America Movil SAB de CV (AMX) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the America Movil conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session, and instructions will be given at that time. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded. I would now to turn the conference over to our host, Ms. Vera Rossi. Please go ahead Ms. Rossi.

Thank you. Good morning for those of you in the U.S. and Latin America, and good afternoon to all of you in Europe. This is Vera Rossi and on behalf of Morgan Stanley, we are pleased to be hosting America Movil first quarter ’05 conference call.

Speaking today will be Daniel Hajj, CEO of America Movil, Carlos Garcia Moreno, CFO, and also with us is Paulina Amieva, Head of Investor Relations. I will turn the speaker over to Daniel Hajj. Thank you. Daniel.

Thank you Vera. Thank you, good morning everybody. Thank you for being in the first quarter results. Carlos is going to give us a small summary of the results. I’m going to pass to Carlos.

Hello, good morning everyone. Well, as you probably have seen from our report, we had a fairly strong first quarter of the year. We had 5.2m net subscriber additions, and product revenue came in at MXP38.8b, with MXP12.6b (ph) of EBITDA. The EBITDA margins in the quarter went up 7 points, related to the last quarter of last year.

And what we have seen is that these results are, as regards the financial part, very much in line with what was the [consolidated] expectations in the market. The EBIT was also virtually identical to the median of both revenues and EBITDA, so from that sense also EBITDA margin would be put in that consensus.

But what is materially different is the number of net subscriber additions. The number of net subscriber additions is 70% greater than what was the consensus both if you measure it in terms of average or the median of the consensus number for net subscribers. So this is a thing that we saw in the last quarter of last year, in that America Movil is now delivering more growth, with the same level of profitability that both the markets and also in America Movil had budgeted for the quarter.

So, in a way it’s more bang for the buck. And this means that going forward, they should translate in greater revenues and greater EBITDA than probably we had forecast some time ago.

The level of net subscriber additions at 5.2m was considerably larger than the one that we saw in the first quarter of last year. The first quarter of last year net adds were 2.9m, which means that this year the number of net adds for the first quarter is nearly 80% greater than what we had in the same time, in the same period, of 2004.

The average quarterly increase of subscribers was 8.6%. We've had some outstanding performances in places like Colombia, which subscriber base increased by 20.8% in the quarter. But practically all the countries in Central America above Argentina, they were only in the 10% to 20% range. Mexico was unusually strong for this time of the year, with a 6% increase in the quarter, and Brazil, which is the one that is the hallmark of seasonal behavior, it was still an increase of 4.5% in the quarter.

So revenues altogether were up 33.2% year-on-year. But what is very important is the composition of revenues. Service revenues were up 4.1% quarter-over-quarter, and Argentina and Colombia were outstanding. We saw service revenues increases of 16% in Argentina and of 14% in Colombia.

In terms of our overall EBITDA, EBITDA was up 23% year-on-year and quarter-over-quarter, and, as I mentioned before, the EBITDA margin came in 7 points higher than what we saw in the last quarter of 2004. Then we had 25.5%, now we have 32.5%.

Going through the financial statements, there is two or three more things that I think that are important to note. One is that depreciation and amortization charges do not grow any more on account of the fact that we do not amortize goodwill any more. So that means that the increase in EBITDA is translating into an even greater increase in operating profit. The operating profit for the quarter was MXP10.9b, and this means it was up 54.6% quarter-over-quarter, and 44% year-over-year.

The liquidity that was generated by our operation in the first quarter was, for the most part, absorbed by CapEx, and by the payment of handsets. There were some important acquisitions of handsets that took place at the end of last year, and that we were meant to pay for. And so we have essentially used a lot of our liquidity in reducing those accounts payable on account of both CapEx and handsets.

We have typically tried to time the re-purchase of our shares with the overall liquidity that we generated, the liquidity position, and that is why the level of our re-purchase shares actually came down somewhat. But net-net, throughout the quarter, we acquired between the acquisitions and payments of dividends, there was a total of $127m spent in the first quarter.

