America Movil SAB de CV (AMX) 2006 Q3 法說會逐字稿

Good day everyone. Welcome to the America Movil third quarter 2006 conference call. [OPERATOR INSTRUCTIONS] For opening remarks and introduction, I'd like to turn the conference over to Mr. Patrick Grenham. Please go ahead, sir.

Good morning, and welcome to the America Movil's headquarters '06 earnings conference call. Today, we have Mr. Daniel Hajj, America Movil's CEO; Mr. Carlos Garcia Moreno, the CFO; and Daniella Lecuona, who is the head of IR for America Movil. And with that I'm going to pass it over to America Movil's management to start the call.

Thank you, Patrick. Thank you for hosting the call. Thank you everybody for being on the call. I'm going to pass to Carlos Garcia Moreno. He is going to make a small summary of the third quarter results of the company.

Thank you. Good morning, everyone. We have just published the results for the third quarter. It was a good third quarter in what is normally a seasonally weak quarter, in spite ofwhich we feel managed to maintain very solid subscriber growth. We added 6.2 million subscribers in the quarter, 1.6 million in Mexico, which was almost identical to the numbers for the previous quarter, for the second quarter. We had 1.2 million in Brazil. We had 950,000 in Argentina, which was by far its best number so far this year. And we had 786,000 net additions in Columbia.

If we compare it to last year, the third quarter net adds were nearly 50% higher in Argentina. We're growing more rapidly in Argentina than last year. They were higher also in Mexico. They were 22% higher in Mexico. And they were identical in Brazil, which has not been the experience of other competitors. But they were down in Columbia, and this had to do with a less aggressive commercial policy that that we've been following in that country. In spite of which, and this is important, in spite of which we maintained our market share. Essentially, all of the Columbian market slowed down more or less at the same time because -- this has to do with the fact that Columbia's penetration rate already reached 70.2% at the end of September. This makes it by far, I guess, the highest penetration rate within the top four Latin American countries.

And just to give you a - to put it in perspective, just two years ago, Columbia was significantly lagging the other three top markets which are Argentina, Brazil and Mexico. So Columbia has come a long way and we didn't think that it made much sense to keep on being as aggressive once we reached these penetration levels.

If we look at the year-to-date figures for subscriber growth, we have added this year 20.6 million subs, more or less 5 million in both Mexico and Columbia, 2.5 million in Brazil and 2.4 million in Argentina. Ecuador and the U.S. each had about 1.1 million net adds and in Central America we had 1.3 net adds.

It's important to note that in Chile and Peru, which are the companies that we only bought in the third quarter of last year net adds were about 2.5 times larger than they were a year before. So I think that you can see that there has been a very significant impact of that are now being managed by America Movil. We had a short period that the company grow. We have put the CapEx that is needed to develop the coverage and the capacity to sustain rapid growth in those markets, and we have become more competitive.

Looking at revenues, we had a total of 58 billion pesos of revenue in the third quarter. That means growth of 22.7% year over year. Service revenues have been growing a bit more rapidly, 24.4%, again, year over year.

Argentina, Peru Columbia exhibited the fastest annual rates of service revenue growth with 45% in Argentina, 43% in Peru and 41% in Columbia. And in fact, sequential growth was remarkable in two of these countries. In Peru, third quarter -- or the second quarter we've had an increase of 15% serve revenue growth; in Argentina it was 10% sales revenue growth.

It's important to note that [Crackton] followed closely in terms of service revenue growth with 38% year over year. That makes it the fourth more dynamic operation that we've had in terms of service revenue growth.

Now, looking at EBITDA, it came it at 21.3 billion pesos. It was up 40.3% year over year. If you look at the margin, it's to 36.8% in the quarter. And that makes for an improvement of 4.6 points relative to a year before. But if we allow for the effect of [inaudible - accent] Brazil that it's [canceling] a portion of our margin, I would say that the expansion is somewhat more than this 4.6 point that I mentioned before.

Now, the expansion of EBITDA margins have been quite significant in several countries. In Columbia and Peru, we have seen an expansion of more than 20 percentage points. In Brazil and Ecuador, 15 points, again, [inaudible - accent] due to [inaudible - accent]. In Central America, we had a decline this quarter, which was attributable in part to the effects of this season's tropical storms on maintenance costs, particularly in Guatemala and El Salvador.

