America Movil SAB de CV (AMX) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the America Movil third quarter 2004 earnings results conference call. [OPERATOR INSTRUCTIONS] As a reminder, today’s conference is being recorded on Tuesday, October 26, 2004. I would now turn the conference over Mr. Jean-Charles Lemardeley, Senior Latin American Telecommunications analyst for JP Morgan. Please go ahead.

Hi, good morning. It’s Jean-Charles Lemardeley. On behalf of JP Morgan, I would like to thank you for participating in the call this morning. Joining us from Mexico City are Mr Daniel Hajj and Mr Carlos Garcia Moreno, who are respectively CEO and CFO of America Movil. Daniel, please go ahead.

Thank you everybody for joining us to this conference call. I’m going to pass to Carlos. He’s going to make a quick summary of third quarter results.

Thank you Daniel. Thank you Jean-Charles. Good morning everyone. Well, we have had a third quarter that was characterized by strong subscriber growth very much across the board. We had various operations presenting their best performance so far this year in terms of net additions. That would include, among others, Mexico and Argentina and Colombia. Again, with the strongest showing in the year.

America Movil as a whole had its strongest quarter this quarter, and the number of subscriber additions that the Company managed to have was significantly above the market consensus estimates. It was roughly 30% higher than the market consensus has been putting.

The second thing that is very important to mention regarding the third quarter numbers, is that we had also a very strong top line growth, also very much across the board. America Movil’s consolidated revenues rose by 8.7% quarter-over-quarter, and if you were to look at each one of the individual figures, practically everyone, probably Mexico was the only exception, that quarter-on-quarter growth was between 10 and 20% in this quarter. Argentina was the only exception, because they had nearly 31% revenue growth quarter-over-quarter.

So again, a strong top line growth and against very much diversified in terms of [indiscernible] whole of the operations had a [indiscernible] quarter-on-quarter revenue growth.

A few things to highlight is that -- by the way, the revenues were also above consensus estimate. The [indiscernible] profits 7% above the consensus estimate.

As regards the EBITDA, EBITDA the Company ended this quarter with 10.9b pesos which represented a margin of 32.4%. This means that through September in the first nine months of the year, total EBITDA generated by America Movil has added up to 31.4b pesos. The EBITDA numbers of America Movil were in line with the market consensus where they were about 1% higher than the market consensus. So, the important thing is that we have managed to keep our EBITDA targets and, at the same time, deliver significantly higher subscriber and revenue growth as the market was counting on.

Regarding the cash generation, what we have is we had a quarter in which, on the one hand, we completed the acquisition of Enitel. So, we have to reimburse the amount associated with that purchase. On the other hand, we increased the amount of CapEx, spent CapEx, and that meant that we had, at the end of the day, less to give back the market roughly 3.1b pesos in the quarter by way of share buy-backs and the payment of dividends. This is an amount that is not very different to the one that we have had in the previous two quarters. It is roughly for the first 3 quarters, the total amount of dividends and share buy-back have amounted to 10.5b pesos. 10.5b pesos, which roughly one-third -- a little bit less than one-third, was seen or was registered in the third quarter alone.

I’d say that in terms of net income, the Company had a very good quarter. We had a net income of 10.2b pesos, which has brought the total amount for the year to date to September to 14.6b pesos. Here, again, the earnings per share were significantly higher than the market consensus where we have about twice as much as the market consensus in terms of earnings per share. So, these earnings per share, on the one hand, are a reflection what were good operating results but, on the other hand, they also show some financial -- some gains that were accrued on CapEx gain and which [shocked] the Company’s net financial income out of total net financial costs in the third quarter.

So, all in all, I think that these are the important things that we wanted to present to you today and Jean-Charles I think that may be we can open it now for questions.

Okay, thank you very much. I’ll start with a first couple of questions. First, I’d like you to discuss what the potential changes to your inter-connection rules, both in Mexico and Brazil and Mexico on the potential for reduction of a nationwide calling party pays and Brazil for potential move to a full bill and keep regime. First of all, can you give us an update on the status of those special changes, and second what do you see as the impact for you and the risks and opportunities arising from this? Thanks a lot.