One other thing to note about debt, is that with the strengthening of the various currencies and particularly the peso against the U.S. dollar, we have been adjusting our FX position, and we have been moving away from dollar debt, and more towards peso based debt. So that results initially in greater interest expenses, although we obviously would not be at risk of having any foreign exchange losses were the peso to revert to weaker levels vis-à-vis the dollar.

Another thing that is affecting our overall payment of net interest is the composition of the debt in terms of tenures, and in terms of rate. We have also been moving away from floating rates, and into fixed rates, so that initially also increased somewhat the actual outlays of our interest. And we have extended, as you probably know, the tenure of our debt. So we have now significantly extended the average life of debt, and we have, as I said, moved away from floating into fixed rate.

So I think that from a financial perspective America Movil is now very well positioned to withstand, if we were to see any kind of financial shock be it by way of rates going up, or by way of the capital markets totally shutting down.

Finally, a point on taxes. The tax reserve that we had for the first quarter since, is much higher than what we’ve had at the beginning of last year. I think that if you recall in the last quarter of last year we had an important charge for deferred taxes, and in essence what we are doing this time is that we do not want to have this kind of extraordinary charge take place at the end of the year. So we are essentially timing it within the year. This does not mean that this is representative of the actual cash taxes, okay, as we mentioned in the last conference call.

There is some transactions that involve deferment of taxes. So where they do not have an impact on the net profit of the Company, they would have an impact in terms of the actual cash payments that are made initially.

So this is not on account of any change on our appreciation of what would be the affected tax rate this year. I think that it should be similar to the affected tax rate that we saw last year. So again, this greater charge of taxes doesn’t mean a greater outlay by means of the payment of the taxes.

Well I think these are the more important things that we wanted to highlight and summarize with you, and I would want to pass it back to Vera for questions and answers there. Thank you all. Vera.

Thank you Carlos. I would like to start the Q&A session. My first question is on subscriber growth. What do you expect in terms of net additions for America Movil in 2005?

And also your CapEx guidance for the year with the strong growth in the first quarter, do you think the CapEx will be higher than your initial guidance of $2.1b?

Look Vera what we have for America Movil, the new guidance that we have on subscribers, it’s around last year, it’s around 17.5. We increased the guidance. We saw a very good January. So we hope that we are going to have very good May. That it’s Mother’s day. Overall, Latin America, and then depends a lot on the last quarter that it’s good growth. But I’m thinking to have around 17m to 17.5m new subscribers.

That means that our CapEx, we’re going to increase our CapEx, and what we have today, it’s around $2.4m on CapEx, without Peru. We are still checking. We just win the auction of the frequency of Peru, and we still are negotiating all the packages for Peru. So it’s 2.4m subscribers without Peru. $2.4m of CapEx without Peru.

Okay, and this CapEx includes the build-out in Mina Gerais in Brazil?

Yes, that includes the build-out of Mina Gerais in Brazil.

Okay. My second question is about Brazil. How do you see the competitive environment now in the second quarter of ’05, compared with the Christmas season last year? Do you see that the competition is increasing at this point?

Yes, I think competition is increasing in Brazil. End of first quarter and start in second quarter of this year it’s been more aggressive, more -- it’s more intense the competition, than the fourth quarter of last year. But remember that, overall, all Latin America has been more competitive, and I think with the growth that we are having all around Latin America you are going to see more competitive environments in all the countries.

But today, we are more -- the competition is increasing in Brazil. Right now, the prices are lower prices than what we've had in [agreement].

Okay. And in terms of the guidance for EBITDA margins in Brazil, in the previous call you mentioned that you were expecting EBITDA margins around 10% for 2005. And with this increase in competition that we are seeing in the second quarter, do you maintain your guidance at 10% for the year, for Brazil specifically?

Until now we are not changing anything. We are still maintaining our 10% EBITDA margin. But we are starting to review a lot of things. What I want to comment about Brazil is that we are doing things for the long term Vera. We are still positioning our brand. The Claro brand has been very successful in Brazil. We are growing our distribution network. We are doing -- we are still consolidating all our operations. We are growing very fast in GSM. Faster than any other country, so in Brazil it's --. Today we have the right technology. We have a very good brand. We are increasing our network, our distribution. So I think until now we are not changing that 10% EBITDA margin. But maybe, we are going to do a revision when we finalize Mother’s Day, end of May, beginning of June. And if we have something, maybe we can comment that in the next conference that we have.