Now, the net income for the quarter was up [inaudible - accent] year over year. It reached 11 billion pesos. And that means that the year to September figures of net income were brought to 32.1 billion pesos. What I'd say is that all of our operations, as you can see in this report with more detail, all of operations are healthy and they are growing nicely. With the launch of GSM services in Chile in this quarter, we have completed our common GSM platform in Latin America and are now able to compete more aggressively in that market.

The good health of our operations is reflected in our cash flow. Our net debt came down by 18.5 billion pesos in December, even though we have spent an aggregate of 32 billion pesos on CapEx, share buybacks and dividends. At the end of September, the net debt to EBITDA figure is slightly under 0.5 times. So this is a company that has become significantly undelveraged but this partly has to do with the fact that we have pending some acquisitions, the completion of some acquisitions that are from Verizon that we expect to take place later on this year.

Altogether, I'd say that it's important to highlight that the company has obtained sufficient scale most everywhere. That means that we can grow without having to increase our fixed costs, and this tends to improve our core profitability, our core EBITDA margins. So I would like to leave it there and pass it back to Patrick. Maybe we can start the question-and-answer session, Patrick. Thank you.

Thank you, Carlos. I was wondering couldyou just give us an update on the operating leveraging in the business? It seems as if we're getting excellent margin expansions out of Mexico and more especially out of Brazil and Columbia. What's your guidance now for the Brazilian margin going into 2007? Do you think you can be at the high 20s by the end of '07 in your EBITDA margin? And what's your guidance for Columbia too?

Well, Patrick, on Brazil, we're not finishing still the budget for next year, but I think that the increase on the EBITDA margin will be significant. I don't know if we're going to be in the high 20's or in the low 20s or in the high 90s or 20s%. But it's going to depend a lot on the growth that we're going to have in Brazil. We're have a very good growth. We're gaining market share in Brazil. I think we're gaining market share with being profitable. We're fixing a lot of the -- we're putting in order everything that we have. We merge with -- the brand has been an excellent brand. We have a very good coverage on GSM.

So I think for the next year we're going to take advantage of everything that we do last year and this year. So I think EBITDA margins will grow. I don't know exactly at what levels are going to be. I don't think they're going to be in the high 20s - they say it's too much. But what I would think is that maybe not the next year but maybe in 2008 we will be in the high 20s or low 30s. So it's going to depend on time to have a very good margin in Brazil.

But today in Brazil we still think that growth is very important. So we still want to grow and maintain that in Brazil. In Columbia, I think that we, as Carlos said, that the penetration has been growing a lot. So we think that we don't have to be so aggressive in the market. So today we have a very good scale, a good customer base and as we're growing a little bit more slowly, then the margins are getting better and better. So I think that's what's happening in Columbia, and I think it's what's going to happen in all the other companies where we are operating.

The operating leverage is very important for us. We grow the revenues and we maintain the costs. So that means that -- the other thing that we're doing also, Patrick, is that in terms of subsidies, I think we're having better prices on the handsets and we're maybe maintaining the prices to the end customers. So that's also another thing that's been very good for the company. So that's mainly what we're doing and what we saw that we're going to have the next year.

Okay, great. Okay, Andrea, can we open the call up for questions?

Certainly, Mr. Grenham. [OPERATOR INSTRUCTIONS] Our first question comes from Vera Rossi with Morgan Stanley.

Thank you. Good morning, everyone. I have a question on the EBITDA margins in the medium to long term. When I look at the margins in Mexico that are around 50%, and I look at the other operations that are not there yet, what are the operations that can get to the margins -- can we use Mexico as a benchmark for all the other operations? Can I use like for the countries that are duopolies, like Columbia, Ecuador, Peru, or do I need 40 million subscribers, as I have in Mexico to have the same level of margins at 50%? What is more important the market structure or the size of the customer base or both to get where Mexico is? And in terms of Mexico, do you think it's sustainable, the margins where they are today, or do you still have room for improvement? Thank you.

Hi Vera, how are you?

Hi. Thank you.

Well, in Mexico, I think we have a very good margin. You know that the national and international calling party is starting November 4. So I think at the short term, the national it's not good for America Movil for Mexico, but the international is very good for [Tercel] Mexico. And in the long term, I think the national is going to be also good for them, depending on the growth of the [minutes]. So we need to check. I think with the national and international calling party base in Mexico, I think we can maintain that margin for the next year. I think they are going to be more or less sustainable, the margins.

