America Movil SAB de CV (AMX) 2004 Q2 法說會逐字稿

Good morning and thank you for standing by, and welcome to the América Móvil second quarter earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn this call over to Mr. Patrick Grenham. Thank you, sir, you may begin.

Good morning, everybody and welcome the América Móvil conference call. I have with me today, Carlos García Moreno and Daniel Hajj, leaders of a very strong, growing company. I turn it over to you, Daniel.

Hi, good morning everybody. I am going to turn to Carlos García Moreno, that is going to make like a small summary of Q2 results.

Hello everyone, good morning. Thank you, Patrick, for hosting the call. Well, as we have been mentioning to some of you a few weeks ago, it has been evident that we are in a different part in terms of growth than the one that we had expected that we would have towards the end of last year.

The last quarter of last year, we had a stronger closing than we had expected in terms of subscriber growth. Likewise, Q1 of this year and Q2 have just proven that we have been on a much higher trajectory of growth than that we initially expected.

We have continued to see strong growth in various countries, like Mexico, but we have actually seen an acceleration of subscriber growth countries like Brazil and Argentina. Also, here, América Móvil took 3.5 million subscribers in Q2. 3.5 million subscribers compared to about 2.9 mllion that we generated in the first of the year, and the total subscriber base of América Móvil now exceeds 50 million subscribers, not including the wire line, the fixed wire lines that we have in Central America.

In particular, this is the first quarter in América Móvil's history where one of our subsidiaries out of Mexico actually generated more net subscriber additions than we did in Mexico this quarter. Brazil with nearly 1.2 million subscribers of net adds exceeded Mexico's 1.1 million net adds.

In Argentina, we doubled the number of net adds in the second quarter relative to the first quarter. The pace of growth in Argentina is just amazing. It was a 25% increase of the subscriber base in this quarter alone, and that is a pace that will double the subscriber base in about a year. So, it will be the case that in just about a year of operations in Argentina, we will practically double our subscriber base in that country.

Central America has also seen very, very fast paces of growth. In the case of El Salvador, growth was growing at a quarterly pace of 25%, and that means that [indiscernible] operations where we have already doubled the subscriber base in a year. Already, in newer operations, like in Nicaragua, we have also seen very significant increases in subscriber growth.

So, altogether, we had a number of additional subscribers that we had for the quarter. It exceeds by a wide margin, the expectation that the analysts and investors had for the quarter.

The 3.5 million net adds we generated are roughly 35% greater than the market consensus that we had for subscriber growth in Q2.

As regards revenues, we had a strong top line as well. Total revenues increased over 9% quarter-over-quarter, and they were nearly 50% greater year-on-year. If you look at each one of the independent subsidiaries and let's look quickly at the local currencies to do away with some of the effects of valuation. Each one of the local currencies- -each one of the subsidiaries interpret local currency at approximately 8% [indiscernible] revenue growth quarter-over-quarter, okay, and we saw very little bias. The revenue growth, quarter-over-quarter, after its [indiscernible] in local currency was very similar across the board. What we have managed to reach nearly 60 billion pesos of revenues for the first half of 2004, which was approximately 52% more than the previous year.

In terms of EBITDA, the EBITDA number for quarter was 10.3 billion pesos. This was just slightly below the market consensus, but considering the much greater subscriber growth that we have, I think that the additional growth came in at a relatively low price in the aggregate.

If one were to look, for instance, at Brazil alone, we had the Talk twice as many gross adds in Q2, twice as many gross adds in Q2 that we had in Q1. We actually had more than 2.5 times net adds in Q2 than we had in Q1. So, simply by looking at subscriber acquisitions costs, which, by the way, have come down on a per gross add basis, relative to last year, simply by looking at the subscriber position costs, that would explain more than 100% of the reduction in EBITDA in Brazil alone.

Altogether, we have continued to generate a strong cash flow. This strong cash flow allowed us to give back to the market 10.6 billion pesos by way of share buyback and dividend payments. We have acquired interest in various other companies, and the net amount we have paid for these acquisitions were an additional 0.7 billion pesos and, in terms of cash flow, our net debt also came down by 2.2 billion pesos in the first half of the year.