Okay, thank you Daniel. Operator, now you can go ahead and open the Q&A session.

Thank you. [OPERATOR INSTRUCTIONS]. And our first question comes from the line of Mauricio Fernandes from Merrill Lynch. Please go ahead.

Thank you. Good morning everyone. Just a couple of questions. We saw ARPU in Mexico come down to MXP187. I was wondering if this is the result of the strong subscriber growth we saw in the country, or if we are finally seeing that elasticity has approached 1, and therefore, now subscriber growth remains strong, we should see ARPU in Mexico come down over time?

Also on ARPU for Colombia, we saw a big increase in the fourth quarter of 2004, but now a big decline in the first quarter of this year. I was wondering what are your -- could you please provide us some guidance as to what to expect of ARPU in Colombia?

And my final question, I apologize for three questions, is on taxes. There was a big increase in taxes again in the first quarter. I was wondering if you can give us some guidance as to what to expect from taxes for the whole year. Thank you.

Thank you Mauricio. First ARPU in Mexico. What you see in Mexico are two things. First, the big growth that we are having on subscribers is one reason why our ARPU is declining a little bit. The second and more important, is that remember that in the first day of this year, the calling party pays had a reduction of 10%.

So what you are seeing there is a little bit --. The traffic is increasing, but it’s not taking everything on the reduction that we have on the price. So, those are the two things that we have on the ARPU in Mexico. First, subscribers. Second, that the volume is not taking all the reduction on price that we are having on the calling party pays [inaudible].

In Colombia, I think everything gets -- the big subscribers that we are having in Colombia, it’s taking the ARPU a little bit down. And I think you are going to see this trend, because still I think we are going to have a very good growth for all the year in Colombia. I think we are having good subscribers, but still the rate that we are having is very high. So that’s the reason why the ARPU is down in Colombia. And Carlos will explain again the tax issue.

[Indiscernible].

Hello.

Yes.

Okay thank you. And now we’ll go to Andrew Campbell from Credit Suisse First Boston.

Yes, hi. Just returning back to the ARPU issue again. Do you think that in the future you’ll see more elasticity because of the reduction in the CPP rate? Do you think it’s just a matter of time before that kicks in, or do you think that actually the elasticity is less than 1, and so that on a net basis you’ll actually end up losing some ARPU from that?

I think you are going to see more elasticity in the future. Still with the first three months of the year we are a recuperating part of that traffic. I think the traffic is growing, but it’s not compensating everything. But I’m sure that the traffic is still going to grow more. I think we still have elasticity too in Mexico.

Okay. Okay thank you. And if I could just ask a second question. If you could just give us an update on the Push-to-Talk services, and if you’ve had any more indications from the regulator about when you can roll that out on a bigger scale.

Well, on the Push-to-Talk in Mexico I think we are doing good. We’re launching slowly. You know that it’s a new technology, it’s a new service and everything. We are having good subscribers. I think we are having more -- we are still not launching and advertising that product, and we’re having good growth in this first three months. And I’m confident that Push-to-Talk is going to be a good service for all America Movil.

In Mexico, specifically in Mexico, we think that our -– that we can have that service without permission of the government, of the regulator, because our contract says that we can give services. So we are still discussing with COFETEL if we need to ask for a permission or not. But we feel that we don’t need to ask permission to give that service.

Okay, thanks Daniel.

Thank you.

Thank you. We have a question from the line of [Daniel Enriquez] from Goldman Sachs. Please go ahead.

Hi, good morning. I have two questions. The first one, if you could give us some guidance in terms of net adds for Mexico following this very strong first quarter, and also for Brazil.

And secondly, talking about TracFone. Competitors are getting more aggressive in terms of prepay. You still had a very good quarter, so they are actually, they are still not hurting you. But the U.S. operators are certainly waking up for prepaid. And how do you think this will affect you? What kind of actions are you taking in response to some of your competitors getting more aggressive, and how do you see, you know, the strategic value in some of the partnerships? Maybe you can deal with TracFone and other operators in the U.S. Thank you.