The other question that you are saying is, well, scale is very important, but in different countries you have different cost structures, maybe taxes in some countries. So you cannot -- the structure of costs in each country is different, but I think scale is very important. But the cost of each -- you don't need 40 million subscribers to have a 50% EBITDA margin. What you need is some scale, but to be very careful on the costs that you're having.

Another important issue is the acquisition cost. The acquisition cost is also very important. So as you slow the growth, then the margin should be growing. So maybe in other countries you could get from 40 to 50% depending on the cost structure of each country [inaudible - accent]

Daniel, do you think we are going to see more countries with margins around the levels that we have in Mexico today in like two years, three years from now?

Well, I think yes, of course, yes. You could see other countries with 50% EBITDA margins, depending on the competition on the market, depending on the speed on the growth that you are having on the subscribers, and depending on the cost structure that you get in each country. Of course, you can have other companies to have 50% margins, yes.

I have another question and I'm not sure if the budget for next year is ready. But if so, do you have already an idea, a range about the level of net additions for '07 that the company is targeting?

We're finalizing the market. I don't want to say anything until we finalize the budget I think. Maybe at middle of November we're going to have something there. But I think -- I guess, I don't want to say it, maybe 22 million customers for next year would be a very good year.

And this number includes -- it's only organic growth?

Yes, it's organic growth.

Does it include the acquisition of the rise in properties, like including the growth that you may have on these properties or on this 22 million --

That doesn't change too much. The Dominican Republic and Puerto Rico is not going to change a lot these numbers. So we can have 22 million for next year, but we are not including Dominican Republic or Puerto Rico. Until we close the companies, then we put it in our budget. The companies are still -- the companies are not closed yet.

Okay. And my last question is about CapEx. Do you expect to have a 3G CapEx for '07 and to launch the 3G service as you originally had some time ago?

What we're budgeting, Vera, is that we're going to put the GSM CapEx for next year. One of the good things that we're having is that a lot of coverage, that the coverage is more costly than the capacity. We already put it in all Latin America. So we're going to put coverage in some places where we need, but we're going to put capacity. And I think we're going to do 3G maybe in small -- in some countries, in some cities to check and to test the market. I don't think that the UMTS or 3G is going to have a huge CapEx for next year.

And what is the level of CapEx you expect for '07?

Around the same that we have this year, more or less, including $3 billion. It's more or less that we think we're going to have.

Okay. Thank you very much.

Our next question will come from Stephen Brown with UBS. Mr. Brown, your line is open.

Sorry, I was on mute there. Good morning. Carlos, can you tell us the ARPUs in Mexico at I think they were 184, in nominal terms it's down 4 pesos from a year ago. And I went back and I realized that's the biggest drop since 2002. What are the elements of that? What's going on with ARPUs and what do you think will happen next?

What you are seeing in Mexico is that we're growing very good in prospect customers in Mexico. I think we're growing at the higher pace than the prepaid in Mexico. We're having a lot more minutes of use than what we used to have. But Mexico has been more competitive and then we're reducing prices. And you remember the calling party page reduced 10% and the market has been a little bit more aggressive. So it's what you are seeing there. You're going to see a little bit less the [inaudible], more minutes of use, much more customers. So it's more or less what you're seeing this year what you are going to feel next year.

Okay, thanks. And if I can follow up on a different market, Brazil, the one issue there I notice has turned, you have been controlling turn. It was down to 2.4% last quarter, but it was up quite a bit to 3% per month this quarter. Is that something that's controllable. Can we expect that to go back down?

Well, remember that in Brazil this year we felt some SIM cards, and maybe that's the reason people is not using, or it's not maintaining the same time a phone with only a thin card. So maybe that's why the churn is growing a little bit. But remember that with the SIM you don't have the same costs and the same subsidies than with the complete chip with the handset. So maybe that's why we're having a little bit more of churn. But I think that churn has not been so costly for us.

In fact, post-paid churnis actually coming down.

Yes. Post-paid churnis going down, yes in Brazil. From [audio skip]

Okay, thank you.

Our next question will come from James Breen with Thomas Weisel.

Thank you. Good morning. A couple of questions. One with respect to, you talked about the subsidies a little bit and the handsets. Do you seeing keep your handset costs from the GSM guys, the equipment providers? And then secondly, just kind of overall penetration rates. It seemed like Columbia got up north of 60%. Does it change? Have you changed your view at all on where you think overall wireless penetration can be throughout Latin America over the next two to three years? I know previously you talked about the 65 to 70% range over a couple of years. Do you think you can get higher than that now? Thank you.

