America Movil SAB de CV (AMX) 2004 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the América Móvil's Fourth Quarter 2004 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. To get into the question queue at that time, please press "*" "1". If you require assistance during the call, please press the "*" followed by "0" and a coordinator will assist you. I would now like to turn the presentation over to Ms. Whitney Johnson, Telecom Analyst at Merrill Lynch.

Good afternoon to those of you in Europe and good morning to those of you in Latin America and United States. This is Whitney Johnson from Merrill Lynch and on behalf of Merrill Lynch we are very pleased to be hosting América Móvil's 4Q '04 conference call. Speaking today will be Daniel Hajj, CEO of América Móvil; Carlos Garcia-Moreno, the CFO; and also with us is Paulina Amieva, the IR Manager. Without any further due, I will turn the speaker or the microphone over to Daniel Hajj. Thank you Daniel.

Thank you Whitney. Good morning everybody. I want to thank Merrill Lynch and Whitney because she is hosting this conference call and I am going to pass to Carlos Garcia-Moreno and he is going to make some more summary of the fourth quarter results.

Thank you Daniel and good morning everyone. Well as most of you are familiar with the press release I am going to report, América Móvil got a extraordinarily strong subscriber growth in the fourth quarter. This was the best ever for almost all of the subsidiaries. And this, you know, a year that already seen a sharper federation of subscriber growth. In the fourth quarter, we obtained 7 million reais, 2 million in Mexico, 1.7 in Brazil. 1 each in Colombia and Argentina, 550,000 in the United States, and approximately 360,000 in both Ecuador and Central America. This capital year we would have total of 17.3 million net of supply by additions, which is close to 50% more than the ones that we incorporated in 2003 and for actually 2003 two-thirds of the subscribers that we picked up had been -- came through our acquisitions. In 2004, substantial yield of the growth was organic.

The fourth quarter tends to be already stronger and running in terms of subscriber growth even [inaudible] the 40 days. But in years the proportion of the yields made up that was obtained in the last quarter was unusually high. It was between 40% and 50% in Argentina, Brazil, Colombia, and Ecuador. And even in Mexico, it was fairly close to 40%.

The total year's subscriber growth in perspective. It must be said that both Argentina and Salvador multiply their subscriber base by approximately 2.5 times in 2004. In Columbia, Ecuador, and Guatemala it went up by more than 50%. It went up by nearly 60% in the United States and by 43% in Brazil. And in Mexico, we obtained 5.4 million reais which is more than twice the guidance which I had provided in March a year ago based on our repurchase.

We are quite impressed with our revenue growth. Relative to the third quarter, total revenues rose 16% with consolidated [previous] revenues going up by over 8% including 2.3% in Mexico, 9% in Brazil, this is again quarter-on-quarter, 35% in Argentina, and 11% in Columbia. Compared to recent period of 2003, total revenues rose by 43.3%.

Relative to the [inaudible] consensus for the fourth quarter numbers, which is I think, very important. The number of [made ups] that América Móvil them overlook than in the fourth quarter was 85% higher than the [compared]. And in the case of revenues, the revenue were 12% higher than the compared. Like I have already made it clear EBITDA profit for the year was 42 billion pesos; for the year 10.2 billion of that is in the fourth quarter. And what did we expected; this strong subscriber growth got on in fact on the EBITDA and the income margins to the subscriber acquisition costs.

In Mexico, fourth quarter margins actually were flat relative to same period of 2003 despite the surge in subscribers.

I'd say that from the point of view of the operations these would be the more important to highlight, again very strong subscriber growth. We saw subscriber growth accelerate throughout the year. I guess, the face of expansion really began in the last quarter of '03, but the momentum got stronger as the year went by and these again led us to top the year with a very strong subscriber growth, very strong revenue growth and then lot of momentum going into 2005.