Well the first, what it tells is that we are having, I have overall 17.5m subscribers for America Movil. I’m not having today exactly what’s for Mexico and for Brazil, but maybe next week we can give you a more clear numbers of what we have for Mexico, and what we have for Brazil.

And in U.S. what’s happening. We’ve had a very good first quarter. In U.S. we feel that the first quarter and the last quarter of this year are going to be very strong quarters. Second quarter and third quarter are not so strong but the question is how I see all the operators.

Well what I can tell you is that America Movil knows how to operate prepaid, and one problem that has the big operators in U.S. is that they have a lot on postpaid [peso]. So they have to be very worried about what they do in terms of advertising, promotions and everything, because if not, they are going to cannibalize their postpaid to our prepaid. So I think that’s a huge advantage of TracFone.

And the other one is that we operate with a very low cost structure, so that’s the other thing that I think the big operators need to do to be successful on the prepaid business. So those are the two things. Still, I am very happy. Still, I think TracFone is going to grow very good this year, especially this first quarter and the fourth quarter of 2005.

Okay, thank you.

Thank you, and next we will go to the line of Jason Hepner of Standard Life Investments. Please go ahead.

Good morning, ladies and gentlemen. Congratulations on another excellent set of results. My question is on Mexican ARPU, Telcel ARPU. You’ve kindly explained to us why, in actual fact, the ARPU is not falling the way it may seem to some people. But it would be helpful if we can strip out some of these unusual effects, the CPP reduction, the strong subscriber growth. If we were to strip out these effects, what is the true underlying rate of ARPU increase that we are seeing at Telcel? If you could tell us that it would be very helpful please.

Again, what I’m told is that we have a 10% reduction, and I think until April, until end of March, we have like a 7% or 6% increase on minutes. So, what you could see is that still we have elasticity in the calling party [peso]. So I’m confident that in some more time we’re going to recuperate everything, and compensate the reduction on price that we had at the beginning of this year.

So, the other important issue is that, remember that the growth that we have in Mexico, 1.8m subscribers for this quarter, and a lot of those subscribers, maybe 90% or 95%, between 90% and 95%, are prepaid subscribers. So that’s also the reason why we are -- the ARPU is declining a little bit. But we are confident that Mexico ARPU, we still have elasticity there.

Would it be fair to say that it’s on a healthy rising trend? The underlying ARPU trend is actually a healthy rising one then?

Yes, of course. I’m positive about that.

Yes, okay. Thank you very much.

Thank you.

Thank you. We will next go to the line of Miguel Garcia of Bear Stearns. Please go ahead.

Yes good morning. My question is about the Push-to-Talk. When do you expect to start offering in other countries? And do you expect regulatory problems like the ones you have faced in Mexico?

The other question is, how many subscribers do you have with Push-to-Talk in Mexico?

And the last question is, if you are still open to further acquisitions. Are you still open to acquire Telemig in Brazil, and licenses in Chile mainly?

Well, the first in Push-to-Talk I think, as I told you, I think it’s going to be a good service for America Movil in the future. We are launching in some countries; I don’t know exactly the dates where we are going to launch, but I think in the middle of the year, if we don’t have a regulatory issue. I think the only country where we don’t have still permission to run Push-to-Talk is Colombia. But we are talking with the authorities, and I think there is not going to be any problem. But in all the other countries we are running Push-to-Talk, or already launched, or we are going to launch very soon. So that’s the first question.

The third question is acquisitions. Well you know that America Movil, it’s ready to acquire where we are not, maybe Venezuela, Chile. Still we’ve already acquired license in Peru. We are not in Panama. We are not in Bolivia. We are not in Paraguay. So, if there is company that we feel it’s on good terms, good prices, we are happy to --. We want to have the footprint all around Latin America, and yes, we are ready to acquire other companies if it’s under good conditions.