Well, I think the penetration we're maintaining within that 70, 75% penetration in Latin America all around, average in Latin America would be reasonable. Maybe some countries goes to 80, other countries stay in 60, depending on the GDP, depending on a lot of things in each country. But I think that long term, not in some years, two or three years, 70%, 75% average in Latin America would be reasonable. And the first question, can you repeat it? It's in the handset

I was talking about the cost of the handset providers and the GSM. You talked about less subsidies on some of your handsets. Are you seeing cheaper costs coming through, which is helping you do that?

Well, you know that all the handsets are being -- all the handsets -- everybody reduced the price of the handsets. What is really happening is that handsets -- people start to like handsets with a camera, with music and those type of handsets were much more expensive one or one and a half years ago than what we have it today. So those type -- and people is liking these medium type handsets. So we don't have to subsidize that handset so much as we used to subsidize.

They're really, really low handsets. The prices have not been so -- the reduction on the price has been not so aggressive, because while the prices are low, but the medium and high end handsets you could see that we have been -- we have been reducing the subsidies in this segment of the market.

Great. And just one follow-up on Verizon. Do you have any timeline in terms of expectation of closing the deal?

Well, the three companies are in different stages. Dominican Republic, we are waiting until Verizon and the government gets on an agreement on a tax payment that the government says that Verizon needs to do and Verizon said that they don't need to do it. So they have been talking there. And I think, I hope that they get on an agreement this year. Puerto Rico, Puerto Rico has been -- remember that it's U.S. law and has their time, and I think Puerto Rico is on time. It's on schedule. I think we can close Puerto Rico in January of next year, maybe a little bit earlier. But that's more or less when we think we're going to close Puerto Rico. And on Venezuela, well, Venezuela, we have been having any [notices] there. I think elections are coming on 5th of December. So maybe when elections are finished, maybe we can have some answers. But still we don't know nothing in Venezuela.

Great. Thank you very much.

And our next question comes from Miguel Garcia with Bear Stearns.

Good morning. The first question is about the data, the revenues coming from data services and SMS, and specifically, Mexico, what percent did they represent of the total service revenues? And the second question is regarding the latest trend in convergence of wire line and wireless networks. When we talked to Telnex Company from Latin America, they seemed very excited about the opportunity to do things with you guys. But we haven't seen the same enthusiasm from America Movil. And I want to know if this is just because you guys are too busy with high growth in your operations to be laying down new strategies to sell bundled products to totally fixed line customers? And lastly, I wanted to ask you if you will buy the Puerto Rican and Dominican Republic operations from Verizon if the deal with [inaudible - accent] didn't go through?

I think each of the different assets have their own timing, and we can close one or two without closing the third. So each country has their own contract, so we can close one or two and don't close the other ones. So that's separate deals.

We are very happy and very enthusiastic that Telnex is growing and the strategy of Telnex in Latin America. We've very happy we're there. And I think we can do a lot of things strategically with them. For America Movil it's very good for Telnex in the peakside is growing in Latin America, so we can have a strong -- it's not a partner, but let's say a strong -- a strategic partner to do things with them in Latin America. But as you're saying today, we're focusing a lot on the growth. We still have a lot of growth in Latin America. And our main focus and all the efforts that we're doing are in the growth and maintaining the cost in Latin America. So I think that's the short term strategy.

But the long term strategy, it's exactly what Telnex is doing and if in some countries we need or we want to do something together with them, I think we're going to do it, not depending in each country and depending on what things are going to do. But of course, we're enthusiastic that we could do things together. And the first question?

Data revenues as a percentage of service revenues in Mexico?

I think all of the -- not service. You said data revenues, no?

Data, yes.

We have revenues in Mexico and all around Latin America are growing. I don't remember exactly the percentages in each of the countries. But in all of the countries we're growing a percentage of the data revenue. So I think it's been very important for us the growth on the data.

Thank you very much.

And ur next question will come from [Wiswan Lee] with Bear Stearns.

My question is regarding your CapEx. It appears the number you suggested in your press release looks very low to us. So I'm just wondering if you can clarify that. And the second question is about the launch of Claro brand in Chile and elsewhere in Central America. I mean, roughly, how much is that going to cost you? And the second thing is, should we expect improving margins after the fourth quarter for the operations because you've already spent on - most of your advertising and launching of the brand name?