So, we have had a very strong cash flow generation throughout the year after CapEx. CapEx has continued at a pace totally greater than the pace than what we were expecting at the beginning of the year. We have more than 50% of the budget of CapEx already saved by the first half of the year. We have paid a nearly 1 billion pesos of CapEx, and this is with from $1.4b we were expecting to have in CapEx for the year. We are revising the CapEx numbers. We have not yet made [indiscernible] in terms of quality, the increase, but I could [indiscernible] in total two levels at closer to $2b. And this, again, have to do with the recognition that we have a greater flow of subscribers that we have to bring on stream, and that the usage is actually going up in several places. It is mainly in Mexico, is one, but you have to see places like Argentina where we have had a fantastic increase in revenues as well, even in spite of the tremendous subscriber growth that we had.

So, net net I think that the company is very satisfied with the results. As I mentioned, I think that the subscriber growth that we are seeing for this year is significantly different from the one that has been expected at the end of last year. This means that the numbers for 2005 that we are expecting in terms of revenues EBITDA and subscribers also will have to be revised, and I think that we will have to talk to you in a different conference call to the new guidance that the company will be providing relative to 2005 for the results, but I think that is we wanted to highlight for this quarter.

I would like to pass it back to Patrick Grenham for the questions and answers session.

Okay, thanks, Carlos. I have two questions, really, on Brazil. The first is could you tell me, the EBITDA in Brazil has essentially disappeared this quarter on very strong subscriber acquisition and very strong subscribers additions. Usually, for seasonal reasons, we would see a much bigger addition rate in the fourth quarter. Would you be prepared to allow the EBITDA in Brazil to go into negative territory in Q4? Is that taking your share of additions?

Well, Patrick, well, we have an even EBITDA in Brazil. I think what we are looking in Brazil is we already put in place a good GSM network. We are still going to increase coverage on that network, but, today, we cannot say GSM is working well in Brazil, okay. We are doing a lot of distribution, we are improving our marketing, so we are putting in place a lot of things that we said last year that we were going to do.

So, what you are asking is what is going to be the EBITDA for Q3 and Q4, well, it is difficult to say because if it is going to depend a lot on what is going to be still the growth in Brazil. If Brazil is going to stay with this growth for the next month, and the other is how competitive is going to be the market. What I want to tell you is that we are doing our work in Brazil and we are preparing to grow that as the market is growing, and we are looking, the company, for a long term and not for a short term. So, it is mainly what I have to tell you. You tell me exactly what is going to be the EBITDA side because I do not know, depending on a lot of things. But, what is the strategy of the company? The strategy is of long term strategy, and it is mainly what we are doing in Mexico five years ago, eight years ago. It is to put in place distribution to have a good brand, to have good coverage, to have good quality, and it is mainly what we are doing in Brazil. So, it is the strategy of the company in Brazil.

Excellent. Okay, Cathy, could we open the call to questions?

[OPERATOR INSTRUCTIONS] Thank you, Vera Rossi, you may ask your question and please state your company name.

Hi, good morning, Vera Rossi from Morgan Stanley. I have a question a follow-up question on the previous question. It is about your network coverage in Brazil. How do you compare your GSM cover today with VIVO's network coverage?

We still -- VIVO had better coverage than us still in Brazil, but what we are doing is we are growing faster than what -- we are improving from what we have in January or February, we are having better this month and we are improving. We want to be as close as VIVO and it is what the strategy is, is to grow everywhere in Brazil.

Daniel, when do you think you are going to have your network coverage similar to VIVO's coverage today?

It is difficult to say, because VIVO, I think, is still investing and it is growing in coverage also, no. But, I think we are going to have a very good network operating with very good coverage, I think. At the end of the year we are going to have -- beginning of next year, we are going to have a very competitive network.

Okay. I have another question on the auctions in Mexico and in Brazil. Do you expect to participate in the auctions in Mexico and also in Brazil this year?