There is few more things that I would just like to highlight in these remarks. One has to go with the -- charges on deferred taxes. All in all, the amount of 2.2 million pesos. And a portion of that is linked operations, it's normal. But an important part of that roughly 2.7 billion or so have to do with transactions that have been in the books for some time. They yield closed in the fourth quarter of the year. Some of them involved with daily yield stock which were affected essentially to raise accounting -- raise accountings. But they also got some certifications as well. So, essentially throughout the year we have had already conceded the effects these transactions would have on the accrued tax payments and that will be [inaudible] so that tax already been reflected in previous quarters. But the deferred taxes resulting from these transactions essentially were all generated in the last quarter and that’s why you see that number. For the most part this deferred tax charges do not entail cash payments. As we got net debt, it remains almost constant in real terms. It went up a little bit and that essentially means that the cash in the company in 2004 was sufficient to cover all of it's coverage for one thing that’s the 2.4 billion pesos. 6.1 billion also in acquisition of the various interest -- various interest, more importantly CTE in El Salvador which was $295 million. But there were other associations of minority, what we acquired 99% of Enitel in Nicaragua. We acquired Megatel, some percent of Megatel in Honduras and there were acquisitions of equity interest in-- it should be in El Salvador [inaudible] part that I mentioned, I am watching my last words. The amount that was mentioned by share buybacks and dividend was 13.5 billion pesos, and thus basically these reasons to be more important elements on the financial side. So, Whitney if it is okay with you, we will have Paulina open the question-and-answer session by now.

Okay. Operator, while you are queuing up for questions, I will -- and I would like to follow up first of all on your comment regarding taxes color and you mentioned the deferred taxes can you talk about now going forward for '05 and '06 to what extent that will help lower how much you have to pay in taxes in next couple of year on this transaction that you just completed? And more specifically what kind of cash tax guidance can you give us for the next two years?

Well, the effect of these transactions was really on the accrued cash taxes for the year '04. They do not have identification for any news [update]. From the point of view of the guidance on the taxes, I think, that the more important thing that you should be focusing on is that the effective tax rate, it is some thing that we have mentioned in previous calls, is very much a function of whether we have any kind of losses in operations about. In Mexico, we cannot consolidate the losses that we have in other countries and that essentially means that we are essentially paying taxes on gross income statement [conflict], but we are not allowed as -- the losses that we may have in other companies to the extend that we expect that the various companies that have been growing faster will eventually be reducing their losses and spending enough profit, and that alone should result in a reduction of what it seemed to be the effective tax rate of América Móvil. And that again is without restoring to any kind of contractions or anything that is contingence. That is simply the way we are going to grow modestly. That really gives the answer.

Okay, and in terms of actual numbers there I mean are you comfortable with this three budgeting 5.5, 6 billion of cash taxes for the next couple of years per peso?

[24 million], I think probably that would be in the quarter.

Okay. Alright and then just one separate question would be with regard to your margins, and as we look across the region, margins can be explained on -- the lower margins can be explained by subscriber growth. Everywhere including -- everywhere except for Brazil and it looks like the subscriber acquisition cost is going up. Can you just talk to us about Brazil and what's putting pressure on margins beyond the growth that we are seeing and in particular maybe contrast with Argentina where you had much stronger growth than expected and yet the margins were better than the expected.

Well, Whitney, what you see in Brazil, that we have a excellent growth in this fourth quarter, but we have been telling all last year and we are still going to do a lot in these areas. We have two -- a new brand that’s Claro, wants to -- we are doing a lot of pricing there. We have good lot of pricing there. That brand is being -- we are having a good image on the brand. We are talking about also on the distribution side and we are growing on the distribution. We are making lot more overheads what we used to have last few years. Every month we are growing on overheads that means that we have to do new distributions, new dealers, new stores in every place and also that the big growth we saw in some subscribers. Also remember that we are having only one -- one year three months with new operations that are Paran Santa Catarina and Bah.a-Sergipe (phonetic). We’re still doing a lot. So that’s really the difference in other regions and Brazil and in also other [contracts and still] and I am happy with the development of Brazil and think that this year you are going to see more stabilized results [inaudible]. We are going to be in Brazil for a long track. So we are going to do the jobs to do various brands distribution and the growth that we have to do. I think in most of the companies we have all the costs under control. So, the things that we are doing are being [inaudible] to do for a long term.

Okay. Let me just ask one final question on that. So, if we look at advertising and you are still building out your distribution network in Brazil and still somewhat in the startup phase in Santa Catarina and some of the other regions. On which quarter of this year or possibly is it next year that you would say that your -- you know the comps will start to get easy? That you are not continuing to increase your spend but in fact you are at the point where you peaked and spend will decrease on these areas where you are still sort of building out whether it’s the brand whether it's your distribution network? Will that happen in third quarter this year or --

Remember that we are going to have another greenfield operations maybe in mid of the year that is going to mean you rise up a new operation that we are going to do best. But what I tell you, Whitney is that you are going to see a improvement in Brazil, I don’t know exactly because it is different to no ones where the comprise of. So it is going to be in terms of prices, in terms of profit, in terms of the growth of Brazil. Personally, I think it's going to be a good this year. So, depending on all of those things it is going to be depend what you are going to see every -- I think, every quarter we need to see increases on that depending again on the new subscribers that we acquire because remember that Brazil has two important seasons that is the Mother's Day that is May, I think, in the second quarter and then December that is Christmas that is in the fourth quarter. Well, all in all I am feeling comfort level with operations in Brazil, we're doing a lot of things. We're consolidating all the companies where are grants from seasons, where we have grants on all the integration. So, I think, you are going to see a good improvement in Brazil this year.