Telemig -– well Telemig, we were happy to talk about Telemig, but depending also on the price, and depending on the conditions. So that’s really what drives America Movil to acquire a company, or not to acquire a company. We already have our license in Minas. So if Telemig is under good prices, that it’s a reasonable price, we are happy to talk. If not, we have our license in Minas Gerais, and we are going to have our greenfield operation, the launch and do everything there.

And the second question, I don’t remember.

The number of subscribers you think Push-to-Talk in Mexico.

We don’t disclose that. But the only thing I can tell you is that we are selling what we want to sell. We are not launching. We are not on advertising. We are not doing anything, and we are selling what our capacity is giving us. Remember it’s very important that everybody remembers that, Push-to-Talk in cellular, it’s a new product. So, what we want is to have a good product, and I don’t want to sell more of what we can handle in our network. So that’s why we are launching and selling, and being very careful on what we sell.

Thank you. One last quick question. What is the percentage of subscribers on GSM currently in Mexico?

What’s the percentage of subscribers on GSM? Maybe 30%. 45% I think. So what they are telling me it’s 45% here in Mexico.

45%. Thanks a lot.

I don’t think it’s so much.

It’s 45%, yes. 45% of our subscribers are GSM in Mexico.

Great, thanks a lot.

Thank you. We’ll go next to the line of Patrick Grenham from Citigroup Smith Barney. Please go ahead.

Good morning. I was just wondering if you could give us some color on the handset prices. It looks as if handset prices pretty much across the region, except for Brazil, dropped in the quarter. And the anecdotal evidence, or the evidence we are seeing in Brazil is that handset prices are dropping in Brazil now. Could you give us a view on what’s happening to your acquisition costs? And how prepared are you to keep dropping the handset price?

The second question is on the 2.4b of CapEx you mentioned. Could you give us a breakdown of that by country, just in rough percentages would be okay? And then could you talk a little bit about the MOU’s in Brazil because they dropped so hard?

Well, the first question about handsets. I think, as everything in telecommunications, we will always have better prices on handsets. And in Latin America, as volumes increase, then I think you can negotiate better prices on handsets. So, what I can tell you, Patrick, is that prices in handsets, you are always going to find better prices everywhere, with new brands, with the actual brands, handsets from China, coming from China, coming from other places. That’s a thing that we always have. And the other important thing is that the appreciation of the currencies, local currencies, help us a lot on the prices of the handsets, because you know that the handset prices are in dollars. So it means you have appreciations in local currencies also help you on the prices of the handsets.

The MOU on Brazil drops a lot and it’s because last year, until last year we had some promotions, Patrick, special promotions on some special plans, and some special things that we do like nights with very good rates and weekends. And at the end of that, of 2004, some of those promotions finished. So that’s why you see a drop on the MOU on Brazil. So that’s the reason why MOU in Brazil is going down. It’s because some huge promotions that we had when we launched GSM, when we launched our greenfield operations, we had there, and they already finished. So that’s really the reason why.

And the other question, Patrick?

Just before we go on. That is a good sign that there is good elasticity in Brazil. Are you going to start dropping those -- put more price reductions in Brazil, because it seems that the consumer is very receptive to lower prices?

I think in Brazil what right now is being more aggressive is the handset end, the handset prices of everything. I don’t think we’re having a reduction of rates, but I cannot assure you that we are not having that in the future. But until now I think rates are being more stable, and what is dropping a little bit is the prices, the subsidies of the handsets. So that’s mainly what we are having, and you are seeing in Brazil right now.

Right. And then the CapEx by country. Could you break it down? Because it looks as if the amount of growth you are getting across the board, you are going to have to really increase your air time capacity, or your radio transmission capacity in all of your subsidiaries a lot.

Well I think, I’m not have it ready Patrick, but I think next week in our investor day, I think we are going to have ready everything there. But, well countries like Colombia that we are growing a lot, or Mexico that is having a good growth, they are going to have a little bit more of CapEx. But still we are doing our numbers.

Also remember that prices all around, infrastructure prices are coming down. So we are doing exactly our numbers to understand what we are going to put in each country. Remember that we are also doing Peru, and we are finalizing Peru. So, maybe for next week we can have Peru included in our CapEx numbers.