Thank you, Jean-Charles. Let’s start with Mexico. I think the calling party pays nationwide is still under discussions. It’s still the long distance companies with the big standard cellular. So its costing, other issues. Still some issues that we need to discuss with Copatel. So I can tell you that today there is nothing close, nothing done, and we feel that it’s not -- we are not going to have anything this year. I think so. I don’t -- I can’t assure you anything, but I don’t think this year we're going to have something.

The impact is going to be depending on the conditions and the way we agree with the fixed and the long distance company. So, that’s going to be the -- depending on the conditions and the rules, then it’s going to depend what’s going to be the impact for the wholesale in Mexico. So, I need -- we need to wait a little bit more to see what are going to be the conditions and the final conditions for this new interconnection for Mexico.

On the full bill and keep in Brazil, moving to Brazil, it’s also under discussions. We feel that it’s more transparent to do it the way we do it today. That is, bill and keep on -- with some limits, 45/55. So, the full bill -- we don’t like the full bill and keep because we feel that it’s a lot more transparent to do it the way we do it today. So, we are still discussing that with Anatel, and they said that also the first quarter of next year that they are going to take a decision. But that’s the way things are going today.

And what would be your biggest concern in both cases, both in the case of Mexico and in the case of Brazil? What would be the most negative aspects potentially for you?

Well, in Mexico, it’s going to depend on the way we do the nationwide calling party paid. Depending on the prices, depending on the way you dial, depending with the long distance company. So, I think for the cellular companies it would be good, the nationwide calling party pay. What we need to finalize the way we do it. We still are under discussions. So it’s too soon to tell you what are going to be the impact.

And on Brazil it’s the way you -- for me it’s more transparent because to do a full bill and keep maybe it’s not going to be so transparent. Maybe you’re going to receive some calls that are not from a cellular that came from a fixed. So, I think the way we do it today, for me, I’m more comfortable on that, and that’s the way they give us the concessions. So, that’s something that we are telling Anatel.

Now you -- recall inside Brazil with some rules and everybody has to agree the way you changes because if not, well, you give a concession and you are changing the rules 2 years later. So, that’s what we’re discussing with them.

We don’t feel comfortable with the full bill and keep. Not because it’s going to be a negative impact. It’s because it’s more transparent. So, we don’t want to have calls that came from other -- you can make less profit if -- or less -- it’s more transparent to do it the way we do it today.

Okay, thank you, very much. Operator, we’re ready to open for Q&A.

[OPERATOR INSTRUCTIONS] Mr. Lemardeley, I am pleased to announce our first question comes from the line of Mr. Patrick Grenham of Smith Barney Citigroup. Please go ahead.

Good morning. Could you just give us an idea now of how many subscribers you think you’ll have at year end in Brazil, in Mexico and in Argentina? I suppose more especially in Brazil and Argentina are the key.

Second question is we saw a slight drop back in the MOUs, although the ARPUs picked up in Mexico. What’s causing the drop in the MOUs and the increase in the ARPU? Is there some shift going on in the usage there?

And I suppose my last question is your CapEx budget for 2005? Are you giving guidance on that yet?

The first question on the subscribers, Patrick. Good morning. The first question on the subscribers is, well, we hope that in Brazil we’re going to have around, well, to be conservative, 1 million more subscribers, a little bit more, 1.2 million subscribers October, November and December. Depending on the way and the competitiveness of Brazil, it’s going to be the growth. I think it’s going to depend the prices of the handsets and the subsidies. It's going to depend the growth. So, my feeling is around 1 million to 1.2 million subscribers in Brazil in the fourth quarter.

In Argentina, I hope would be more than what we have today. It would be around -- you know that in Argentina we have Mother’s Day in October. So, Mother’s Day in October, plus Christmas, it’s going to be maybe 50% more than what we have today, maybe 750,000 to 800,000 subscribers, new subscribers, in the quarter.

And in Mexico, it would be around 1.5 million subscribers. It’s more or less what we’re expecting in this fourth quarter for Mexico, Brazil and Argentina.

On the MOU in Mexico, I think we’re starting to put more postpaid subscribers. This quarter, we have a lot more subscribers than what we have last quarter. Postpaid subscribers, we have maybe double of what we have last quarter and so that maybe reduce a little bit the MOU today, but I think it’s going to increase soon. So, it’s because the growth that we’re having, this growth third quarter is also huge. So, that’s why - I think that’s the only reason why we are having less MOUs than what we have the last quarter.

