America Movil SAB de CV (AMX) 2005 Q3 法說會逐字稿

We'd like to thank you for holding and welcome to your conference call with Mr. Stephen Graham. [OPERATOR INSTRUCTIONS]. Mr. Graham, I would like to thank you for use of the conference services and I will turn the call over to you, sir.

Okay. Thank you. This is the America Movil third quarter 2005 conference call. My name is Stephen Graham, with UBS LatAm Equity Telecom Research, who are happy to host the call today for America Movil.

The Company turned in some numbers for the quarter last night, as most of you know. They were fairly impressive, as the stock is showing this morning.

With us are Carlos Garcia Moreno, the Chief Financial Officer, Daniel Hajj, Chief Executive Officer, and Paulina Amieva, Investor Relations. I am sure they can shed some light on what's driving results. I will turn the floor over to -- I guess Daniel will be speaking first?

Thank you, Stephen. Good morning, everybody. Thanks for being in the call and I'm going to pass to Carlos Garcia Moreno that he is going to make a small summary of the third quarter results.

Hello, everyone. We have had a good quarter in the third quarter. It's a quarter where we had a still fairly strong subscriber growth, from a particular standpoint, particularly compared with the second quarter, but very much a lumpy trend that we have been seeing for the year.

We added nearly 10m subscribers in the quarter, most of that organic. 3.3m came from acquisitions of the Peruvian and the Paraguayan operations, and the Chilean operations, all of which are grown in the month of August. And by the end of the quarter we had already reached a total of 83.6m wireless subscribers, 85.6m total lines if we include fixed lines.

So far in the year, through September, we have added 22.5m subscribers. And the organic growth that we have had so far this year would be there in the range of 19m. It's already fairly higher than what we had in terms of net additions for all of 2004. If you recall, in 2004 we had 17.2m net additions. And already in the first nine months of this year we have had more than 19m net adds.

I think it is important to mention because in the first conference call of this year, in January, we had given the initial guidance of somewhere between 14 and 15m of net additions for the year. Again, we have already 19m of organic net additions, and this is only in the first nine months of the year.

So one thing that has stood out is the strength of service revenues in this quarter. Service revenues actually expanded, by -- if we exclude the effect of acquisitions, they expanded by 7.3% in the -- quarter over quarter. It's a very, very strong showing. And this is something that was very much across the board.

Let me just mention some numbers. In the case of Mexico, we had a quarter-over-quarter growth of 4.6%. In Brazil it was 6.8%. And in most other South American countries, we operate Argentina, Uruguay, Paraguay, Peru, in all of these cases we were talking about a rate of growth quarter over quarter of about [15%] on average.

So again, very strong showing on service revenue growth. And this was really the main driver behind the important jump in our EBITDA margins that we saw in the quarter. As you have seen in the report, the margins quarter over quarter went up by 4.5 points. Again, the basic driver behind this was the growth of service revenues. There was also an element of somewhat less rapid growth of subscribers. But I think the big driver was essentially service revenue growth.

And this improvement in the EBITDA margin of the consolidated operation of America Movil is something that you can also see very much in each one of the operations. Again, let me just give you some examples.

In the case of Mexico, we went from 44.7% to 47.2%. In the case of Argentina, Uruguay and Paraguay we went from 5.4% in the second quarter to 13 points in the third quarter. In the case of Colombia, we went from 12% to 18%. In the case of Ecuador, from 22% to 24%. And in the case of the U.S., it's from 12.8% to 14.8%.

So basically, practically in all of the operations we have seen important improvement in EBITDA margins in this quarter. In the case of Mexico, a part of the improvement, a small part, had to do with the non-renewal or actually the renewal of the license for region nine, which essentially had come due last year and we had been essentially negotiating with the government. But I guess Daniel will mention this with a little bit more detail in a moment.

So, net net, that -- it's the things that we think are important, worth highlighting. Obviously net debt went up in the quarter, precisely because this is the quarter when we closed the acquisitions that I mentioned before, Chile, Peru and Paraguay, all of which in the aggregate amounted to roughly about MXN10.5b. So this is really what was responsible for the increase in net debt in the quarter.

We have continued with our share buyback program. Total share buyback and dividends in the quarter amounted to MXN2.7b and this was -- the total is roughly half of what has been done in all of the year. The first nine months of the year was really done in the third quarter, just in terms, again, of share buybacks and dividends.

So I would like now to pass it back to Steve and maybe we can open this call for questions also now.

Okay. That's great. Well, maybe I could just start then with an initial question about those Mexico City and State fees. The margin -- the EBITDA margin in Mexico hit a record 47%, highest ever. And you did mention that part of that was no longer having to pay these fees, a portion of your service revenues in the City and State of Mexico. How permanent is that? What should we expect in the future and how important was that in the record Mexico margin?

Well, what happened is, Stephen, is around four years ago they renewed their license of region nine, of the 850 megahertz license, only for Mexico, for the State of Mexico. And we don't agree on that and we put a legal dispute because for all the other companies the payment was one term payment, and for us they renewed the license, paying a percentage of the revenue.