Well, in Mexico, we were evaluating everything. The government is giving us, more or less, they give us the directions. How we are going to be. So, it is in the first phase. They said that the auction is going to be maybe at the end of the year, and we are evaluating exactly where, how much and everything. But, in Mexico, we are going to participate in the auctions. We are interested. In Brazil, we are also evaluating if we are going to participate or not. So, we have interest, but depending all the conditions, but interest, we have interest to participate in both Mexico and Brazil.

In the case of Brazil, it would be to extend the footprint, or it would be acquire more spectrum in a given area?

It is more to expand the footprint than to have more spectrum in our area.

Okay, so you consider entering in [managerized] state at this point?

Yes. We are evaluating that. We do not have the decisions yet, but we are evaluating to get into [indiscernible].

Okay. Thank you, very much.

Our next question comes from Miguel Garcia. You may ask your question and please state your company name.

Hi, Miguel Garcia from Bear Stearns. My question is related to your experience in terms of ARPU in the different countries. We see some countries where ARPU remains, other countries actually increases, and in the case of Brazil, for example, it is decreasing significantly. It this only due to the developed growth in each country, or do you see other factors more related to the economic conditions or others that are maybe influencing this behavior?

Hi, Miguel. No, I think that what we have seen in various countries, Mexico, the prime example of that, is that the dynamics of subscriber growth will have an impact on MOU and on ARPUs. When you have an initial acceleration of subscriber growth, it typically will lead to an initial reduction in MOUs and consequently also in ARPU, and there that tends to stabilize over time. Revenues catch up with subscriber growth.

I think that one thing that we have mentioned in conversations in the past, is that there is always a lag between the moment in which you take in a new subscriber and the moment in which the new subscriber generates, quote-on-quote, normal volume of [indiscernible], okay. Remember that [indiscernible] a significant number of the new adds are prepaid. In Latin America, all the pre-paid tend to make less cost than they receive and that essentially means that for other people to get to know the phone number of a new subscriber, it takes time to disperse that information, it takes for the people to know what they [indiscernible] and to actually start calling someone that they were not accustomed to calling.

So, there is a lag in Mexico. We have estimated the lag to be between six and nine months. Again, from the time in which you activate someone and the time when they start generating a normal volume of [indiscernible]. So, I think that that very much explains the ARPU reduction in Brazil.

We had the same situation, as I was saying, in Mexico some time ago. I think it was in the late 2001, and early in the part of 2002. Our subscriber growth got accelerated and MOUs and ARPU dropped. Eventually, they stabilized and they have been coming back ever since. We have had about eight quarters in a row with consecutive increases in ARPUs in Mexico. We expect that we will see the same situation at some point in Brazil.

Thanks a lot and one follow-up, if I may. In terms of pricing in Mexico, have you seen an improvement in terms of promotions and develop competition with Telefonica, or you are continuing lowering rates, especially in the prepaid segment?

In the prepaid, well, Mexico is also being more competitive everyday. We are having more promotions in postpaid, we are having other promotions in prepaid, sometimes with price of the handsets, sometimes with airtime of that including the handset, and I think Mexico is going to be, everyday, more competitive and it is becoming more competitive since one year or two years ago. So, you could see it in the minutes of use. Every time, we have more minutes of use. So, in my view, I think Mexico, everyday, is going to be more and more competitive.

Thanks a lot.

Our next question comes from Maria Tonado. You may ask your question and please state your company name.

Hi, this is Maria from Citigroup Asset Management. I have two questions. The first one, if you could tell us what is the percentage of your postpaid subscribers that are already on GSM? The second one is, if you can give us a better idea about what is going on in Brazil. I was very surprised about the detraction on the EBITDA given that you have already -- you are incorporated in Bellsouth now, right?

Yes.

And Bellsouth used to have a pretty high EBITDA margin, so what is exactly is detracting lowering your EBITDA? Is it the new ventures in Santa Catarina? How significant are they and how significant is grow in the different areas? Can you give us a little bit more color about the situation in Brazil on a per regional basis?