And what was the last question?

The higher ARPU and the low MOU. So, while the MOU dropped, the ARPU went up. It seems as if you’re getting higher revenues per minute in the quarter.

I think the MOUs, as I told you, is because the growth and the ARPU is because we’re changing a little bit the mix. Its been a little bit more postpaid. In terms of share, you have more postpaid this quarter than what you have last quarter. It’s the reason why we have more ARPU and less MOU.

Okay.

But, [inaudible] the MOU, you’re going to - well, the next quarter is going to be huge also, but I think the next -- in the beginning of 2005, you’re going to see good impacts on MOU.

You’re not seeing any pressure on handset prices in Brazil or in Argentina yet, are you? Are we still expecting the fourth quarter to have pretty steady -- to be steady in terms of handset prices?

Well, in Brazil, in October we don’t see more pressure on that. But remember November and December, I hope we don’t have more than what we have. But it’s Christmas, so, it’s going to depend on the competitiveness in the market. I don’t think we’re going to have more pressure than what we have today. My feeling is that we don’t feel -- we’re not going to have our pressure.

Okay, alright. Thank you.

Thank you. Our next question comes from the line of Vera Rossi of Morgan Stanley. Please go ahead, your line is open.

Hi, this is Vera Rossi from Morgan Stanley. Hi, Daniel. Hi, Carlos.

Hi there.

So, I have a question on Brazil. You mentioned that you expect between 1 and 1.2 million net adds in the fourth quarter. This is, as I said, a conservative estimate. Where do you expect to see the margins in the fourth quarter assuming this level of net additions and where do you see the trends in the subscriber acquisition cost in these last 3 months of the year?

And then my last question is on the new license you bought in Brazil, Minas Gerais Do you expect to build out in the State of Minas Gerais, or you will still make this decision later, not at this point? Thank you.

Well, I’m going to answer you the last question. In Minas Gerais, perhaps, we are today reviewing with all the vendors and making the option to put the infrastructure there. So, I do not know exactly when we’re going to finish. Maybe its going to be in the final of November, the beginning of December. But we expect to finalize this year and start putting the infrastructure at the beginning of next year. So, that’s what we’re expecting on Minas Gerais.

On Brazil, as I told you, we will have 1.2 million or more, but it’s going to depend on the prices of the handsets. It’s going to depend on the subsidies of the handsets. So, it’s going to depend how the market in Brazil behaves. Today, in October, we see a moderation of markets in Brazil. But, as you know, we never -- it’s very difficult to make predictions for November and December, because the 30 or 40% of the sales in Brazil are going to be on those months. But, if competitiveness gains higher, so I think we’re going to have more than 1.2 million subscribers. If not, then we’re going to have around 1.2, 1.3 million subscribers. So, that’s what we’re expecting, okay. But, if there’s more pressure there, then we can go up to 1.5 million subscribers. So, it’s depending on that.

And the other question?

On margins, well, I think if net adds in the last quarter, as Daniel thinks, 41.2 million then we would have an EBITDA margin that would give you that solution in second quarter. So we have more or less the same kind of net adds. However, if we ended up having a stronger subscriber growth, it could very well be that we would end up having negative EBITDA margins in Brazil in the last quarter. So, that’s something that we shouldn’t expect to have as a possibility.

But better -- also to answer your other question on Brazil is, I think we’re doing an excellent all around this year. We are putting lot more cities on GSM. We have lot more coverage. We have a better brand. We already consolidate all the companies that we had. So, the distribution network that we have is growing. So, I think we’re doing day to day work in Brazil, and I hope that we’re going to see the results of everything that we’re doing today for next year. So, it’s what I’m expecting, and I hope we have in the next year. You’re going to see -- depending also on the growth of next year, but what you are seeing today is that the revenue on Brazil is growing. So, as we’re growing on subscribers, we’re also growing on revenue and that’s excellent for us.

And where do you see margins, assuming a more normal life, a rate of growth next year, Daniel, where do you see EBITDA margins going in '05 and '06?