Okay. Thank you, Daniel.

One thing you should know, I think, can be interesting the consensus regarding net additions for Brazil for the last quarter was 1.2 million. We ended up having a bit more than 40% in additions to that consensus and that will have an impact on whatever EBITDA margins [inaudible]. The number of megahertz are significantly larger and that have an indication also in terms of the number of growth factor.

Okay. Alright, thank you. Operator, you can go ahead and open up the queue now.

Ladies and gentleman, if you wish to ask a questions, please, press “*” “1” on your telephone. And our first question Vero Rosky (phonetic) of Morgan Stanley.

Hello, good morning.

[Rosky], how are you doing?

Hi, I have a follow-up question in Brazil and then I have a question on the other operations. In Brazil, how do you see the competitive environment during the first quarter, during the Christmas season versus the other seasons like during Mother's Day and Valentine's Days? And also do you think the competitive environment is becoming more rationale in Brazil? If you see it what happened during Christmas season that most of the companies reduced subsidies for prepaid users? And the second question on Brazil is about the margin, if we consider in '05 a similar level of subscriber net additions that you had in '04, do you still have the guidance you gave was in the previous conference calls that the margins will be -- the EBITDA margins will be between 10% and 15% in Brazil for '05 and then we will grow about 20-25% in '06?

Well in terms of the competition I think in our competition in fourth quarter was more rationale than what we saw on Mother's Day in the second quarter, definitely the prices were a little bit higher and I don't know exactly what there is going to be the reactions on the competitions is depending on lots of things. But what I think everybody is under spending is that Brazil is going to have a good growth in the future and that we don't have to lower so much the prices to grow. So, I think everybody is understanding that and I hope that competitors maintain a more rationale in terms of subsidies and terms of prices. So there is still other things that we need to do on the distribution side, what I think in terms of soft release the competitors are -- therefore in this 2005 I think you are going to see a little bit less growth than 2004 but it's still are very good growth in Brazil. I think that still 2005 and 2006 you are going to see a good rates of growth for this next two years. In the margins, well in the margins, we said between 10 and 15, I think it is going to be a little bit less than 10 and 15 because remember that we are going to do another Greenfield operations that is going to [inaudible]. But I think you are going to see a good improvement on the [retail] for this year, you know.

And for 2006, Daniel if you --

And for 2006, every time we have got more base of subscriber and more consolidating all of the networks that we are having there you are going to see the improvements in the margins. I think Brazil should be I don’t know if it's in 2006 or it's going to be in 2007 but Brazil should be 20's niche or high in terms of it. We used to be there two years ago, so I think we could get there in the future.

Okay. Thank you and my second question is on the other operation. Where do you see net additions in '05 for América Móvil, the whole company and if you can give us like an idea in the major countries like Mexico, Columbia, and Argentina the net additions in '05 versus 2004?

What -- I think it did give us a little bit of time and then we can sense our budget. We did big growth that we are having in fourth quarter I think we're reviewing all the budgets that we used to have and give me may be three weeks and we can give you what's our estimates for this part in the next year.

Okay. Thank you.

And our next question comes from Andrew Campbell of CSFB.

Yes hi, just begin with Brazil, I was wondering how confident are you with current level of track that you are seeing with that the margin of subscribers actually creating values for you, given where the ARPUs are today?

Yes well, I think we are going to do good businesses with those numbers that we are seeing in Brazil. In terms of subsidies, in terms of ARPUs, we are comfortable on that. So the only thing is that we should have the same levels in the future. Not only we have the same levels in the future I am comfortable with that.

Okay, are you willing in the event that things get more competitive are you inclined to stick with the current level of stack or is it a higher priority to really maintain your market share and makes sure that nobody gains on your share?

I think market share is very important I think that it withstands the number of subscribers is going to being important in Brazil, the base of subscribers and even we have more competitors, everything gets -- also the prices in transit, are going down -- everything is going down. So -- well you have to withstand them and you have to really check exactly what are going to be the promotions and what type of promotions you will do. Both as always, we are very careful that everything that we do, we feel that is going to be a profitable in the future.