So we put a legal dispute. We won that legal dispute; I think it was on June/July. And what's going to happen? Well, the legal dispute did -- said that we are not going to pay any more a percentage of the revenue. But we have to pay one time for the license. Okay?

So what happens? What we pay on 2005 they return to us. That was around $14m. That was -- that's the money that we put in the results in this quarter that is around 0.7% of EBITDA, what caused -- it's a gain of 0.7% of EBITDA. And what happened with the rest from 2002, 2003 and 2004, well, they have -- we are still discussing with them what -- if they -- how much they have to return to us against how much we have to pay for the license. So we are still deciding how much we have to one time -- how much we have to pay them, and still they have to return to us the money that we paid them through 2002, 2003 and 2004. That's exactly it.

What's going to be -- what we are going to see for the future, it's going to be around 0.3% of the EBITDA is what is going to help us every month this -- it's what is going to be permanent, that is that 0.3% EBITDA. The 0.7 is what we just pay from January to July.

Okay. And just to clarify, that's 0.7 percentage points and 0.3 percentage points of the total 47% margin?

Yes. It's from the total 47% margin, only 0.7% is one time and 0.3% is permanent.

Okay. So that still leaves you with record margins for the quarter. And is that primarily -- is that a cost-cutting thing or is that the result of ARPUs or a combination?

I think we are still maintaining a good cost control. As you see, also we have a reduction on net additions that is helping us a little bit. And the other very important, what Carlos' comment is, that the service revenue is growing. So it's helping us a lot. So when revenue grows 4%, 4.5% quarter by quarter, it helps you a lot.

Sure enough. Okay, great. Let me see if we can get this open to questions, if you'll bear with me a moment.

[OPERATOR INSTRUCTIONS]. Our first question is from Vera Rossi. Go ahead, please.

Thank you. Good morning, everyone. I have two questions. My first question is a guidance for 2006 in terms of net additions. And if you can give us a range instead of -- I know a specific number is difficult to predict at this point.

And second, in terms of acquisitions -- potential acquisitions in Latin America and outside Latin America, what countries are you looking at at this point to expand your footprint, if any? Thank you.

Good morning, Vera. I think the guidance of 2006 we are finalizing all the budgets. I think we need maybe until November 15 we are going to finalize everything. So I don't know exactly what's going to be the number but I can tell you that around 20m subscribers for next year would be something that we will be happy to have.

The second question is, well, we still -- we are not in Venezuela, we are not in Panama, we are not in the Caribbean, with still Bolivia. We are open to see all the other countries where we are not. So that's where we can have something for next year.

Okay. But at this point you are only considering acquisitions in Latin America. Is that correct?

Yes, still only acquisitions in Latin America. We don't have anything else.

Okay. And one more question. In terms of your push to talk, what countries are offering push to talk at this point? And in terms of number of subscribers, if you can give us an update, and handset availability as well, if you are getting the GSM with push to talk from your equipment main suppliers.

We are doing push to talk in Mexico, in Argentina, I think in Uruguay, in Central America and I don't know the number that we have. I think that in Mexico we have around 200,000 subscribers in Mexico.

And what we're doing is we are upgrading all the networks, we are gaining subscribers and we're doing push to talk under GPRS. I think when we move to Edge, I think push to talk is going to work much better and we are going to have much more capacity there. So we are doing that. And I think we have around five -- four to five phones. For next year I think we are going to have much more than that and we are going to have phones develop under Edge.

So as the new technology, everything is moving and I think we are going to see much more push to talk next year, Vera.

Okay. Thank you.

Thank you.

The next question comes from Martin Lara. Go ahead, your line is open now.

Hi. Good morning. This is Martin Lara from Santander. Just one question on Brazil. Do you still expect to close the year with an EBITDA margin of 0%?

And the other question?

Only one question.

Well, what's happened in Brazil, I think what we have in Brazil is we already put the fundamentals in order in Brazil. What do I mean with that is that we are in GSM. We are with only one brand. We are consolidating all the seven companies that we have there. We have a very good coverage right now, GSM, very good coverage. The Claro brand is doing excellent. The net of distribution is growing a lot.

So what's happening in Brazil, I am very comfortable that the fundamentals are there, that we are doing an excellent job there, and that we still need to work and that we are going to see a very good improvement for the next year on Brazil. I am hoping to have a good 2006 in Brazil with positive EBITDA.

And we still need to do a lot of things but I am comfortable having a positive EBITDA for next year. I don't think I am going to have EBITDA even for this year because Brazil is very -- the fourth quarter promotions are very big. So Christmas is maybe 40% or 35% of the net adds. So I don't think I'm going to get the breakeven EBITDA but I'm very comfortable of what we're doing in Brazil. And I think for next year you're going to see a huge improvement.

Okay. Thank you very much.