In '05, Vera, I think that we see them in the 10, probably near teens, level, and in '06 we were expecting that towards the end of the year they should be at a cruising speed would be consistent with a 30% ratio. Not that that will be the average over all the year. But I think that we will be at a cruising speed consistent with a 30% EBITDA margin [indiscernible]. And I think it's going to be more around 10 next year than 15 there because remember that we're also, as you said, Minas Gerais, we are starting off also Minas Gerais. So, that's something that is going to cost us a little bit of money. So, that's the reason why we're expecting 10%, something like that, for next year.

Okay, thank you.

Thank you, Vera.

Thank you. Continuing on, our next question comes from the line of Whitney Johnson of Merrill Lynch. Your line is open.

Thank you, 3 questions. First of all, can you talk a little bit about the billing issues in Brazil and just give us more color on those and help us understand if maybe that's why the pre-SAC EBITDA margin in Brazil is actually lower than last quarter if you strip out the gross adds? That's question number 1.

Question number 2 is in Mexico. You actually had the same number of net adds this quarter as you did last quarter and yet we did see MOU come down. If you can talk to us about the dynamic -- the difference in dynamics this quarter versus last quarter which would explain why the MOU is down?

And then the third question is just with regard to Megatel and Enitel if you could tell us what kind of subscribers those added as well as revenue and EBITDA so we can get a sense for year-on-year comps for the other Central American subsidiaries.

It's a lot of questions. Why don't we start -- the first one is Brazil. What was the first question on Brazil?

That was with regard to the billing issues. There's been a lot of talk about the fact there is some billing issues in Brazil. I wanted to understand the nature of those issues and if, perhaps, those aren't putting pressure on margins?

Well, the billing issue that -- we have a billing issue for this year. It's been more -- what is happening is that we have problems maybe on May/June and we've started to bill and send the bills more closely because we have around 2 months that we have problems with the billing system. I think everything is already done and the problems that you -- it's not with all the billing system. It’s only with very small part of the GSM, everything that we have on TBNA, and a big part of the GSM doesn't have any problem on this. So, it's a small part of the GSM subscribers that the problem that we have is with some cycles of the GSM, and I think still it's already in process to be solved everything. The problem on the billing is already solved, but we’re still sending some invoices that are being close, 2 invoices in one month. So, I think in November we're going to finalize everything and we're going to be on the normal calendar, on the normal condition. So, that's something that what we have, but it's already solved.

Daniel, can you just give me--

By the way, Whitney, because of those kinds of problems and also because we're growing very, very fast and that we want to be very conservative, we've created this month reserves for weeks -- in created reserves for possible collection problems, and that essentially cost us something like 3.6% of EBITDA. So, if you look at the Brazilian operation, before this creation with reserves, we would have had an EBITDA margin that would have been 3.6 times -- 3.6 points higher than the one that is seen created today in this [indiscernible].

Daniel and Carlos, can you just explain exactly what the billing problems were? Were you having trouble getting to the customer or you were sending out too many bills, or what? Was it a system problem?

The problem that you have is that when you put the new billing system on GSM, it has some problems in printing the -- let us say, printing and sending the bill. So, that's really the problems that we have there and it was too slowly. So, we increased its capacity. We increased the speed. We increased everything and that was really the issue that we have on the billing system.

Okay, got it. And so, Carlos, your view is that if you back out this reserve that was related to those -- the billing as well, it's just the fact that you're growing so quickly, the pre-SAC EBITDA margin would be higher this quarter than last quarter?

Right, with the pre or the after SAC EBITDA margin?

The pre-SAC. The pre --

[Indiscernible].

Yes, okay. Now, the next question was with regard to Mexico.

In Mexico, Whitney, as Daniel was pointing out, I think growth has been very strong and as you -- the third quarter was some parts higher in terms of minutes than second quarter. But even second quarter, remember, as you say, there was a large dip in times in which people come in, new subscribers at this point I think generates normal traffic levels. So, it just has that many of the people that came in in the second quarter are still -- they haven't -- they aren't generating the average level of traffic yet.

Okay.

But we are seeing good things in Mexico in various occasions and we are seeing that in Brazil. There is always revenues tends to catch up with [indiscernible].

Okay, and then the last question was just on Central America and how much Megatel and Enitel contributed given that they were newly consolidated this quarter?

[Indiscernible] Honduras and [indiscernible]?

Yes.

Well, you know that Honduras is a new company. Well, it's still a -- no, it's not a start-up, but we don't have -- we have a 5 to 10% EBITDA number, and on Enitel we have around 20% EBITDA numbers. So, that's more or less what we were having in those companies.