Well, let me tell you talking a little bit about Brazil. Well, in Brazil, we buy Bellsouth, and what is in Bellsouth we have to do a lot of things, a big consolidation with the company, and remember that Bellsouth has an old technology, TDMA, and, well, at that moment it was not so competitive. So, we have to do a lot of things in Brazil and what we need, to consolidate the company and to start growing with GSM to be competitive in the market. So, that is what we are doing in Brazil.

Why we get to the even EBITDA, or negative EBITDA, or what you are saying, is because what Carlos is saying, is the big growth that we are having. I think if you check the acquisitions cost in the company, you would see that it is more or less what we were having last month in Brazil. So, we are not increasing our acquisition costs, but even, I think, we are improving a little bit our acquisition costs--

Is it possible to get a breakdown?

--of the last, only because the big subscribers, the net adds that we have, the big net adds that we have in Brazil. We have a big control costs in Brazil. I think we are still having that. I am confident that our costs in Brazil are only growing because we are growing in GSM and because the big acquisitions and subscribers that we have. So, in the other side we have two new green fields, that are [indiscernible] and Santa Catarina and Bahia Sergipe(ph), and in [indiscernible] Santa Catarina and Bahia Sergipe we have to make distributions to improve our marketing to do all the GSM, and those companies are costing us more EBITDA than what we expected, because also we are growing more and faster than what we expected. So, it is mainly what we had in Brazil.

I am confident that in Brazil, we are doing the right thing because we are placing a company for the future. So, we are not going to be as a company, to be worried about it. We have a little bit more EBITDA today, or less EBITDA today, and not such the big growth of the country, or we are not doing the right thing on the distribution, or we are not growing on the GSM network. So, those things, I think, the main and important things, we are doing okay, and we are placing the company for the future.

In Mexico, the percentage about GSM and TDMA, I do not have it today on prepaid and postpaid and we do not disclose that, but what I can tell you is that 7 million of around our 25 million subscribers in Mexico are GSM and we are growing fast in GSM in Mexico. I think almost 100% of the net adds in Mexico are GSM today.

Right, the reason I am asking that question is because that is a window of opportunity for your main competitor, and I guess they are going to be targeting postpaid. I just wanted to get some assurances from the company that you are going to push towards the migration of those postpaid sooner than later.

We are growing -- as I told, all the net adds of the company have been--

The new additions are prepaid?

My net additions have been GSM, maybe 100% of the net additions are GSM today, and we are growing, we are growing great. As you see, we are one of the few companies in Mexico that are growing in postpaid. Our postpaid base is increasing. I think that is very good for us.

Yes. Just very quickly, would it be possible to have a breakdown of your net additions in Brazil on a per regional basis?

I do not have it today.

But is it something that we could get--

You can call [indiscernible], but I do not think we are disclosing that, okay.

Right.

Maria, just to go back to what I said at the beginning of the call, we have doubled the call, we have doubled the number of gross adds Q2 and in Q1 in Brazil. That is about 1 million more gross adds.

Yes.

So, you just apply the [indiscernible].

Yes, I know. I was just trying to do the breakdown, Carlos, but Bellsouth had a very strong margin in the past, so I was wondering if it is just retention on Sao Paolo, or migration. I wanted to have a better idea, but I understand if you cannot disclose that information.

On the ARPU side in Mexico, and I am taking too much of -- but just very quickly, is that ARPU calculation adjusted by inflation?

Here, in Mexico, yes.

In Mexico, yes. [Inaudible]

Yes, so if I look on the first quarter 1.85 versus the 1.90 that you refer in the second quarter, I have to adjust the 1.85 by inflation as well to be able to compare that, right?

Yes.

Yes.

Okay, thanks a lot.

Our next question comes from Daniel Henriques. Your line is open, please state your company name.

Good morning, from Goldman Sachs. Two quick questions, the first in the case of Brazil, just to follow-up on some previous questions, is it possible for you to give us a sense. If you exclude the one time items, like the distribution set up cost, rebranding, start-up costs, if you exclude that, what would be your margin approximately in Q2?