Okay, thank you very much.

Thank you.

And our next question comes from Rizwan Ali of Bear Stearns.

Good morning. My question was related to Brazil again. You mentioned that you will be starting your operations in [inaudible], have you completely given up on acquisition of [Telemex] and my second question is related to your FX gains during the quarter. You were expecting much higher foreign exchange gains because the inflation, the peso was much stronger against the dollar in the quarter, could you tell us if you are keeping most of your cash outside of Mexico?.

Well in the first question on the [Telemex] you are right we are not having any discussions with nobody today. We acquired the license and we are ready and we are installing an infrastructure there. So, at this time what we are seeing is that we are going to have the operations ready, maybe on June-July to start up everything on that. And on the FX side, Carlos can explain a little bit more in the numbers.

As you know we actually managed our FX position and we have taken to, we have tended to move over to local currency to the extent that the currencies have to shift. So the percentage I would say today of the América Móvil that doesn't expose itself early about that. So law keepers will eventually looked at the underlying debt and underlying that [it is not our ways] that would measure of the [inaudible] exposure that we have.

Okay. And one last thing on [Minesuras] do you plan to have your own network there or are you entering into some kind of arrangement with sharing it with your end powers with existing operators?

Well, the infrastructure, we are going to have our own infrastructure but that is not what we can share a type and we can share towers and everything on that but in terms of the infrastructure we are pretending to have our own infrastructure.

Thank you very much.

Our next question comes from John Vermont (phonetic) of J. P. Morgan.

Hi, good morning. Just one on Mexico and on your ARPU how do you foresee your ARPU evolving in the next few quarters in Mexico and how much you think of headwind the cut to fix termination rates will be for further ARPU expansion?

The ARPUs that we are seeing in Mexico are being -- have being growing for 7.2% and then the [MOU] are growing 16.5% so that means that our subscribers are using mobile phones and that’s their promotions that we are doing has been successful. So I think we -- I hope we are going to be seeing the same strength for this year now trying to improve a little bit more than we will use and to increase them or use them to improve a little bit more there.

I see good response on prepaid side, particularly on that pricing or --

Yes, I think, the prepaid customers have been using more and more of the phone, so if you see in the prepaid type, they are -- the MOU is growing around 13% year-on-year. So, the people that we are taking, the new subscribers that we are having are starting to use the phones and they are starting to call and then time passes and they use more phones. So, we are having good customers.

And the second question is the long-distance Calling Party Pays just to talk on this to create a new business that you do essentially for the mobile operators, which is, you know, getting interconnection traffic from the U.S -- the Mexicans in U.S subsidizing the use of phones in Mexico, and sometimes just worked in Romania doing significant business for the operators now. How much, do you think, of a boost could be to your subscriber growth or ARPU going forward?

I think calling party -- National Calling Party Pays have been successful in other countries. I think maybe it’s going to be successful in this country. But depending a lot on the conditions that you do in the calling party pays, and today I am thinking that in Mexico still we have got a lot of difference between some operators -- long distance operators, local operators, cellular operators. So it is still, I think, we are having lots of discussions. So, I don’t think that Calling Party Pays in the short-term is going to be -- we are going to do it in Mexico. So I feel -- I think still we need to have some more discussions with all the operators, with their regulators, with everybody.

Thank you.

Because in other countries Calling Party Pays has been successful. So I don't -- I think that in Mexico it is not going [inaudible] it is going to be a success for local. Because my [inaudible] and I think it's important not only to have a national long-distance Calling Party Pays, also international long-distance Calling Party Pays. So there is a lot of things that we need to be solved.

And how much of the proceed, do you think that would be, particularly the international side, because with all those Mexicans in U.S. and in Romania, where there is a big diaspora, it's been a big business for the operators there. You know, the calls from abroad for the Romanian diaspora. So just been interesting the changes for you -- just try to quantify the interest?

You know, again it is going to be broadly related to the price asset you have. So depending on the price it's going to be the increase there. So it's going to be difficult for me to tell you exactly the elasticity because the price is very important in cutting their connections where they are serving for.

Thank you very much.

Thank you.

And our next question comes from Erik Olsen (phonetic) of Barrel Hanley (phonetic).

Yes, good morning. Just curious about your new credit rating from Moody's, you upgraded it to 83 and then your policy now on your leverage ratios, if you are willing to increase leverage here at these levels?