Could it be as high as 3b do you think for this year?

Oh no, not more than -- I don’t think it’s going to be more than $2.5b. What I am saying is it’s 2.4, close. Maybe Peru, I don’t exactly what Peru is going to be, $200m maybe, maybe it’s going to be 2.6, not more than that. I don’t think it’s going to be more than 2.6m.

Okay great. And it looks as if you are going to have huge additions in Mexico this year. There seems to be no seasonality in Mexico. How fast can it slow down in the second and third quarter? Are we really going to see 8m additions in Mexico this year?

No I don’t think we are going to see 8m additions in Mexico because we have a very good first month. January was very good, so you are not seeing February and March as good as January. So, part of this good first quarter is because the end of last year, all the promotions that we have. But, we are starting Mother’s day, that is a very important day in Mexico, and it depends on Mother’s Day. And also it depends on the Christmas promotions, but I don’t think you are going to see 8m subscribers in Mexico.

Okay great. Thank you.

Thank you, Patrick.

Thank you. And next we’ll go to the line of Henry Cobbe of Thames River. Please go ahead.

Hi there. Thanks very much for the call and a few questions. The first could you give us the market share you have in Mexico at the end of March?

The second, in Brazil, just looking at the share of net adds, it dropped to 21%, and what would be your target going forward?

Third question, could you just give us what the total CapEx investment was in the first quarter in terms of additions to fixed assets, and also investments?

And last question, just could you confirm what the effective tax rate was in 2004 for guidance for this year? You said it would be a similar number. And that’s it, thank you.

The question on market share. I cannot tell you exactly what the market share that we have because I don’t have the numbers of my competitors. But the only thing is in Brazil I already have the numbers, and we are even in market share. In the region where we operate, we maintained lever. Maybe 0.1% more, so nothing. I think we are even in Brazil.

In the other countries I don’t have exactly our market share, because I don’t have the numbers of the competitors that we have there. So in market share, maybe we will have it in the future when everybody reports, and we know exactly the numbers of the other ones.

The next question was, sorry?

Was on just the target share of net adds in Brazil. That’s dropped to 21% and what you would be targeting going forward.

Well in Brazil, as I told you, we have 21%. We have our market share the same as last year, and the net adds, as I told Patrick, I think we’re going to disclose that next Monday or Tuesday in the investor day. I don’t have it right now with me. But I think in one week I can tell you again, the break even of our 17m subscribers, is that it’s our budget of America Movil, I’m going to give you more or less the break of what’s going to be in each country.

Okay, and the next question was just on physical CapEx and investments in the first quarter. You said that that mopped up most of the liquidity along with working capital. So could you just give us the actual breakdown of what the CapEx was, and what investments were in the first quarter?

It’s two things. In the first quarter we have the last quarter big purchase of handsets, because we pay all the handsets that we have in the last quarter, and we also placed some amount of CapEx there. I don’t have the numbers here, but if you can call Paulina, she can tell you exactly how much we paid on CapEx and on handset last quarter.

Okay, and the last question was just on the effective tax rate. And you said that you would expect it to be a similar level to last year. Could you just remind us what the effective tax rate was for last year?

Also [indiscernible], but going back to the previous question, I just want to make a point here to remind you that our CapEx expenditures are, to a large extent, announced by the vendors. We have, sort of like 20 projects, so that one thing is the actual accrual of the CapEx, and another one is the actual payment of the CapEx. So a lot of what we saw in the first quarter, beyond the issues of accrual, is essentially the payment of accounts payable that were associated with that CapEx -– but essentially CapEx conducted in 2004. So that’s why I just want to make the distinction between the liquidity on the one hand situation, and the actual accrual of the CapEx, okay?

Okay. Okay, thank you very much indeed.

Thank you.

We’ll go to the line of Walter Piecyk of Fulcrum Global Partners. Please go ahead.

Thanks. I don’t know if you can answer this question now, or if it’s for Paulina. Can you break out the dollars spent on acquisitions in the quarter?