Okay, and what was the revenue for each of those?

The revenue on Enitel is around 12 to US$13m per month.

Okay.

And on Honduras, it's around US$4m per month.

Okay, perfect. Thank you very much.

Thank you. Our next question comes from the line of Rizwan Ali from Bear Stearns. Please go ahead, your line is open.

Okay, thank you. My question was regarding potential joint venture, but having a bundle product with Embratel. Tell us when and what kind of product or services you're thinking of offering? And the second question was about the Mexican spectrum auctions. There's a rather long list of potential bidders for the spectrum and I'm wondering if you were surprised at some of the names, such as AT&T Wireless off-spreading the options?

Well, in Embratel, we're working to see the synergies, but remember that Embratel is Telmex and we are America Movil. So, we're working on seeing how we can -- what things we can do together and what's convenient for America Movil and what’s convenient for Embratel. That's the only thing that I can tell you today. We're advancing. They are making some things for us like make the call centers and the links. They're going to carry our long distance. So, there's things that we can do together and we are doing, but remember that they are 2 companies, separate companies, and we have to be -- and it has to be business for them and there has to be business for us also.

And on the Mexican options, I think that the real competitors are going to be Telefonica, Nextel, Lilsoltel(ph) or [indiscernible]. I don’t think AT&T is really interested. I'm not so sure, but I don't think that they are going to really compete. Maybe they are inside to check everything and to check the rules and to see everything, but at the end of the day I don’t think they are really interested in competing in Mexico.

I don't know if -- is there something -- no, I -- and on the auctions, I think they're going to be around January, middle of January, end of January, is when we're going to have the auctions in Mexico.

Okay, thank you very much.

Continuing on, our next question comes from the line of Andrew Campbell of CSFB. Please go ahead, sir.

My question is related to your income taxes, which were quite low again in the quarter, and you pretty consistently have taxes that are well below the statutory rates. And I was wondering if there was anything in particular in the third quarter that caused the rate to be as low as it was and if you can give us any help on where we should expect that rate to be going forward?

Hi, Andrew. Well, the -- I don’t know if it's anything, in particular, that's mentioned about tax in the third quarter. I think that -- you have to keep in mind that in Mexico we cannot consolidate for tax purposes the losses that we can generate elsewhere. It generally will be the case that we extend -- we develop operating losses in non-Mexican operations. The statutory -- I mean, the effective tax rate seems to be increasing whereas in the non-Mexican operations we see an improvement in the before tax position. Then the tax -- the effective tax rate we see -- will appear to be decreasing. So, I think that, very often, movements in the effective tax rates for the quarter may reflect the changes in pre-tax results in Mexican pesos denominated operations. So, that's something we just generally to keep in mind. But there isn't anything in particular to say about the third quarter.

Okay, thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from the line of Miguel Garcia of Bear Stearns. Please go ahead, sir.

Thank you. My question is regarding again the billing problems in Brazil. I understand you have special provisions in this third quarter. Now, what I'm afraid of is that I'm not sure if you guys are considering the possibility that politically it's going to be hard to chart what you're due, right. I understand you've even charged processing usage in the past and I don't know how easy it's going to be to tell these people and the regulators that you want to charge for things that you use for usage than in July and August. So, I wanted to have sense of how much is the total revenue involved? Is it a significant percentage of the total revenue in Brazil?

And the second question is about the CapEx for ‘05 and ‘06. I wanted to know if there's any update, if there's any chance from the last time on guidance considering now Minas Gerais and all those?

As I told you on the billing problem, it was July and August and from the regulator there's not a law that they don't permit that you can send the billing, but we're not in that position. We don't want to do. As I told you, it's a small part of the billing process. It's not on prepay. It's not on TDMA. It's not on all the cycles of GSM. So, it's was, because today it's already solved, on 2 or 3 cycles there. So, it's not a big -- it's not a big percentage of our revenues, our subscribers, and that's why we're putting a provision because if we don't charge we don’t recover that money, then that's the provision already done in the results, no. That's what we're doing today.

And the other question, what you told me?

CapEx guidance for the next 2 years.

Something that I want to be very clear is that this issue is already done. It used to be on the past and with a small part of the subscribers. Today, everything is on a good speed. Everything is done, okay.