Our next question comes from Inge Heydorn. I'm sorry if I mispronounced your name. Your line is open. Go ahead, please.

No problem. Thank you very much and congratulations to your results. I have a question regarding capital expenditure. Looking at what you spent so far this year, are you still on track to reach around 2b in capital expenditure this year and how do you think about capital expenditure next year? And both these numbers would be excluding acquisitions.

I think the capital expenditures for this year were around 2.8 to 3b. Remember that we buy other companies and we grow the number of subscribers of what we have in the budget. So what we estimate for this year is around 3b on capital expenditure.

As I told Vera, I don't have the number for the next one but I don't think it's going to be too different of what we have this year. It's going to be around these numbers, $3b for 2006. I am not sure. I don't have still the numbers but I am thinking to have around that.

Is that including some 3G CapEx also in Latin America next year?

We are deciding and evaluating if we'll start to put 3G for the next year or if we wait a little bit more. That's something that we are under discussion right now.

Okay. Thank you very much.

Thank you.

The next question comes from Andrew Campbell. Go ahead, please.

Yes, thank you. It's Andrew Campbell from CSFB. I just wanted to return to this issue of the spectrum payment in Mexico. You mentioned that this lawsuit had taken place for region nine. I was wondering if there's a similar process in motion for the other regions and if there's a possibility that you could see more margin improvement as a result of that.

Well, the other regions, the license finalized in 2010 for regions four and five and for all the other regions to finalize in 2011. So we have to wait until we finalize the concessions on that and then we'll decide what to do, but still they are until 2010 and 2011.

Okay. Understood. And in terms of the region nine, you said potentially you are going to have to pay something rather than a royalty tax. How is that amount going to be determined and could that be a significant amount or what are you expecting?

I don't know. We are under discussions. But you know that we just have an option like three months ago. So I don't know exactly what's going to be the price but it hasn't to be so different from what we have three months ago. So that -- I think the government is going to take that rationale but I don't know. We're under discussions. You never know.

Okay. Thanks Daniel.

Thank you, Andrew.

Our next question comes from Patrick Grenham. Go ahead, please.

Good morning. Just a follow up on the payment for the spectrum in region nine. I imagine that the revenues you mentioned that you paid for '02, '03 and '04 that you haven't had back yet, I imagine that could offset, if you're going to get a deduction on that, that could offset any payment you make for the spectrum going forward. Is that correct?

And secondly, it looks as if you're getting a big surge in outgoing traffic in Brazil and in some of the other countries across the region. Is it time -- are we going to see that go for the long term and do you have capacity constraints? Do you think that could slow the rate at which we'll see the outgoing traffic volumes grow going into 2006 or do we think we will actually see 30 to 50% increases in those traffic?

Yes, the first question, Patrick, I think they are two different issues. One issue with the government is to decide and to discuss what's the amount of money that we have to pay for the license. Okay? The other is that they have to return what we have -- what we already paid them in 2002, '03 and '04. It's totally different things, but independent things. Okay?

But I don't know exactly if they want to get together the things. But legally it's different, independent and in one way we're saying to them you have to return to us the 2002, '03 and '04 and on the other side we're discussing with them how much we have to pay them. Still I don't have the number exactly of how much we paid them in 2003, '04 and '02. So we are under that discussion. I don't think they are going to -- I don't think they are going to relate one thing to the other one.

I am happy that the minutes are growing, the outbound minutes are growing, and I think when you have good customers the minutes should grow. So -- and when you have good customers and when you are reducing a little bit, little by little, or you make some promotions or reducing a little bit prices, of course, minutes of use have to grow when you have good subscribers.

I don't have any constraints on capacity. I am doing okay in other countries and we are -- I think in other countries we are ready to have Christmas; that is the biggest month for traffic. So I don't think I'm going to have any issue. I think all America Movil is prepared to pass Christmas, to pass December, that is the highest month of traffic.

Okay. And what we noticed is, although your yield's [indiscernible] in Brazil and Mexico went up, they went down in Colombia and Argentina. Is there anything particular going on in those markets to lower them?

Well, Argentina and Colombia, especially in Colombia, we are growing at a high pace. So I think, until the subscribers get accustomed, start calling and do all what they need to do, give the number to their friends, they start to -- everybody calls them, they have to call. So it's like a process and I think it will pass for next year. No? So I'm happy with the customers of Colombia and Argentina.

Okay. And when -- last question, when do you expect to launch GSM in Chile?

I think it's going to be on the second quarter of next year. We are going to launch end of the second quarter, maybe May or June of next year, I think we are going to have the GSM in Chile.

Perfect. Thank you.

Thank you very much, Patrick.

Our next question comes from Walter Piecyk. Go ahead, please.

Thanks. I apologize for going back to this issue but I just want to clarify Mexico. The return of funds had to do with 2005, correct?

Yes.

So -- and that helped your margin in the quarter by whatever, 0.7 basis points in the quarter. So that's the run rate -- so if we basically just -- that's the annual run rate, though if you take the 14m, annualize that, that should give us what the assistance is going to be on the margin going forward. So it will probably help margins, what, 30 basis points in 2006?