I think, what we have been mentioning for sometime now is that the Company -- I thought we were being very conscious of it and expanding it's ability to raise funding as and when we need it. We don’t see much value in having the assets or below a certain point and we have already started on that -- that will be present -- we are lucky it is a bit low. But we think that we would, to the extent of we can cut that also the user from push on and gave that we eventually need to respond for. And there is there anything positive. I think that at this stage we traveled [inaudible] or even before the average so far, very good condition in the credit market and obviously issues [inaudible] in the capital in the international capital market of medium and long-term debt and that is that we don’t really have any requirement today, more than the additional fundings.

I guess what I'm also going to ask you is would you be willing to sacrifice your credit rate to do an acquisition that you find interesting?

I think we have proposal from the [Aleon], one limitation that we have had, even there with little forward growth, is that we have had to be very mindful of our credit spending and all of the transactions that we have done so far, had been done after consultations with the rating agencies. So I think that we have a good idea of the value of money spending of our credit.

Thank you.

Thank you.

Our next question comes from Henry Cobbe of Thames River Capital.

Good morning, thank you very much for the call and just a few questions, the first is turning back to the effective tax rate for the P&L and what you should guide if, you get there, and the second question is looking at the 39 billion pesos of equipment cost, could you give an update of that by country? The next question is on group CapEx, could you give some guidance 2005 and lastly coming back to Brazil, perhaps just some guidance on the service EBITDA margin that is the margin fleeting the effect of equipments, revenue, and cost. Thank you

The first question on what's about that

CapEx.

In terms of the CapEx, I think the deposit that we have is, around we haven't been seeing it also going to big, but where we, rising everything again but I think it's going be around $2 billion for 2005. More or less what we have this year. In terms of the, the other question, was the taxes?

Yes, yes. It's right the P&L.

I think the effective tax-rate, is going to be a function of study of the overall taxes, if you are in computer, that of course more [inaudible] Working the statutory base come down and make into, we are going to be spending in terms of 33% to 28% because of the mix at three years or so. In Brazil the effective tax-rate, that would applied towards if would be -- even the tax loses, assurance tax loss that we have that would be in the levels of 25%. And some other contributors have the [ability] on tax losses. So what I want to point out, that I can cannot give you a number for the effective tax-rate. It's going to be again pretty much a function of what is the overall result in basically the conflict in South America, okay.

Okay and on the equipment cost, rough by country.

The equipment cost rough, I don't understand that question.

Whether the type of the equipment cost is 39 million and could you make a rough allocation of whether it comes from geographically?

Oh, it's very difficult to do that allocation but, what I can tell you is that we have more or less the same costs of the equipment in all the countries. Maybe a little bit different in Brazil because the taxes, special taxes that you have there for turnaround and depending on the promotions that we do in each country, the top series that we have in each country, but that's depending on the seasonality, on the country, on the promotions, on the competitor, depending on a lot of things.

Okay. And put differently, the aggregate subsidy is just about 40% and so for next year do you expect it to remain at similar levels?

I don't think we are going to increase our subsidies this year. I think we are going to maintain more or less it that level that we had last year.

Okay. And the last question, just coming to the service margin in Brazil. I see your sales of equipment, what was your target for EBITDA?

We talked last, well we talked on last call and they asked me the question. Right now, we have got 10% of the -- we didn't have like 10% EBITDA margin budget for each year. But as I told you we got a new Greenfield operations, so that is all the detail for Brazil. But I think, as I told you, you are going to see improvements for 2005 in terms of EBITDA, depending a lot on the subscriber growth, if we don't have any jump or any increase on subscribers.

The improvement service margins is going to be very much linked to improvement in EBITA margins. That’s essentially --

Sorry, I missed that.

The improvement in service margin is going to be fairly similar to improvement in EBITDA margins. We understand that the [inaudible] is not going to be changing significantly next year.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Charles Chichester of Cazenove.

Hi, good morning. I have got four little questions really on operating data in Brazil. Just, first of all looking at your minutes of use, I see that’s now 105 and it was 91, this time last year. I am just wondering if you could explain first, you know, whether there is a lot of free minutes of use, that you are seeing as a promotional campaign, minutes of use coming in that or whether they are -- you know, they are presumably not all revenue generating units and therefore whether we are looking like sort of like-to-like basis there or not? And second question is on churn. Can you tell us how you report your churn, just overall not just this quarter but previous quarter? It looks below than the lot of the other operators and I am just wondering if you are reporting perhaps on a different basis? Third question is market growth for 2005; the range seems to be pretty big, sort of between 12 million and 19 million. Are you able to give us any guidance and what you think? And that’s really tied into my last questions, which is, penetration potential for the market in Brazil. You've certainly -- certainly would like to be lot better than we are seeing in Europe. I am just wondering if you have an idea of where you see a mature market penetration arriving at. Thanks a lot.