And the forecast for the CapEx, I don't think we have any change. We have around US$2b for next year, and it's nothing to lose Minas Gerais. We are, today, discussing with the vendors the timing, the prices and everything, and we still revealing with all the Company. So, maybe it's going to be around US$2b including -- or US$2b, a little bit more, including Minas Gerais, because we don't know exactly the numbers. So, we have a rough idea, but we don't have exactly the numbers for Mexico, for the rest of that field, for Argentina. So, we're still in the revision of that CapEx.

Thanks very much. Thank you very much.

Thank you. Continuing on, our next question comes from the line of Charles Chichester of Cazenove. Please go ahead, your line is open.

Hi, it's Charles Chichester from Cazenove. Just in terms of your customer mix in Brazil, which you did mention earlier on. During the call you said 23% of your net adds were postpaid, which is definitely an improvement on previous quarters. I'm wondering if you can tell us whether that is only a reflection of the less active quarter in terms of promotional activity and subscriber adds, and if that is the case are we to expect the Christmas quarter to increase much in favor of the prepaid base again as you chase customers? I'm just trying to get an idea of which direction ARPU's heading in, thanks.

Well, I think our good promotions in the postpaid last quarter, but also I think it's helping us that Mexico is being, in the economic side, is being a little bit better for us. So, that's why we have a little bit more of postpaid and it's improving, the postpaid in Mexico, than what we had last quarter.

Looking forward to Brazil?

You were referring to Brazil or to Mexico?

To Brazil.

To Brazil, sorry. But what I'm telling you on Mexico. In Mexico that's we're having difference in Mexico. We're also having more postpaid customers than what we had last quarter. So, it's promotions and its economic side.

In Brazil, we're also having a good postpaid base. We're increasing, and that's because by the end we're having a better distribution and we're profiting(ph) a lot of the postpaid side. That's mainly what we're having, with corporate customers and good distribution for the postpaid market. That's why we're increasing the postpaid base.

And so what about in terms of ARPU? And also, just following on that, if you've got this focus on corporate customer, presumably that's in the São Paulo region. Are you able to tell us who you feel the most competition is coming in that area?

I don't think we're only focusing on São Paulo. I think we're focusing on São Paulo, but all in the other regions on the corporate side, and as we're having more coverage also in GSM, it's helping us to have more postpaid customers. So, that's also a good reason why our postpaid customers are also growing more in this quarter. More coverage, more cities, so we're having more customers.

Okay, thanks very much.

Thank you. Our next question comes from the line of Katie Blackrock of Themes(ph) River Capital. Please go ahead.

Hello, I was just wondering, if in November and December we see a very aggressive market in Brazil, more aggressive than in the second quarter, would you be prepared to see your market share slip in order to protect EBITDA, or is your real priority to maintain your market share where it is currently?

Well, we -- if market is more competitive and we feel that it's -- the numbers make sense to be more competitive, we're going to be more competitive. So, that's the way we would think. So, if the market goes to big subsidies and we don't feel that's it’s -- that we're going to make money on there, then we're not going to follow the market. But if the market gets more aggressive and we feel that we still have room to make money there, we're going to do it. So, that's mainly what -- the way we work.

Are you able to quantify that at all, just in terms of where that inflection point is?

We don’t have it right now, but we have really an analysis and a formal way we do it and the price of handset, which handset we can subsidy more. There's a lot of things that you have to analyze to decide on what price you are going to reduce and the subsidy that you are going to do.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of Jose Ortero(ph), Signal Telecom Consulting. Please go ahead.

Yes, I have a question because I was looking at your different churn rates. For me, they look terribly low. So, what is the type of accounting that you do to disconnect customers? What is the methodology that you have to be disconnecting people in most of your prepay account and no longer using your services? Because some of these churn figures are even better than Nextel? And the other question is what are your subscriber acquisitions costing you in your different operations, because I would be very interested if your [goal] is profitable or not?

Well, I don't think we disclosed the subscribers -- the acquisition in any of our companies. So, I don't think that we disclosed anything there. But -- and the other side -- the calendar that we use, the way that we disconnect subscribers is the same way we disconnect subscribers 2 years ago, we don't have any change there, and we're always following the same strategy and the same calendar that we used to do for maybe 2 or 3 years. And every time that we buy a company or that we take a company we put the same calendar that we have all around America Movil. So, that's the way we do it. So, you are not going to see any change on the way we disconnect subscribers.