Also on the usage, can you characterize how much the holiday occurring in March may have impacted usage? Just following up on an earlier question, it looks like the revenue permitted actually did fairly well, which kind of argues against anyone’s concerns about elasticity, and would indicate, I guess, that if there were any other further price reductions, that there would be an opportunity obviously for significant usage.

So if you could just characterize, if anything, what the seasonal pattern was in the first quarter? Was it impacted by, you know, Easter and March, and, you know, what your plans are more specifically, as far as reductions in price just on greater usage in the future.

Of course we have the seasonality for this year. This year was Easter -- all the vacations were in March. Last year, part of the vacations were March and April. So that’s something that impacts us this year. And, as you see, by an example in Mexico, the price per minute is going down. So, as you were saying, we have a good elasticity there, because prices per minute are going down in Mexico. In Brazil, as I am saying, I think we are maintaining the price per minute, and depending on the countries. But, as I said, I still think we have elasticity, especially Mexico, still we have elasticity in the traffic.

And just a break out on the acquisitions. And also if you could just comment on, it looks like the CPGA, the customer acquisition costs? I know you guys don’t break this out separately, but it appeared that, on a sequential basis, there was improvement on the customer acquisition costs. And maybe, I guess, it was you talked about equipment, the cost of handsets, there was a reduction there. But, I know you don’t break it out, but can you at least indicate whether there was an improvement in the cost per gross addition on a sequential basis? Thanks.

I think in the cost of acquisitions, as I told you, we have better handset prices and the appreciation of the local currencies help us to have a little bit of improvement on the acquisition costs, against the last quarter of 2004.

And acquisitions, I don’t think we have any acquisitions this --

I think you mentioned that there was some dollar flow through from acquisitions that were made in the fourth quarter that were paid in cash in this quarter. I don’t know if you have that number.

Well no, that’s not for acquisitions. That was for the acquisition of handsets. We acquired handsets at the end of the year, and then we had some accounts payable that we had to update this year.

Okay.

It’s a seasonality. Always everything that you have on the fourth quarter, it’s so huge that there is a lot of payments that you have to pay in the first quarter. And the last quarter of 2004 was so huge that we have big -- made payments this year.

Maybe I just misunderstood your reference to acquisitions. Just one last question. If I’m a typical Mexican land line customer, how do I know if my rates have changed? Has there been significant advertising or promotions to the extent that, when the land line customer, the calling party pays, rates have gone down?

Yes, that’s a very good question. I don’t think -- there is a lot of noise in the newspaper when we have that reduction on the calling party pays. But I think the fixed companies have to advertise a little bit more of that. I think you are going to understand that when you receive your bill. When you have your bill then you are going to see that. But that’s --

But I mean from an elasticity standpoint, it’s not like if I’m a wireless customer, and I know that I just got a new rate plan, I’m going to use my phone more. It will take a couple of months for the elasticity of that price reduction to kick in.

That’s a good point. I’m taking that point.

Okay, thank you very much.

Thank you.

Thank you. We next have a question from the line of Jean-Charles Lemardeley from JP Morgan. Please go ahead.

Good morning. Can you give us an update on long distance calling party pays in Mexico, you know, where you stand there in the negotiations?

And the second question is, it just might be early for that, but now that you’ve got a fairly significant base of GSM subscribers throughout the region, do you see any phenomenon of multiple SIM card ownership on a wide scale basis? I mean, in Eastern Europe you’ve got, in some markets, up to one-third of subscribers have got more than one SIM card, so that the penetration rates are significantly over-stated. Do you have any idea of what’s going on in Latin America?

I don’t think we have that problem on the SIM cards. I think we are really checking. When we sell only a SIM, we really check that that SIM is being used, because maybe they can export that SIM, or they can use it. So, we’re being very careful on all those type of things. We don’t want to have a lot of SIM’s without being used, so we’re being very careful on that.

And what the first question is?

On, you know, long distance calling party pays.