What I just tell, this 0.3% is, I think, what is going to help us every month.

Fine. Understood. Every month or every quarter?

Well, it's the same, every month.

Right. Yes, exactly. And then the issue with the price, you're saying listen, we're going to negotiate the price and that has nothing to do with whether or how much money we're going to get back from '02 to '04. They could charge you 1b for the license, you're going to get back whatever for the -- for the same, so they're mutually exclusive.

And then the last question is the relevance of this region versus other regions, if we're going long-term models, 2010, '11, going forward, are we just multiplying this impact by 5? So if I'm looking at my model in 2010, you've got some incremental EBITDA margin pick up?

I don't know. I need to check your model but --

No, no, I'm just saying conceptually, conceptually. If you're going to get these -- the same type of transaction in 2010 with these regions, where you're renegotiating with these other regions.

No, it's not like this because today we are using only TDMA in the 850 frequency. Okay? So, depending what we are going to do in the 850 frequency in the future, okay, maybe we'll just put GSM, maybe we'll put UMTS. So depending on the traffic that we have in that license is going to depend how much we have to pay there. So that's more or less what you need to evaluate.

Excellent. And then just one other question, actually two questions, one on Mexico and one on Brazil. Very good ARPU in Mexico in the quarter. What -- was it data? What were the factors that demonstrated the ARPU there and is that trend going to continue?

And then Brazil, last quarter you mentioned that your cost per gross addition or your subscriber acquisition cost had gone down from Q1 to Q2. It appears that it has gone up in Q3. Could you verify that and give us a sense, is there like a 10 or 15% increase in your subscriber acquisition cost in Brazil, probably around the ballpark number, and why did that happen?

I'm going to check. I think we have 10%. And I think also it's because we're selling phones -- higher-priced phones. They're like camera phones, like color screen phones, like music phones. And that would give us a little bit more of the acquisition cost. But I don't think it's going to be too different last quarter. This may be 10% more, 10% less. But I think we are going to be in that range.

It's also going to depend a lot on how does the market is going to react for the Christmas promotions. So we don't know exactly if it's going to be too tough or it's going to be price -- price [inaudible]. It depends month by month and country by country.

Okay. I was specifically focused on Brazil subscriber acquisition costs. If you look at the margin there, the upside on the subscriber growth gives you one aspect of the margin, but it also looked like your -- the actual subsidies per phone picked up a little bit from Q3 or 2 -- Q3 from Q2.

Yes, this is actually what I was telling you, it's maybe it's because we were a little bit more -- the prices that were a little bit -- the market was more aggressive or we sell higher phones.

Right. Understood. And can you just comment on Mexico, what --?

And also, one thing is that we have less gross adds. So while you put more costs in less gross adds than in more gross adds. So that's the fixed cost that we have, you put it in less gross adds than in more gross adds.

Right. Exactly. And then Mexico, the ARPU?

The ARPU in Mexico is doing good. I think our postpaid and prepaid customers are consuming and we are happy how they are developing. I think we have a good ARPU in Mexico and we have a good margin in Mexico. So --

So this upward trend that's occurring, is it just more -- obviously the minutes of use, it's not minutes of use as much because you report that number, but it looks like daily usage is contributing to a stronger ARPU sequentially, because last year you didn't have as much of an increase sequentially in the ARPU. And this quarter looked like very healthy ARPU in this very big market for you.

Remember, we are growing a little bit more on postpaid there. Postpaid is growing more and data services is growing also.

Okay, great. Thank you very much.

Okay. Thank you.

We have a question from Jean-Charles Lemardeley. I apologize for mispronouncing your name but your line is open.

That's okay. Jean-Charles Lemardeley from JP Morgan. Good morning, gentlemen. Just a couple of questions on, first on the U.S. You had a pick up in net adds from the base of the second quarter, but that has remained quite a bit below where they have been on the run rate, where they were prior to the second quarter and they were below where they were last year. Can you talk about how you see your subscriber base developing there in the U.S., and if this recovery we have seen from second to third, you expect to continue?

And then second quarter -- the second question is do you have any assessment throughout the operations of how much multiple SIM, second and third SIM cards you have on a per-country basis at all?

Well, on TracFone, I think we are improving from second to third quarter. I think fourth quarter is going to be good because, well, it's Christmas. It's -- November is a good month. December is a good month. And I think we're going to grow more than third quarter, of course. So I think TracFone is going to have a good fourth quarter in terms of subscriber growth.

And on the SIM card, I don't get your question.

Just obviously you have more SIM cards in circulation than actual physical subscribers in most GSM markets, and sometimes the ratio can be quite high. Do you have any survey available for Latin America that would give us a better idea of what the actual penetration is -- the actual human penetration?