And the subscriber acquisition, well, sorry, but that's something that we don't disclose country by country.

Okay. So, what is the calendar that you've been using for the last 2 or 3 years? Could you explain that?

If you want, I can send it to you because its not ready. But -- overall it's -- you use it for 2 months then you have 4 months to receive calls, and if you don't receive calls, then you are disconnected. So, more or less, it's what we have on the cards. If you want to talk to Lionel and Lionel can give you exactly the way we have the calendar.

Okay, thanks.

Thank you.

Thank you. Our next question, gentlemen, is from the line of Jason Hepner of Standard Life Investments. Please go ahead, your line is open.

Hi, Jason Hepner here. Good morning, gentlemen. Congratulations on an excellent set of results. I have a question which relates to Brazilian ARPU and this is the following. Your increase in ARPU seems to be -- your ARPU seems to be going in a different direction from that of your main competitors in Brazil. Having talks recently, my understanding is that ARPU is still on a declining trend, generally speaking. So, I'm interested in your views of what's happening to ARPU nationwide, and why it seems that you have been able to increase ARPU in Brazil in the quarter while everyone else admits that ARPU is still declining for them? Thanks.

Well, I [indiscernible] everybody get out -- put their third quarter results. Certainly, everybody was more in the same direction for the second quarter. But, subscriber growth was somewhat slow in the third quarter than in the second, as you can see [indiscernible]. But is very strong in Brazil, and I think that in our case, and that may be different from our competitors. We're seeing better growth in the postpaid sector, which is what Daniel has referring to. Just to give you an idea, quarter-over-quarter, postpaid subscribers increased by nearly 10% as opposed to prepay which increased by 7.5%. So, we are seeing a change in the mix, in the blend of subscribers that we have and that should result in a greater ARPU overlooking [indiscernible].

Okay, and is this increase in postpaid subscribers, do you believe that that is a trend that we're seeing the nationwide statistics, or is that something that just Claro is enjoying just now?

I think that we have been gaining market share in the postpaid market.

Okay, thank you.

Thank you. May I continue with our next question? We now have a question with the line of Jose Lemeras of Deutsche IXE. Please go ahead.

Yes, good morning. I wanted to know if you could give me guidance on next year margins, and also plans for the uses of cash? If you're going to increase buy backs and dividends? Thank you.

The margin for next year, well, it's going to depend a lot on the subscribers, but we're still finalizing our budget for next year. So, I think maybe in a couple of days we can tell you a little bit more about that. And we have a share buy back policy and I think we're going to have it the same way we're doing this year we're going to do for next year.

On terms of the dividend, well, I don't know what our Board is going to decide next year, but I hope that it would be a little bit higher than what we have each year, and in share buy backs, well it depends on also the price of the shares and depends on a lot of things. But the policy that we have is more or less what -- to do the same as we do this year.

And what is the limit? What is the limit for buy backs you have now?

I don't remember, but still we have a lot room to do buy backs.

We have nearly 10 billion pesos. It's not a limit, but what happened noticeably in the past, [indiscernible] which we're told the limit we just request an extension of this limit and we've always got it.

Okay, thank you.

Thank you. Our next question comes from the line of Jeff Noble of BBA. Please proceed with your question.

Hi, good morning, just one question. SG&A went up quite a bit more than subscribers or revenues went up and I would imagine that a lot of it has to do with higher commercial activities, selling expenses. Given that there is no breakdown, can you add some comment to exactly what went on with SG&A that might be beyond the higher commercial activity selling expenses?

Well, remember that it's commissions, no? In the SG&A, you have commissions and also you have all the extending expenses, advertising and everything. So, it's -- really it's a lot related to the sales that we have. So, it's more or less -- it's a lot -- it's really related to the acquisition cost that we have on the Company.

There is nothing beyond what may have happened in the second quarter? You know that the 19% increase Q on Q, versus an increase of 8% in subscribers basically all related to selling, nothing extraordinary in there?

Nothing. Nothing extraordinary here.

Okay, great. Thanks.

Thank you.

Thank you. Gentlemen, we now have a follow-up question from the line of Patrick Grenham of Smith Barney Citigroup. Please go ahead.