Thank you. Well, in the penetration, in Latin America you could see some -- one country that is Chile that is more than 55% penetration right now. So, I don't think -- I think that Brazil, Mexico, Columbia, Argentina would be in the future in these penetration. So, I don’t know why Chile could be in 60% penetration and the other countries, they are not going to be in 60% penetration. What I think, 50% to 60% penetrations in those countries, I think, we are going to get in the next years so --

Next year or years?

No, years, years. Maybe three year, it could take more than that but I think, we are going to get to those penetrations. Then comparing to Europe, well in Europe you have 90% penetration. So, I think, three to four years we are going to get it. In the operating data, you'll you see that our MOUs in Brazil are growing from 91 to 105. So, that means that we have good promotions and you can see that all of the subscribers are using the network. So, they are using more, having the same ARPUs that we used to have last year. So, I am happy there. And, I think, the prices in Brazil has been fairly competitive. We have a little bit of less prices than next year and the prices in Brazil are been -- it's around [tens] of a dollar, [inaudible] there. So I think it's very competitive against other countries. So, I don't think that the prices there are going to be down to much more than what we have today. And the other question, what is it?

It was just on your reporting basis the churn because over the quarters that looks low than other operations. Just wondering what your reporting basis is?

We have always the same calendar and we are not moving our calendar that we have. So, that’s the number that we are getting and we are not moving any rules or the way that we do churn. It's the same way like all this year or last year that we are having.

And what is that? Is that -- how is that designed?

If you want I can send it to you, the way we do, we talk to our subscriber when they are not using the service.

Are you referring to this connection policy or are you just referring to how the computation of the churn rate is designed?

I am not sort of comparing this quarter to other quarters for you. I am just looking at overall over the last few quarters, it's very different and it's low, so I am just wondering if you'll --

The churn is just essentially disconnections, people that have been disconnected as a percentage of the overall subscriber base. We have a subscriber base in [Brazil], that we are reporting. And that has been consistent on a country basis and of course on all of our operations.

And if you want to know exactly the disconnection policy, I can give it to you.

Okay. Thanks very much.

Thank you.

Thank you.

Our next question comes from Drake Johnstone of Davenport.

Hello, it's Drake Johnstone. I was wondering, you had mentioned that you wanted to wait three weeks before giving any guidance on 2005. The question I had is whether you had any thoughts on the first quarter in terms of subscriber additions or profitability at these various operations?

No. We don’t have it right. I don’t want to give you any number until we really check the costs well there. The fourth quarter was a good quarter, and I hope, that next year it's going to be -- we are really meeting all the analysts and checking all the countries to really understand what's going to be the increase in terms of subscriber per country. And I don’t want to give you any guidance. But, two weeks is nothing, so wait for a little bit.

Okay. And then within two weeks, when you have a sense of these subscriber potential for 2005, will you also have a point of view in terms of margins in Argentina, and some of the other countries?

Yes. Hope so. I can give you also the guidance in the margins in Argentina.

Alright. Thank you.

Thank you very much.

Our next question comes from Patrick Grenham of Citigroup Smith Barney.

Good morning. I just have a couple of questions. One on the CPP rates, you mentioned that you think that Brazilian CPP rates again come down very little if at all. And we are seeing a 10% drop in CPP rates in Mexico, and how long do you think it's going to take for the elasticity of demand to kick in to offset the reducing CPP rate there? The second question I have is on Brazil, and the marketing in Brazil, what's the CapEx budget to Brazil in 2005, and are we going to see, given that it seems like the pricing pressure in that market is beginning to ease a little bit, are we going to your ad budgets drop in Brazil which should allow the margins to pickup faster?

Well, the CPP rates in Brazil, we are negotiating all the CPP rates there. We are still have whole February to negotiate that. And today we are in discussions on the CPP rates on Brazil. So, I prefer not to talk anything about that because we are just talking that with a big company. On Mexico, well, we actually -- everybody, have their CPP rates are going to be reduced 10% to the customer. That is going to be 10% for the fixed, and 10% for the mobile, for each year for three years. So, I feel comfortable on that, I think, if we do that with option, I hope that the traffic will increase, and we can recall that a reduction on the price. So I don't see any problems on the CPP rates in Mexico. In Brazil, more-or-less, we don’t have been sure that the budgets cost. I think, it would be around $500 million on CapEx for Brazil, and that this are margin, it's going to withstand a lot from the growth that we have. Somebody asked me that what would be the rate between 12 million and 19 million subscribers for Brazil for this year. And, I hope, it's not going to be 19, I think, it's going to be higher than 12, may be, 14, it's like 14-15 is my guidance for Brazil to be contracted this year.

