start GSM as mainly at the end of November, beginning of December, but I think this year is going to be different. We're going to get good share of the market.

And you think you'll have ...

Or share of market.

And you think you'll have the EBITDA margin in Brazil back to 30 percent by the end of the year?

Yes.

'04.

Yes, yes, I hope so.

OK, great, thank you.

Thank you very much.

Bye.

Your next question comes from Charles Chichester of Cavanov. Please proceed.

I think this will be the last question.

Hi, good morning, I'm just looking at Brazil again. First, is it going to be possible to have the split to subscriber number between these various regions for Brazil like we used to have? And secondly, I'm afraid following on from an earlier question a bit, are you able to give us some further idea of the level of competition you think you'll be experiencing in Brazil, you know, once the effects of the recent launch are no longer affecting the margins, will the competition still be putting downward pressure on the margin and to what extent? I mean I know you've already tried to answer this, to a certain extent, are you able just to give us a little bit more talk about the competitive level that we're seeing?

You know the breakdown, if you want, Lionel can give you these breakdown (inaudible), information.

OK, thank you.

And what I'm going to see in the, what we're seeing in the market in Brazil is the big competition today. I think there's a very competitive market. It's the, and I don't think because we're getting in the market, or we're doing with GSM there's going to be a difference. I think we're being aggressive in TDMA. We're going to be aggressive in GSM and everybody's aggressive (inaudible), Telephonica, everybody's aggressive and I think that's the market today in Brazil and we need to live with that and.

But I am confident that my EBITDA margin is going to go up during the year and that we're going to still have a good share of the market.

OK, thanks very much.

Thank you.

OK, with that final question, thank you to all of you for joining us today. Very good news on the GSM subscribers. We will look forward to some additional margin uplift in Mexico, by my calculations, about four bips, not four bips, 400 bips and management has indicated that they will be available for any follow-up questions. Thank you very much.

Kelly, back to you.

Thank you very much. Ladies and gentlemen this concludes your program. Thank you for your participation in today's conference. You may now disconnect, have a good day.