Hi, good morning. Could you just talk again about the 2 billion of CapEx you're talking about? Do you have a rough breakdown of how that will be by country? And what do you think the '06 CapEx will be? Will it stay at that sort of US$2b level, or do you think it could start to fall back a little bit? Thanks.

Well, as Daniel was mentioned, we are in the process right now of preparing the budget for next year, so we don't have the definitive answers yet. But, nevertheless, I think that it is likely that we will have something pretty similar to what we will have this year, which would mean roughly US$800 million in Mexico, more or less the same amount in Brazil, possible before Minas, and then we will have probably US$150m or so in Argentina, and the US I think we would need to what some time there so that I can you give you more fine numbers here.

Okay. Great.

I think Carlos is going a little bit up on Argentina -- on Brazil, and on Mexico. I think it will be around US$750m in Mexico, more or less, and US$650m or US$700m on Brazil. So, the rest would be Argentina, Colombia, [indiscernible] Central America, plus Minas that we were just talking about.

Is this going to be the run-rate of which we're going to do CapEx for the long term, or do you think -- is this -- I know the question is are these exceptional levels of CapEx or should we just get accustomed to $2b a year?

Patrick, I think the issue is that even the growth that we are seeing, we have seen -- we're having to take a greater inflow of subscribers on the one hand, and we're seeing for the most part increases in MOUs in the main markets on the other hand. We need to make sure that we have the adequate capacity to banish these greater demands on our network. So, it is the case that the momentum of our subscriber growth is as strong as it is, if it indicates that we continue to see MOUs increase in this market, I think that we should be prepared to have this kind of CapEx levels, certainly before the next couple of years. It is [exempt].

I say that CapEx, is going to be more front loaded than we were expecting because subscriber growth seems to be also more front loaded than what we were expecting. Another important issue is that we already have GSM all around Latin America in all our -- so, it's not a CapEx that we're going to move from TDMA to GSM. It's -- the CapEx is more or less capacity and a little bit more of coverage in each country. So, it's really related to the subscribers, to the traffic and if you're going to see this growth and still we're going to see good growth for the future, then we're going to see these levels of CapEx. You see in the future, the subscribers -- the level of subscribers reduce or MOUs will not grow then, you're going to see the CapEx -- you're going to see a reduction on the CapEx.

And acquisitions? No acquisitions on the horizon, no?

No. No acquisitions, but maybe minority stakes, but not new acquisitions today. We don't expect for this year. We hope for next year, but not for this year.

Okay. Alright, thank you.

Thank you.

Thank you. Our next question comes from the line of Vera Rossi again from Morgan Stanley. Please go ahead, ma'am.

Hi, thank you. I just have a follow-up question on Mexico. When do you expect to launch Push to Talk in Mexico, and if you are also thinking about launching in the other countries in Latin America? Thank you.

Thank you, Vera. We are already testing in Mexico the Push to Talk. It's been -- we're having good testings there. We're correcting some issues, but we have around 2,000 or 3,000 subscribers today in Mexico where -- and I think we're going to see for next year a good launch of Push to Talk around Mexico, and in the other countries we're doing the same. We have 1 month delay. Maybe in other ones 1 and a half or 2 months delay. In some countries, we need some authorizations for the regulatory license, Colombia maybe, or in Ecuador. But I hope next year you're going to see Push to Talk running all over all the countries that we are operating -- in the companies that we operate.

Daniel, you mean beginning of next year or late next year in Mexico?

No, the beginning -- no, in Mexico, beginning of next year, and I think for all the other companies the first quarter of next year all the companies have to be running with Push to Talk.

Okay, thank you.

We have the authorizations now in Colombia, in Ecuador. So--

Thank you

Thank you

Continuing on with our next question. The next question comes from the line of Geraldo Molina with [indiscernible]. Please proceed with your question.

Yes, my question has been answered. Thank you.

Thank you very much. Gentlemen, it appears that there are no further questions at this time. Messieur Lemardeley, I will return the presentation to you to continue or for your concluding remarks.

Okay, Daniel, Carlos, are there any concluding remarks?

No, [indiscernible]. Thank you for holding this conference call. Thank you for everybody for participating.

The same, I thank you everybody for joining us to the conference call.

Thanks a lot.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again and have a great day.