I don't think we have any because we have some duplication. We put it as a churn. And if somebody has a SIM card and they are not using the SIM card, well, I hope I am doing that as a disconnect the customer -- I disconnect that customer. So I think you check a lot on the minutes of use and the ARPU per country. So if you are more or less in the average, then you are -- you have good customers. You are less in minutes or less in ARPU, then maybe you have some duplicated SIMs or some customers that you are -- that they are not consuming. So that's how you can check if in some countries you have duplicated or some customers that they are not using the phone.

Do you sell SIM cards separately from phones everywhere in Latin America?

I sell some SIM cards. But they have to pay and they have to consume. If they don't have some consumption in that SIM card, then I disconnect that customer. But yes, I sell some SIM cards. But I have to be honest to you, we are being very careful on selling SIM cards alone because we don't want to have that problem.

Okay. Thank you.

Thank you.

[Dan Krakowski], your line is open.

Thank you. Two questions. One is just to follow up on the CapEx question. The $2.8 to $3b for 2005, does that include the acquisitions that you have just made, the MXN10b?

No, it doesn't include the acquisitions.

Okay, they're not included.

It includes the CapEx that we are going to put this year to the Peru, Chile and Paraguay countries that we just get, but it does not include what we pay for the company.

Right. Okay. And then the second question is it seems that on a consolidated basis, both equipment costs per gross add and also subsidies per gross add seem to have dropped quite substantially quarter on quarter and year over year. How much of that is a seasonal effect, Q3 being quite low, and how much of that is an ongoing impact?

As I told you, it's more the promotions and the prices that we have and the prices for the market and the competitor and the aggressiveness of -- in each country it's different. Maybe in mother's day it's more competitive than in father's day, or maybe Christmas is more or less competitive in one country than in the other one. And that's more or less what takes -- that drives you to get a little bit more of acquisition or less acquisition cost in each month or month by month. But that's the only thing that depends there.

It seems that equipment costs seem to be dropping very fast as well, though.

Well, yes. As you know, all during the year prices are dropping and we're getting better prices. This year we have better prices than last year.

And should we expect that to continue at the same sort of rate going forward, the same sort of decline in handset prices?

Well, remember that we are one of the biggest buyers of handsets in the world. We are buying a lot of handsets this year. So we are taking also good prices.

So the answer's yes?

Yes.

Okay, great. Thank you very much.

Thank you.

James Breen, your line is open.

Great. Thank you. Good morning. I had a few questions. One, could you talk about the tax rate this quarter? It seemed as though the applied tax rate went up significantly quarter over quarter, close to 40%.

Also, with Peru and Chile now consolidated, I think I'm trying to get a handle on what that's going to look like going forward. Can you provide us some form of guidance or just the historicals, if Chile and Peru had been consolidated for the full quarter what each would have contributed in revenue and EBITDA?

And then finally, in the push to talk question, you talked about 200,000 push to talk customers in Mexico. Do you have any sense of what the usage is in terms of if the customer is using 100 minutes on the phone, how much of that is switch versus push to talk? Thank you.

Charles Chichester, your line is open.

No, could you please -- could we please answer the other question first?

Yes.

Okay. Regarding the tax rate, I think that -- it wasn't that it [indiscernible]. The tax rate may vary very much on a quarter-over-quarter basis and I would want to refer you effectively to what we have seen this year so far.

The third quarter rate is not significantly different from the one that we saw in the first quarter, but it is very much different from the one in the second quarter. The one in the second quarter essentially had to do with two exceptional things that happened in the second quarter. On the one hand, we got a tax evolution which was the result of, again, some kind of a dispute on a strategic transaction that we have done and which was ruled in our favor. So we received roughly about $100m equivalent in the second quarter and that obviously reduced the tax bill for the quarter.

The other thing that happened in the second quarter is that a very significant part of the income before costs, before taxes, had to do with the quite sizeable effective gains that we had in that quarter. And very many of these FX gains had taken place in Brazil. So we were in a position that we didn't have to pay any taxes.

So basically, that can explain the variability that you may have in a quarter compared to other quarters. So sometimes, the effect of things that are being done, including the resolution of some of the legal disputes that may be in the courts may affect one particular quarter.

But again, third quarter, the effective tax rate is fairly similar to the one in the first quarter. It's much lower than what we saw in the last quarter of last year. And, again, last quarter last year I think we were talking about nearly 75% of effective tax rate. And that's because in the fourth quarter a number of transactions took place that essentially had to be combined, or had already been foreseen in the previous quarters. So that led to a significant amount of deferred taxes that were set off in the last quarter.

So I'd say that what is important regarding tax rate is that you focus on the year as a whole and we have an expectation of what we can attain. We should not be all that different from what we saw last year. We're probably going to be in a somewhat better position for this year. Remember that one thing -- one of the things that determines the effective tax rate is that the countries where we are not making profit, where we may actually be [inaudible] and which the losses cannot be compensated against the taxes that are paid in countries for the [inaudible].