And also, if you take a look at your 3% churn, I am assuming that part of that is just because of mandated prepaid disconnections. Could you give us an idea of what would be your clean churn excluding that? That would be the first one. The second is on Tracfone. The operations there seem to be doing fine, but since it is so different from your other assets, I am not sure the market really gives you a lot of value for it? I am bringing this up because Metro PCS here in the US, which is a large prepaid company here, is doing an IPO and, apparently, they are going get like ten times EBITDA 04 for the assets, and just looking at Tracfone it would be the equivalent of about $800m. Since you are not getting that much credit for Tracfone, it is not really tied to the rest of your operations, would you consider some strategic alternative there or maybe selling the company and monetize that asset? That is it, thank you.

Okay. I think, on Brazil, I have very rough numbers, Daniel, but, in Brazil, what I can tell you is that we have the same net adds of -- the same gross adds, sorry, not net adds, the same gross adds as Q1 than I think we would have between 15% and 20% EBITDA margin.

Remember that we have two green fields operations. It is very important to understand that and we are growing in those companies and we are investing lots of money in those two -- in Bahia and in Parana(ph) and plus the distribution that we are putting in place, plus the big gross adds that we having in Q2 [indiscernible] us to even the EBITDA.

So, I do not know exactly what is going to happen on Q3 and Q4, but it seems like Brazil's second quarter and fourth quarter, and maybe fourth quarter more, are going to be very strong quarters. So, I hope we have everything in place, our distribution, to improve more the distribution and to have that to catch all the big growth that I think Brazil is going to have for Q3.

In Tracfone, Tracfone is a very important company for us. Tracfone, we are growing, we are happy with Tracfone. At this stage, we do not need money on Tracfone. Tracfone has a cash of more than $100m, so what really the strategy in Tracfone is to grow the company and grow the net adds and to make the company much bigger is what we are focusing on and, with this growth, I think the company in the future is going to get more value.

To see, we have today an idea of selling the company, we do not have today any idea of selling the company.

Okay, thanks. Just one thing on the churn, could you give me the churn in Brazil excluding some of the mandated prepaid disconnections, if you have that number?

What mandated prepaid disconnections?

The ones that basically that happened to some other companies in Brazil that the prepaid companies had to basically file a registration and if they did not do that, you would have to disconnect them.

I do not have that [indiscernible]

Okay.

--in that moment. I do not have that.

Okay, thank you.

Our next question comes from Whitney Johnson. Your line is open, please state your company name.

Good morning, this is actually Mike Copelman from Merrill Lynch. Two questions for you. First of all, a follow-up on the subscriber acquisition cost, just looking at the equipment side of it, because that was really what hit EBITDA this quarter. It looks like equipment cost for gross adds actually went up pretty strong in the quarter, relative to Q1. If you could talk about what is driving that and how much that might be effects related? The second question is on Argentina. Since we have already talked so much about Brazil, could you talk about the competitive dynamics there, what you are seeing from Telefonica and from Telecom Argentina?

Well, on Argentina, to talk a little bit about Argentina, well, I think we have great competitors there. Telefonica is personal and so it is still both out there, and I think we bought the company maybe in July or August of last year, we closed the company in October, and what we are doing there is we have very bad coverage there on CPI since October. So, we are moving to GSM. Every day we are increasing our capacity, having more coverage, more places to sell and it is mainly why we are growing. We have a very bad coverage in Buenos Aires, with TDMA, and we are having GSM better coverage and good distribution in Buenos Aires. So, I think it is what is giving BTI that big growth, but I think we have an excellent competitor, some strong competitors, and Argentina is going to be well competitive. Today it is very competitive, okay.

Could you talk a little bit about maybe what the reaction is then? I am assuming that you are subsidizing pretty heavily in Argentina and what you are seeing from the competitors in terms of a reaction to that?