Let's say because it's different, Central America and Chile. I think Claro brand in Chile has been successful. I think Claro brand in Central America has been successful also. In Central America it's only for the mobile companies. Still the fixed companies in Central America maintain their own name. You are seeing that we're reducing the margins in Chile because we're growing. We grow twice as we grow the last quarter, and that's mainly what you are seeing that we have a reduction on the margins.

And Chile is one of the countries where we need a little bit more of scale, and I think with GSM that we're going to get that scale. So I think today Chile is the other country that we're focusing on the growth. Of course, we're taking care about the costs and the EBITDA margins, but the main focus today in Chile is to introduce our Claro brand and to also grow our coverage in GSM and grow the subscriber base.

The Claro brand costs a little bit. It doesn't too much. It costs us. And it's going to cost us also in the next because what we're saying is we do the launch, but we have to do our maintenance for that brand. So you are not going to see an excess of money or an extra big, big expenses on that Claro Brand in Chile. In Guatemala, you are seeing that the margins are going a little bit down, but it's mainly what Carlos is saying, whereas the cost of expenses, their maintenance has been high this quarter. And I think for the next quarter it's going to depend on the growth of the subscribers. But we are going to return more or less on what we used to have in that company.

A little bit expensive on the Claro brand of course, but I think for the fourth quarter you are going to see -- well, in Central America we launched it at the end of September. So still you are going to see a little bit more of expensive in the brand, but not too much, okay. I think we can see this company at average EBITDA numbers.

The CapEx question, Wiswan, it's $2 billion through September. It's very much on budget - we have budget a total of $3 billion for the year. The last quarter we tend to take more deliveries [inaudible - accent]

Okay, thank you.

Our next question comes from [Martin Lauro] with Santander.

Good morning. What was the amount of extraordinary charge that you have in Central America associated with maintenance work?

I don't have the number, but that's mainly why you're seeing that EBITDA number in Central America is also a little bit down. I don't have exactly the number. But it's more or less what you are seeing on the results.

Okay. Thank you very much.

Thank you.

Next question?

And the next question comes from Henry Cobbe with Thames River

Hi, thanks for the call. Three questions. First, just on the group tax rate for this year, next year, can you give some guidance? Second question, on the Brazil, on the ARPUs, 27 Reals, would you say that's a new level or is that just reflecting the one off adjustments in the bill and keep system. And last question is just on the scale of buybacks, what the target return is for dividends and buybacks in 2006 for the full year? Thank you.

The [inaudible - accent] tax rates I think we are going to have for next year is very close to the statutory tax rate to the extent that basically, all of the operations now are generating taxable income and to the extent that we are moving towards exhausting most of our tax losses in some cases. So I think that we are going to be close to the average statutory tax rate.

Which is what?

[Inaudible - accent] it should be around 28%.

28. That's from 24% this year?

Right. We had some tax losses this year. And as regards to the -- what was your questions?

As Daniel mentioned before, I think that always the buyback's very much a function of the [inaudible - accent] we'll end up carrying at the end of the day given a CapEx structure. We don't -- it would very much be a function of what kind of acquisitions we do. We still have to complete the Verizon acquisitions, as we mentioned before, and I think based on that and whatever other opportunities happen to come along, we will have to discuss with you as to what will be the level of share buybacks. The only thing that is clear is that we would not expect when the next year we'll have the same level of gearing that we have today with - net-debt to EBITDA should not be less than [inaudible - accent].

Okay. And in Brazil?

I think the Brazil the ARPU is more or less to what we are going to see. In Brazil also the prospect customers helping growing very good. So I think 27 states is something that you're going to see in Brazil.

So that doesn't include any one-off adjustments?

Yes.

Okay, thank you.

Next question will come from Chris King with Stiefel Nicholas.

Good morning. Two quick questions for you. First, I wanted to get your impression regarding the competitive situation in Brazil and whether you have seen any recent changes particularly from Avivo as they continue to work through their issues? And secondly, I wanted to ask about your expectations for TracFone in the fourth quarter, whether you expect to see similar subscriber growth to what we saw in the fourth quarter of last year? Thank you.

Well, on the competitive environment in Brazil, I think still the competition in Brazil is high. We have [Team], we have [Oei], we have Brazil Telecom, we have Avivo. So sometimes some companies are more aggressive than the other ones. But the competition is huge. And I think you're going to be -- but still you can see that the competition is rational. You don't see any irrational competition in Brazil. You have subsidies but are rational and the level of the average price per minute is something that is more less also in line with all Latin America.