So essentially, just the point is structurally going forward, as more of the operations in South America become more profitable, to the extent that there are significant tax losses in those countries, we will not be making -- we will not have to pay taxes on a portion of the profit -- of the consolidated profit that America Movil is going to be carrying. And that is just going to help reduce the effective tax rate going forward.

But again, all I want to emphasize is that on a quarter-over-quarter basis there may be changes and it's important you focus on these. Overall for the year, the result for this year, as a whole, we expect is going to be somewhat better than what we had for last year. And again, that's something that will show up very likely in the last quarter.

Great.

Regarding the second question, can you repeat it please?

With Peru and Chile now consolidated into the mix, can you possibly give us an idea if they had been consolidated at the beginning of the third quarter, what their revenue and EBITDA contribution would have been, just to help with the modeling going forward?

We have a small reference in regard of our notes. We say that -- we are saying that without the increase in service revenues would have been 8.8% if you include Chile and Peru, and would only have been 7.3% quarter over quarter if you do not include Chile and Peru. And we have the same reference for EBITDA. We say that EBITDA quarter over quarter would have increased 29.2% without Chile and Peru, and 28.2% if we also included Chile and Peru. And that's, again, for one month.

What we intend to do is in the next quarterly report for the third -- for the fourth quarter, we are going to have the full table as we have for all our operations for Chile and Peru. Okay? In the meantime, I think if you have any more specific doubts you can contact Paulina.

Great. And then finally, on the push to talk in Mexico, the usage there, the customer using 100 minutes, what percentage of that is push to talk versus switch for those 200,000 customers?

I don't have that number, but you can talk to Paulina. We can give you that.

Great. Thank you very much.

Thank you.

The next question was from Mr. Charles Chichester. Go ahead please.

Right. Just in the last couple of quarters your postpaid percentage of net additions has been much lower than historically. I'm just wondering whether we're able to get some sort of split of your ARPU figure in prepaid and postpaid, so that we can actually see how much of this change in the customer mix is affecting the ARPU levels. That's my first question.

And the second question, just given your slight change in guidance for your margins for the end of the year, are you able to give any market guidance for net adds in Q4 in Brazil and how much you expect to participate in the seasonal push? I'm trying to see if you can give any comment on the level of activity you're seeing at the moment in October and what you're expecting for the rest of Q4 in particular, compared to Q4 last year. Thanks.

On breakdown of prepaid and postpaid ARPU, we are not providing that right now. But on the -- still, I think it's important to mention at the beginning of the year we had the expectation that we were going to grow this year in Brazil roughly about 3.7, maybe as much as 4m net adds in all of the year. As you see, that is already what we have attained only for the first three quarters. Okay? So we are in three quarters practically where we expected to be for the full year at the beginning of the year.

So if you look at the seasonal patterns in Brazil, they have been very stable. If you look at 2004 and 2005, the distribution per quarter of the -- of net adds is fairly similar. So I think that from there you can have a very good number of what we should be expecting still for the fourth quarter.

What I'm saying is, for the first nine months of the year, the behavior of Brazil was very similar to what we saw last year. So that probably should lead you to expect something similar for the fourth quarter.

Okay. Thank you.

Drake Johnson has the next question. Go ahead please.

Thanks. The question on taxes was answered. Nice going in the quarter.

Mr. Johnson, were you done?

Yes, all said. Thank you.

Thank you.

Thank you.

[Claudio Brocado], your line is open.

Hello, Daniel. [Claudio Campolina]. Congratulations on a great quarter again. I wanted to ask you, on the net adds in Mexico in the contract side, which was a pleasant surprise, what percent of those net adds in the contract side would you estimate are push to talk users?

I think we're growing around 7,000 the push to talk users per month in Mexico. I don't remember exactly the number. Paulina can give it to you. I don't have it. It's around from 5,000 to 7,000 push to talks per month.

Great. Thank you very much.

Thank you.

Vera Rossi, your line is open.

Thank you. I have a follow-up question on the push to talk. In terms of the ARPUs, your main competitor, NII Holdings, they have ARPUs on the push to talk around $80 per month in Mexico. Should I consider similar ARPUs for AMX for the push to talk subscribers in Mexico?

No, I think we are a little bit less than $80. I think the prices of my competitor are still a little bit -- I think the tendency is to do a little bit -- it's too high, $80. I think the average around the world is around $60. I don't think we are getting $80 with push to talk. Depending on the plan that they get with the phone, okay, because if you have a high plan or you have a -- but push to talk we are not getting $80. We are getting a little bit less than that.

Can I consider you are taking -- you are getting the average in the world that is around $60?

Maybe. Maybe, yes.

Okay. And another question on wireless distribution in Latin America. What do you think it takes for us to see an acceleration in migration of the traffic from wireline to wireless in terms of it is the right prices for wireless or an increase in penetration? What do you think is going to trigger an increase in wireline -- in wireless distribution in the region?