Alright. Pricing pressure, it seems like they have start easing out there, since there are lots of difference, one operator out there is especially raising handset price. Is that what you are seeing?

Well there is a new competitor that is Brazil Telecom, but I think everybody is getting on the, at least, understanding that the prices in Brazil are really competitive. And I don't think anybody wants to do greater things, you will never know now but in my view, I don't think Brazil is going to be -- we are going to see a big reduction on prices for last -- for this year. But, what we are going to see a good increase on the market, and that helps us not to have reduction on prices there, Patrick.

Okay. And, you seem to be already starting to discount traffic on outgoing traffic in all of your operations?

Yes, yes. More-or-less, yes.

Do you think, the elasticity effects will be as big in Brazil and Argentina, and Colombia, as they were in Mexico?

It's a good question there, Patrick, but we are feeling that elasticity is going to be everywhere, still wireless is going to have lot more of elasticity than what we have today. One thing, Patrick, we have this [inaudible] in the past in Mexico it seems that elasticity increased alongside the [entity] market, and in Brazil and Argentina, as we have seen before, last year, it might have just increased very rapidly. So, it increased rapidly and by huge magnitude. So, that's all we'll provide. I think more leverage you will see in the demand, going forward.

Okay. Thanks.

Thank you, Patrick.

And we have a follow up from Vero Rosky (phonetic). Please go ahead.

Okay. Thank you. I have a question on TracFone. I have seen a very strong subscriber growth especially this quarter. What do you think it is the outlook for this company, as you already had 4.4 million subscribers in the U.S. and you have been much more successful than the U.S. wireless companies in the prepaid segment in the U.S.?

Well, we have been talking two years or three years ago, I think, we have a good market, a good prepaid market in the U.S., and I feel, TracFone has a lots to grow. The good thing here is that we are growing, and we are not burning cash. We are having cash in the other side. So the growth has been very profitable, and I think, in U.S. we are going to see also a good year, in terms of new prepaid subscriber additions.

Okay. And I just have one question -- one more question on your push-to-talk product. How are you positioning the product in Mexico like in terms of versus Mexico your major competitor, and can you talk about the latency you have in the product now on the GSM?

Well. I think, we are being successful in that product, and I am happy with the result of that product. We don’t want to grow fairly because that’s a new product, and we want to test, we want to check in the network, the capacities everything that you'll need to check when you have a new product. But this is not a new product for Mexico. It’s a new product for a GSM network. So there is still a lot of things to do and there we started with the latency, the latency was being very -- lets say small you cannot compare these terms of latency, you can't compare against Nextel's product. I mean on the other side we are having a lot -- in the latency maybe we are close to once [they are consolidated], it’s not being so I think, people is happy with that but, what we want to understand it’s more or less the view set of the people, what capacity we need to have in the network. And that it’s going to be a problem for the next year where we want to go slowly and check everything that we're having. In terms of push-to-talk has been successful in Mexico, I think, everybody is happy with our push-to-talk in Mexico. We are having huge capacity against our competitors -- sorry, huge progress against our competitor.

Okay. Thank you.

Our next question comes from Jose Otero from Signals (phonetic) Teleconference Company.

Yes, thank you for the call. I have a few questions on Brazil, the U.S., and Mexico. First, on Brazil you mentioned that, you see in 2005 prices are stabilizing and you don’t see any drop in the growth rate but, first, how will you see the impact of the mix tomorrow, special rates are being offered now by Brazil Telecom and then and by wholly because you are going to be competing in price because giving a 60% discount is a very, very attractive proposition for our higher lot big market like Brazil and also this summer you had the billing [inaudible] in action going into force so how do you see this impacting your revenues because its going to have a big impact on your revenues and also it can also lead to a decreasing rate, so how is this going to be affecting your finances in Brazil? On track one there is a lot of competition by mobile operators in the U.S. and they are heavily marketing into the Spanish speaking market in the U.S., how do you see this affecting your subscriber growth and also the rate value you are offering there are they going to go down? And in Mexico it was the title of this spectrum options, are you going to -- how are you placing this in terms of the impact on your CapEx as well as what is -- if you could also elaborate on what has been the impact on in terms of revenues of [PLC] services for Telcel, thank you?