So still in Brazil we have competition, but we have also competition in all the other places. In TracFone, I think fourth quarter and first quarter of the year are the strongest quarters for the prepaid companies in the United States. You have Christmas in the fourth quarter, and I think we're going to have a very good quarter. I don't remember exactly what were the net tax of fourth quarter of last year, but you're going to see a good quarter this year.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question will come from [Walter Paicek] with [Polly Research].

Good morning, this [Andrew Lufberg] for Walter Paicek. I was wondering if you could give some more details about exactly happened in Columbia, and more importantly on the churn going up from the second quarter to the third quarter? Thank you.

Well, what is happening in Columbia is that we have been -- when we saw that the penetration two years ago was very low penetration for the type of country that was Columbia, then we decided to be aggressive and to be very aggressive gaining customers. Today, the penetration is high and we don't have to be so aggressive, and that's mainly the reason why we change a little bit the way we do things in Columbia.

And that's the only reason why we do that today. We have Columbia with 70% penetration, a very high penetration. And well, you're seeing a little bit more of churn because maybe some of the handsets that we used to sell, people were changing the handset or renew the handset too early. So that's why also we decided to change the prices there. We're still gaining market share there, so still for us it has been very good because we're maintaining our market share and the prices are totally different.

I think there's also a statistical element, because when you accelerate very rapidly growth in Columbia, the first effect is that churn goes down very rapidly. So we have had initially a significant reduction in churn. And then what happens is the opposite when you have a slowdown in growth. When you have a small slowdown in growth, it tends to drive up your churn rates. So you can take a look at that in your model.

And your other question?

And our next question will come from Mauricio Fernandes with Merrill Lynch.

Good morning. On regulation, on two things, first, on the national CPP, Daniella or Carlos if you could comment on, it looks like you've reached an agreement with Telnex. And o the mobile termination rate there would be one 1.54 peso per minute. And also on the local CPP we understand that it the regulator [Cofatel] is trying to impose a proposed [technical difficulty] mobile termination to $0.90 in 2008. So I just wanted to understand what are your views there? And whether think that this will be implemented or not? Thank you.

First, the national CPP and international, we signed a contract for one 1.54 per minute. That is the same rate that we have today in local CPP. And it ends at the end of the this year. So we signed exactly the same rate today because everybody in the industry thinks that the local and national and international interconnection rate should be the same. If not there's going to be bipartisan some of that. So we think that it has to be the same interconnection rate.

Second there's an interconnection disagreement with some of the players [Insavatel] and [Alecsavantel], and the government says that we have to reduce the interconnection rate in step by step, but it's not until 2008. It's until 2009 to $0.90. But we have to do that with the players that have the interconnection disagreement, okay, not with all the other players. So what you're going see is that in these next two months, three months, I think you're going to see that all the companies are going to decide what to do.

The companies that doesn't have the disagreement are going to decide what to do for the next year. Remember that for the next year we already have a commitment to reduce 10% the interconnection fee and the calling party pays both the price to the public and the interconnection and all the rates.

So you're going to see that the companies are going sit down and negotiate what's going to be the new interconnection rate for the next -- maybe it's going to be the interconnection rate that the government says that we should put it or maybe not. It's going to depend on the negotiations. We are not obligated to do with the other companies that are not in this interconnection disagreement - we're not obligated to have that. So it's more or less what you're going to see in the next days - in the next months.

Okay. Just to be a little bit more specific. So understand the intention at least is to cut the rates from 1.54 to 1.23 initially, and then as you said, step by step until it reaches $0.90 in 2009. It could be that you reach that agreement with [Acel Elestra] - well, [Avantel] now together with Nextel, but you may still be receiving from Telnex 1.54, is that possible?

For this yes. But remember that for next year we already committed with Telnex to reduce to 139, okay, 10% more. So maybe you're going to see that with Telnex and [Usatel] and Telefonica and all the other players as to we're going to have 1.39 or 1.30 or 1.23, we don't know. It's what we are deciding today.

Another thing is [inaudible - off mic]-- another think that we do is that we don't agree on the way [Copatel] decides the rates with these three players, Avantel, Elestra and Nextel and we put an injunction on that. So, well that's something that the law is going to decide if we're going to reduce to 1.23 or we are not going to 1.23.