I think we are not subsidizing more of what we were subsidizing last year. I think we, even we are giving a little bit better prices, but we have better prices in the handset. So, I do not think we are subsidizing more, but the distribution network and the commissions and everything take us to have EBITDA. But, in Argentina, if we grow, if we have the growth that we have maybe in October, I can tell you that we shall have better EBITDA margins than what we have in October. Something that I am being very careful is to take a good eye on the cost control, okay. So, I think the only cost control that is increasing is because we are growing faster, but all the other costs, all the other expenses, I think we have it under control. So, it is- -when Argentina starts to reduce the big growth, I think you are going to see that the company returns to a good profitability, or better profitability than what we used to have.

Okay, on equipment costs on a consolidated basis. You are saying that you are getting better pricing on the handsets, but it looks like the cost per gross add, you putting the cost for gross adds on a consolidated basis is actually moving up.

In Brazil?

No, on a consolidated basis. I do not think we actually have the breakdown anymore.

Perhaps. I do not know. I do not have that number here, but if you can call us, we can explain to you exactly what is happening, no. In Mexico, by an example, we are growing a little bit more on postpaid than what we used to grow. I do know that postpaid growth is a little bit more expensive in the moment, that prepaid cost, and I think we are having a good prepaid- -postpaid increase that is okay.

Okay, thank you very much.

Our next question comes from Gene Charles Lombardi. Your line is open, please state your company name.

Yes, it is JP Morgan. Good morning. I have a question regarding ARPU, particularly on the postpaid side, but ARPU in general. VIVO highlighted two factors that are depressing ARPU in Brazil. One is the right sizing by postpaid subscribers, subscribers moving to lower end packages and reducing the spending.

The second is, corporate clients, in particular, are bypassing on calling costs by bypassing fixed to mobile with cheaper mobile to mobile interfaces. First, how much are you -- how big of an impact is this having in Brazil in your view and how concerned are you? We could see the same trends start to take place in the rest of the region, particularly in Mexico, and to what extent, maybe, are you seeing this happen in the rest of the region already?

Well, I think you are going to see that all around the world, no. Everybody is trying to be in the package and in the postpaid plan that is convenient for him. So, if they have a high postpaid rent and they are not using all the minutes, but reduce, I think, in my view, I do not know anything about VIVO, but, in my view, VIVO has that problem because I think they have more postpaid customers than us. But, the trend is that, yes, all the postpaid customers, all the corporate customers are starting to accommodate in all the places in Latin America to have a better rate and a better plan and to be more competitive and more efficient, okay, and, as you said, it is like bypassing the fix because we have -- I think this is happening all around the world. As you have more wireless customers, then wireless will go more to wireless instead of calling fixed to wireless, or wireless to fixed. So, as you have more numbers of wireless subscribers, then it is going to happen. So, it is something that is happening all around the world.

Generally speaking, how is you postpaid ARPUs holding up throughout the region?

I think we are happy with that. We are, in Mexico, we have good corporate customers, we have good postpaid customers, massive postpaid customers and in some places we are giving them more minutes. We are trying to accommodate them before they call us and want to accommodate themselves, okay.

Okay, just a question on your cash flow. Obviously, your cash flow appears very strong for the quarter, but you had a big increase in accounts payable. Can you just -- would you expect that to be reversed going forward, and can you describe what happened in that particular line of your balance sheet?

Yes, Charles, on accounts payable, it is essentially what we have mentioned before regarding [indiscernible] I mean payment terms, that the vendors that are doing the network business [indiscernible] for essentially under the terms of those agreements, we are really not obliged to make any payment until such time as we take delivery of the network, and since this is a process that takes some time, we have to book at accounts payable the amount that will become due eventually, no. But, that is basically it. It is all associated with the CapEx [indiscernible] of the company.

Would you expect that that will be reversed in the second half one point?

No, I do not think that it will be reversed. I think, if anything, it probably will continue to go up.

Okay, thanks a lot.

It will stay way it is, no, because something is coming due, but other things are coming on that way, no.

Okay, thanks a lot.