Vera, I think a lot of things. As you said, the price difference would be a lot. Penetration would be other factor. Other factor is that in some countries fixed companies are not investing too much, so we're taking more quickly than in other countries where the fixed companies are investing more. So would be price, would be penetration and would be investment also.

In terms of prices, do you think there is a certain level of price or a ratio between wireless and wireline that we see an acceleration in Latin America of this migration of traffic?

No, Vera. What I am thinking is as the prices of cellular get lower, then people's preference is to talk through cellular in their homes or in their businesses than to talk to -- in the fix. It's what I'm seeing. So as price, I don't know exactly what would be the cause to do that, but I think, as you get better prices, you are going to get more traffic.

Okay. Thank you.

Two, three, four years you are going to see that the traffic is coming from fixed to wireless.

Thank you.

Thank you, Vera.

Inge Heydorn, your line is open.

Thank you very much. I already asked my question but I will ask another one, as I am on the phone anyway. You answered the question about the CapEx, 3b. When I look at, for example, your future vendors and the pricing on equipment which is falling, are you looking at Chinese vendors, you'll start to use Chinese vendors to pressure the equipment prices down even further?

And a second question on that is who are the ones that are building out the GSM network in Chile for you?

Well, in Chile, Ericsson is doing the core and Siemens is doing the radio. And, of course, when we decide to do something everybody is competing to see which space is our best choice, not only price. It's price, support, there is a lot of things that you have to consider. And we have seven or eight, including some Chinese vendors, that would quote when we have something for America Movil.

By an example, UMTS for next year or 2007, depending where we are going to go, I see that everybody's going to compete to see which is the best choice for America Movil.

Okay. Thank you very much.

Thank you.

Walter Piecyk, your line is open.

Hello. How are you doing? Two quick questions on the two markets that were just acquired. Can you give us any metrics? Those were obviously existing business with regard to ARPU, where EBITDA is and things like that.

And also, on the infrastructure purchases for these overlays and things like that, are you bundling in handsets, handset pricing, when you are negotiating these larger infrastructure purchases? Thanks.

No. No. In Chile, by an example, we take Ericsson as core, as I said, and Siemens as radio. And we don't take handsets for including with the price of everything. And in Peru we have Nokia because the company used to have Nokia. TIM used to have Nokia there. We still get Nokia and we don't have anything on handsets also.

Okay. And then just metrics on the new markets? Can you provide us with that?

I think we are going to get -- we are going to give it to you for the next quarter. We only consolidated September this month. So for fourth quarter we are going to get the same -- the same charts that you get for each country you are going to have for Peru and for Chile.

Okay. So can you just give us an idea of what the churn or the ARPUs are like for those markets?

I don't have it. You want to use it --

Similar market perhaps? Looks like?

Brazil, Central America. I don't have it.

Okay. Well, if you find it before the end of the call, if you don't mind providing it, that would be great.

Okay. I think in Soles it's around PEN43, the ARPU in Peru. And in Chile it's around CLP6,907. So you can call Paulina. I am happy to give it to you.

Okay. Great. Thank you.

We don't include it because we have only one month, so we don't have anything with compare, so we decide to do it in the fourth quarter so the whole quarter to put it.

Right, I just obviously have a ballpark idea of what the number is. It's obviously not 80 or not 20, so.

Okay. Okay.

Okay, thanks.

Thank you.

Our next question comes from Mauricio Fernandes. Your line is now open.

Thank you. A couple of questions, Daniel, please. The first one on the third quarter in Mexico, if you have been able to get a good sense for America Movil's market share, both in postpaid and then taking everything into account for postpaid and prepaid and how AMX did.

Second thing is --

First, in that question, I'm sorry, I don't have the numbers of my competitors so I cannot give it to you. So until we have the numbers of the other competitors, I'll have it, but I don't have it right now.

Okay. Net adds in Mexico were down a little bit. I was wondering if -- what we usually do is just it goes up in the fourth quarter. I was wondering what is your expectation for the fourth quarter.

Well, third quarter gets down from second quarter. Remember that in second quarter we have mother's day. So third quarter we don't have that. And I expect to have more net additions in this fourth quarter than in -- I don't know exactly how much more, but we expect to have more subscribers than the third quarter. I don't know the number.

Okay. Thank you.

Thank you, Mauricio.

The next question comes from Rizwan Ali. Your line is now open.

Thank you. I have two questions. The first is if you adjust the Mexican margins for the 14m that you got back, you should have about 46.5% market share -- I'm sorry, margin, EBITDA margin. Do you think that's sustainable going forward or do you think you can improve on this further or only -- especially for next year?

And the second question is about Brazil. Given that you've already achieved your subscriber growth target for the full year in the first three quarters, and you probably have another 30, 40% of the net adds for the full year in the fourth quarter, is that a reason to be more optimistic about the growth in Brazil next year or less optimistic in the sense that do you think you will slow down next year in terms of sub growth in Brazil?