The long distance calling party pays. I think the government wants to do it. I don’t think long distance carriers, maybe local carriers and cellulars, everybody has agreed to do it. So we’re not still sitting down and discuss the conditions to put calling party pays, but still the government, the COFETEL, is very interested on doing the long distance -- national calling party pays and international calling party pays. So, I think the government, it intends to run these two type of calling party pays. Not only the national, also the international calling party pays.

Assuming they are both put in place, what opportunities do you think it creates for you, and what do you think you need to do in order to, you know, tackle this opportunity?

Well, I think overall that it’s going to be good for the cellulars. But it’s going to depend on the conditions that you negotiate with the long distance and the local companies. So, it’s going to depend a lot on that, but I think the traffic for cellular is going to increase.

Okay, thanks a lot.

Thank you.

Now we have a question from the line of Martin Lara from Santander. Please go ahead. Hello Mr. Lara, your line is open.

Yes, good morning. Could you provide us some guidance on your EBITDA margins, sorry, in Mexico for 2005?

I don’t have it right now but I don’t know if we would have it or we provide the number. But if you can talk to Paulina, I think, if we have it, we can give it to you. We will disclose that, I can give it to you no problem.

Okay. And another question. Why is your churn increasing in Brazil and Argentina? And why is it stable in Mexico, compared to the first quarter of 2004?

In Argentina it’s increasing a little bit because we have some promotions maybe at the end of the fourth quarter of last year. And maybe they were not so -- we have some churn with those promotions. I think churn depends a lot on the promotion that you have. So, some promotions are very good. Some promotions are not so good, and you have a little bit more of churn. So, that’s really the reason why you have a little bit.

And when you reduce the price too much, maybe it’s because the people is changing their handsets. So that’s why you have a little bit more of churn in those places. But we have sometimes more churn in Colombia, now we have a little bit more of churn, and then we have more stable churn in other countries. But I think that’s normal day of business, Martin.

Okay, thank you.

Operator, we have time for one more question, if we have more questions in the queue.

Yes we do. Okay, and we’ll go to the line of Rizwan Ali from Bear Stearns. Please go ahead.

My question is regards to Telemig, or potential purchase of Telemig. Suppose you don’t end up buying Telemig when is the launch date for your service in Minas Gerais?

I think, if we don’t buy Telemig, I think we’re going to launch at October or November. It’s between -- maybe October it will be a good date, but we have to hurry a lot. So I’m trying to have everything done, to have the last quarter ready to have this big quarter for us.

So, if you’re hurrying up right now, does that suggest that, you know, talks for the potential purchase of Telemig have kind of broken down?

We don’t have any talks right now with Telemig to tell you. We are not talking with them. I think they have a legal problem. I don’t know exactly what are the problems. One month ago, or 45 days ago they were ready to talk, but they have some legal issues that I don’t know exactly what are the problems, and we stopped talking, and we are not talking right now with nobody.

I think maybe they, when they finalize this, they I think are going to be ready to talk again. I don’t know if it’s going to be late. It’s not going to be late, but I’m not stopping anything, I’m doing all my investments in Telemig to launch in October in Minas, sorry-- to launch on October.

But even if you launch, you still have an opportunity to buy Telemig, you’ll still be interested.

Yes, I don’t know exactly what’s the network in -- how the network, how is GSM with Telemig. I don’t know if it makes sense to do it or not to do it. But depending on the money -- the price that they are asking for Telemig, I think it takes a lot of things that you need to sit down and review.

One last question is that TracFones has announced the highest margin ever. Do you think that’s a sustainable margin for TracFones going forward?

I think that would be depending on the growth that we have. But there is nothing different. I think the carrier costs, handset costs and all the expenses, G&A expenses, commercial expenses will be the same. So everything is going to depend on the subscriber’s growth that we have.

Thank you very much.

The EBITDA margin that we had last quarter is 16.5%. So depending on the shipments because we put the cost when we ship the handset, not when we activate the handset. So, it’s very important that.

Okay. Thank you very much.

Thank you.

Okay Carlos and Daniel, if you have any closing remarks for the call.

No. Thank you everybody for being in the conference call. And thank you, Vera, for having us.

Okay, thank you Daniel and Carlos. And congratulations on your strong results this quarter.

Thank you. Bye bye.

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