Well in terms of a spectrum, the spectrum is -- the options are we are on the options today and I don't think it's going to be a huge increase on the CapEx on Mexico and our CapEx were putting some quantity for the options and remember that the options is you pay something for the spectrum today or you have to pay fees each year, so that means that the price today is not going to be so high because you got to pay a price every year for the next 20 years, so I think for every 10 megahertz it will be around $25 million, the price that you have to pay like the rent that you have to pay for the spectrum base. So that’s something. In the U.S. we are not marketing to the Spanish people that phone is only for the Spanish people in U.S. or I think we are having a good market with our new competitors in the prepaid side. But still I think U.S. has got a huge market in the prepaid market. So I'm still confident that we're going to have a -- a good flow and in terms of prices well we are seeing things that are not new, price plans and new things that we are going to see in the next quarter in platforms so, Brazil -- the question in Brazil is that the peaks are reducing the rates no, it's what you are saying?

Well there is still you have a -- you have in one side you have [fully] and the other side you have Brazil Telecom GSM giving its special -- competing in price. Giving special reductions on fixed to mobile phone calls like 60% off and also you have in Brazil Teleco [tulatula] offerings as you get you pay for one and you get one more for free and the other side of the question is you have [bill and keep] regulation join into force eliminating interconnection fees among mobile calls from different operators and that’s going to have a huge impact in terms of your revenues. So I just want to see how is this going to be effecting [you].

But in the billing scheme I think there is nothing done to trade it, something that everybody is discussing, and if not something is done so the billing people prefer to wait their full bill and keep but, everybody is talking in Brazil we want to wait and to see what is going to happen because that's changing the rules of all the regulations there. So, I want to know and I want to see if the government is going to change the rules in Brazil or the government is going to maintain the rules that they said they're going to keep things they keep as a spectrum so that is something that we want to wait on. And in the, the new promotions that those companies are making well may be they are good promotions but today we are not seeing reduction on traffic because those promotions on [Telemag] and on Brazil Telecom so we need to wait a little bit more on time to see if they are facing minutes from that wireless and people is asking for more fixed phones and reducing the use that's on the wireless console. I am going to be very close and check those numbers

And then if you could also comment what is the, revenue of your PLC services in Mexico and Brazil?

What's PLC?

Push-to-talk?

Well I think we are going to have increase on that. I do hopes that the push-to-talk or it's going to maintain with ARPU or it is going to increase ARPU so I think that's going to be at the end wireless push-to-talk is going to get.

Okay, thank you.

Thank you very much.

Our next question comes from Pedro Gonzalez (phonetic) of UBS.

Yes, good morning. A follow-up on the Mexican auction, if you are only able to bid for 10 more megahertz, will this be sufficient to support the nice driver growth momentum that you guys have? And then my second question is regarding the additions, you only mentioned roughly that net addition perhaps maybe a little bit lower in Brazil this year compared to last one, could you give us a little bit of color regarding Mexico vis-à-vis the 5.4 million as you added ‘04?

I think in that side I am sorry, I would prefer to check everything and to give it to you in two or three weeks. Let us review, let us finalize our budget, and then I prefer to give that number in 2-3 weeks. And in terms of the, [September purchase] is very good for us. I am happy to get that megahertz. We are making a injunction of Telefonica to see if we can compete with, for 20 megahertz because they still fell that 10 megahertz is a good spectrum for us, remember that we have 18.4 megahertz to daily 1900, so 10 megahertz more is you are right to 28, that is good spectrum. If we have ten more it would be better.

Okay, thank you.

Thank you.

And our final question comes from Henry Cobbe, please go ahead.

Hi, there just a slight change in the question, just a follow-up question. I am just looking at 2004 can you give the service EBITDA margin in Brazil? Historic.

What's the question, sorry?

For 2004, could you give us the service EBITDA margin in Brazil, i.e. the EBITDA margin excluding the --

The cost of equipment, the sales of the equipment. We don't have it right now, but if you contact [Irelene] we can give it you

[Irelene] in the next half an hour.

Okay. Thank you very much indeed.

Thank you. Well thank you everybody, thank you with me and thank you Merrill Lynch for hosting this conference call.

Thank you for your participation in today’s conference. This concludes the presentation, you may now disconnect. Have a good day.