[OPERATOR INSTRUCTIONS] Our next question comes from Rizwan Ali. Your line is open. Please state your company name.

The question is regarding your Argentine operations. Obviously, you have been able to add a lot of subscribers. Would you know if your market share of the Argentine market has increased? Second thing is, I just want to confirm if all of these new subscribers are in Buenos Aires or some of them are from the provinces as well?

I think my market share is increasing. I do not know exactly now much, because we do not have the numbers of the other companies, but I hope my market share is increasing, but not all the subscribers are in Buenos Aires. I think we have -- what I told you a few minutes ago is that in Buenos Aires we have very bad quality network and with GSM it is improving our quality. So, I think we have a better coverage and better quality in Buenos Aires, but as we are growing in some of other places in small towns in Argentina, I think we have the chance to increase there. We are increasing our coverage all around Argentina, so it is not only Buenos Aires, but Buenos Aires is very important because we used to have very bad coverage in Buenos Aires and today we are improving a lot.

One last question on Brazil. You mentioned in your press release that the cost related to green field operations have been higher than what you expected. In which aspect of these costs were higher than what you expected?

Well, the green fields, we have to make a lot of work. We have to put in place a big distribution network. We are putting in place a better distribution network. We have to brand our new Claro(ph) brand, we have to market that, we have to spend more money there and we are growing in gross adds more than what our plan was. So, that is why our green fields operation is costing us more money, no.

Thank you, very much.

Our next question comes from Charles Chichester. Your line is open. Please state your company name.

Hi, it is Charles Chichester from Cazenove in London. Just on Brazil, just looking at your share of net adds this quarter. It looks as though this has improved quite a bit compared to the last few quarters. I know we no longer get a net adds split into the various operations, but could you provide a little more detail on where you are being particularly aggressive and what the competition is looking like in those areas?

Could you tell us which area the strong performance has come from, or is it all across the board? Are you able to talk specific about the environment in Sao Paolo on your level of marketing activity there? Thank you.

Well, I think we are growing all around Brazil. We do not have particularly any place where we have been growing more, I think, and we are interested in all Brazil not in only one area of Brazil. So, we are growing all around Brazil.

Why we are increasing more this quarter than the last quarter is because every day we are putting in place better coverage, as I said. We have better quality in GSM and we have better marketing and better distribution. So, that is mainly the reason why we are growing in net adds. I think we have today a better plan for our customers than what we used to have a few months ago. The other thing is we want to grow where it is less than inflation in Brazil there. I think we have more opportunity where you have less penetration than where you have high penetration. So, we are focusing in the places where we have -- where Brazil has less penetration than in the other ones, no.

Okay, thank you. So, looking at the market share of net adds, for example, for this quarter just gone, is that more in line with what you would expect to be doing going forward?

Yes. I think what we want is to be in line with the market, no. Not to lose market share, and I think we are going to be focused on doing that. If Brazil grows, I think we need and we want to grow the same as Brazil, no. As Brazil is growing, as the country is going.

Okay, thanks very much.

Our next question comes from Miguel Garcia. Your line is open. Please state your company name.

Hi, thanks for the follow-up. I have two quick questions. Onei s how many subscribers, more or less, you have already on your green fields operation in Brazil? I know you do not disclose the breakdown, but maybe you can make an exception from the last growth [indiscernible] in Brazil? The second question is about the push-to-talk talk in Mexico. I wanted to know your impression on Uniform's push-to-talk, and when do you expect to launch your own push-to-talk?

Well, I do not have it here, Miguel. I do not have any problem with you calling Jonelle(ph) and she could give it to you, but I do not have it here what we have in Parana and Santa Catarina and Bahia Sequipe.

In the push-to-talk, well we are testing. I know that Uniform has launched already its push-to-talk and maybe Usotel is going to the same, but I think, well, we are competing against an Nextel that has a very good coverage. I do not think that Uniform has an excellent coverage to steal. They need to improve a lot of things, and what we do is we are testing and when we launch our service it is going to be a good service. So, we are going to be very careful on launching a good service on push-to-talk with good coverage, with good quality and with good phones. So, I think those are the three main points that we are being very careful.