Well, on the Mexican, I think 46% of ARPU -- of margin, EBITDA margin, is very good. And I think if we sustain that we're going to be very happy. But we're going to be around that -- those margins. Depending on the quarter, next quarter is going to be more net adds so I think would be a little bit less. But average, I think, you're going to see more or less the same ARPUs, the same EBITDA margins in this year than in the next one.

So a little bit more, but 46% is good. So I think we can increase a little bit, or maintain what we have today it would be excellent for us. What we need to do is to improve the other countries where we are operating to get to the very high 40% EBITDA margins that we have in Mexico. So I think we are going to be focused to increase and to get better margins in the other countries.

In Brazil, well, Brazil is growing. The penetration, I think, is getting -- Brazil, Mexico, Argentina are increasing. Chile is the highest with around 70% penetration. And I think Brazil, Mexico and Argentina is going to get there soon. Maybe the next two years we are going to see some penetrations of 70, 65% penetration in the next two years. So maybe 2007 -- 2006 and 2007 we're going to get to the same penetration as Chile today.

It's my view, so I don't know exactly the numbers and the net adds, but the growth is going to be in that range. I don't see why Chile is getting 65% penetration and Mexico, Brazil and Argentina could not get to that number in the next two years. So you're going to see that growth in those three countries.

One last question. You're getting the money back; you said you got back 14m. What is the total reimbursement that you will get and over what period of time?

Again? I don't get that? Yes?

In Mexico you said you would be getting the money back.

Yes, 14m.

14m. So what is the total amount that you will get back and over what period of time?

I don't know. You are talking about 2002, '03 and '04. I don't know the number. What I just tell that permanently it's around 0.3% of the revenues today, it's going to -- and the EBITDA today is going to be 0.3% savings that we are going to have for the next -- permanent for the next quarters.

It's going to depend also on how much is going to cost the license. So that's going to be the difference. But I think it's better to pay one time than to pay for revenue every quarter and especially in companies that the revenue is growing every month.

Great. Thank you very much.

Thank you, Rizwan.

Our next question comes from Josh Milberg. Your line is now open.

Yes. Thank you. Good morning everyone. I was just hoping you could comment on the issue of fixed to mobile interconnection fees in Mexico. We had heard from Cofitel some time ago that it was seeking to implement additional interconnection rate reductions beyond -- reductions that would go beyond the 10% cuts already planned for '06 and '07. So if you could comment on that and also give us an update on the status of nationwide calling party pays, that would be great. Thanks.

Well, on nationwide calling party pays, the government is saying that they are going to do it. So I think they are trying to implement that. I don't know when they are going to do it. But they want to put calling party pays.

And on the fixed to mobile interconnection, well, what we are going to get today is 10% less January 1 of next year, so that is the contract that we have with everybody. And in 2007 we are going to get another 10%. So that gets us to one -- that gets us to a very competitive interconnection rate.

So I don't feel that the government will do something more aggressive. I think the interconnection is really competitive in all Latin America, in all the world, interconnection that we are going to have in 2007. It's more or less in one -- in two months we have 10% less and in one year another 10% less, and I think that's a very competitive interconnection. So I don't think that they are going to do something more aggressive. But, well, with the government, you never know. And I don't think and I don't know that they are going to do something later.

And Daniel, what's your view on the impact of nationwide calling party pays?

Well, it's going to depend a lot on the negotiations between the long-distance carriers. I think if the government puts calling -- nation calling party pays, it has to be nation plus international calling party pays. So international calling party pays, I think we are going to get --

Hello, this is the operator. How may I help you?

Sorry, you hear me?

Sorry, go ahead.

That in the international calling party pays I think it's going to be better for Telcel. And in the nationwide calling party pays, I think it would be good. So overall it's good for Telcel. But it's going to depend a lot on the rate and what's going to be for long distance and what's going to be for the local carriers and what's going to be for the cellular companies. So that's going to be really the discussion that we -- if they implement that, that's going to be the discussions with the other companies.

Okay. Thank you.

Thank you very much. I think the last question.

Okay. Our last question comes from [Marcus Val]. You now have the floor.

Hello?

Yes?

Okay. In terms of funding and that issuance for 2006, can you give us any guidance for how much you plan to issue in total and also the breakdown, and how much you intend to issue locally and externally as well?

The question please? I don't hear your question.

In terms of that issuance for 2006, can you give us any guidance as to how much you plan to issue in total, and also the breakdown of how much you plan to issue locally in Mexico and also in the external market?

We practically do not have amortization next year. I think they are [indiscernible] in the Mexican market about $500m whole. So very likely that we would be -- that we would do it through an issue in Mexico from MXN5b, another MXN5b or so sometime in the year.

Other than that, I think something that we may consider doing is to take on some additional debt in local currencies, particularly in Colombian pesos and probably even Peruvian soles. But that's basically it; we don't really have any other funding requirements. And therefore, we do not believe that we would be going to the dollar markets again.

Okay. Thank you.

Thank you.

Thank you. And thank you everybody for being in the call. And thank you, Stephen, for hosting the conference.