Do you maintain your approximate launching date? You mentioned first quarter of 2005?

No, I think it is going to be -- well, you are going to see a big and whole push-to-talk strategy in the first quarter of 2005, but I think we can launch a little bit earlier testing on some customers and some distribution with that. So, we are going to do it slowly, but in a very good shape. We want to be in good shape on push-to-talk.

Okay, and how long do you expect to wait to launch it in other countries?

We are starting to work in all the other countries. So, maybe, it is going to be, depending on where we launch and when launch in Mexico, then maybe it is going to be one or two or three months later to launch in the other countries.

Okay, thanks.

Our next question comes from Jeff Noble. Your line is open. Please state your company name.

Hi, it is Jeff Noble from DBVA, a couple of questions. I just want to know if you could flush out a little bit the increase in CapEx that you referred to at the beginning, just if there is any bias on any particular country? That would be the first question. Second of all, I just wanted to know -- you mentioned that there is interest in the spectrum auction in -- is you eye -- I just wondered if you are still in conversations with the band A operator there for working something out with them possibly? That is it.

No, we are not in talks with the band A operations today, and that is why we are looking to see the auction in [indiscernible]. So, today, we are not talking anything with the Pelemis(ph) operation.

The other question is about the CapEx, well, the CapEx is increasing because we are growing around 6 million customers in the first six months of the year. So, it is higher than what we expect and the minutes of use all around Latin America or are staying or are growing, okay. So, that means that you need more capacity and it is exactly what we are going do - to put more capacity in all the operations that need more capacity.

Is there anything that has surprised you in the last few months? Any usage that is particularly higher? I mean, subscriber growth in Argentina, you have obviously talked about. If there is one country that you said you have to put much more in than you had previously thought. Is there any color you can provide on that, or it is pretty much more CapEx, more coverage across the board throughout all of your assets?

No, I do not think that we have any countries, but maybe in Mexico and Brazil that are the two big countries. I think we are, not surprising, but Mexico is growing on the MOU, so, every subscriber. We are growing more in subscribers and every subscriber is talking more. So, that is why we will have to put more capacity, no, and we are happy to have that, no?

Sure, one last. Do you have a net debt target for year end 2004?

No, I do not have a net add target.

Okay, thanks very much.

[OPERATOR INSTRUCTIONS] Our next question comes from Maria Tonado. Your line is open.

Hi, just to follow-up on the spectrum in Mexico. How much should we assume on top of the $2b CapEx you are going to be spending? Is $200 - $300 enough for a spectrum in Mexico and Brazil, or--

Yes. I think the way it is going to be in Mexico is that you are going to auction for that and then you have to pay an amount of money for each region year by year, okay. So--

Not all up front?

Upfront is not going to be so much, I think. What you have to pay is going to be around the 20 years that is going to be the option. It is what the rules more or less are saying. So, there is already a price that you have to pay per megahertz per region. So, I think that is going to be- -everybody is going to take that price, plus what you want to pay up front in the auction. So, I do not think in front is going to be a big amount of money.

Would it be possible to send a release with the new CapEx guidance, with the updated CapEx guidance and the breakdown?

We do not have it still, but you can say, more or less, that it is going to be around $2b dollars. It is around $1.4b, or $1.450b, plus around $500m - $550m more that we are including that. We still do not know if we are going to finalize everything on December, but it is what we want to put in the second half of the year.

So, it will be $2b plus the spectrum?

It is more or less $2b plus the spectrum.

Okay, I just wanted to make sure that everybody gets the information at the same time. If you send a press release with the new guidance, it will be much better for everyone.

Okay.

Okay.

Thank you.

Thank you, and at this time I have no further questions.

Okay.

Well, thank you all very much for participating in the second quarter call. Thank you, Daniel. Thank you, Carlos. We will disconnect right now. Thanks again.

Thank you, Patrick, and thank you everybody. Bye, bye.