But as I'm saying, still we need to negotiate with all the other carries what are going to be their interconnection rate. I think and what Copatel is saying to me is that they don't care what's going to be the interconnection rate with the other ones. So they are happy at what we decide and what we do with the other one. That's not something that Copatel wants and tell us what to do, okay.

Okay. And can you just remind us what the percentage of interconnection Movil termination represents of the Mexican revenues?

For [Telshel], I think the interconnection rate is more or less -- it's only 10% of our revenue. So it's a small part of our revenue's interconnection rate -- of service revenue.

Okay. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question will come from [Peter Sigoda] with HGK.

Great. Thank you. I have two questions. Question number one as following, strategically, are you guys planning to compete more aggressively with NIHD, and what's the situation there? And the second question is, if you're looking at the situation in Brazil and in particular, if you would be interested in, for example, acquiring TSU Team? Thank you.

Well, in Nextel, of course we're competing against Nextel. Nextel, is, I think, one of the main competitors to Telshel in Mexico. And yes we are competing against them, as we're competing and I think we're doing okay. They are also being very successful. But we're happy on the development of what we are doing here in Mexico. And in Brazil, well, what I know is TSU today is not officially for sale. And well, if they were for sale, well, I think we're obligated to see the company. And if it's under fair prices and fair circumstances, of course we should do it, and if not, well, we are really will positioned in Brazil and we're happy the way we're in Brazil. So that's not something that we need to do to be profitable and successful in Brazil. But of course, if the company is going to be for sale, then of course, we can sit down and review the numbers.

Okay. And with Nextel, what do you think is competitive strength when you look at this competitor?

Which Nextel?

Yes.

Which is the strength of Nextel or the strength of --

No. What do you think is your kind of advantage? What do you think this market is going to develop up in a couple of years?

I think Nextel is very strong on radio and they are not so strong in phones. Really, it's my view. And we're really strong in phone and we're not so strong in radio. And I think they are trying to improve in the phone calls and we're trying to improve on the radio side. So it's like let's see what's going to happen. I think what -- we have a very good coverage, much better coverage than what anybody has in Mexico. We've had a very good brand. We a have a very good customer care attention. So I think we have much better prices than what Nextel has. That's my view.

And each invoice of -- so there's a lot of things where you are competing and other important issues is the development of the technology. Maybe I think the wireless technology is being developed and I don't know how it's going to be the develop of [inaudible - accent] also. So there's a lot of thing that you are going to see in the future and that is going to make you compete.

Okay. Great. Thank you.

Thank you.

Our next questions come from Rodrigo Ortega with BPV.

Good morning , everyone. I was wondering if you could give us some idea of the other financial expenses you reduced this quarter. And also if there is any chance that we could be receiving news about the next target dividend such as we did last year -- those $0.30 you [inaudible - accent] on December. Do you expect something similar this year, or you don't think so?

Today, we don't think. We're going to have our board meeting. As Carlos told you, it's going to depend. We still have to do some acquisitions and incorporate some other companies. We're going to have more debt. But these type of things, these types of dividends is going to be depending on the financial position that we are, depending on the share buybacks that we want to do it. And the purchases of the [acquires] of the companies that we're going to do it. It's more or less today we don't think -- today what we're focusing is on acquiring Dominican and Puerto Rico.

If you just focus on Dominican and Puerto Rico, including minorities, that's worth about $4.3 billion in all. So it's quite a considerable amount. And it definitely will help us get back over our threshhold of 1 times net debt to EBITDA. It's not like we have a situation of [inaudible - accent] we had at the end of last year.

Okay, great. What about other financial expenses, does this have to do something with net-debt -- debt reduction of the quarter?

No. It may be effects of different market position.

Okay. Mainly coverages and --

Yes.

Okay, great. Thank you, then.

Thank you.

Thank you very much.

[OPERATOR INSTRUCTIONS] And we have a question from [Paolo Visnelli] with [Maddox Investments]

Good morning. Just to follow-up on a previous question regarding [Tan] TV, can you give us a little bit more detail on what the status of the transaction is? From your previous comments it didn't sound as though you have a very high level of confidence that approval from Venezuela will be forthcoming? I was just wondering if you could flush out the status.

What I'm saying is that we already put all the papers on the regulatory -- We have developed all the -- sent all the papers to the regulatary in Venezuela. And we didn't hear any answers. So really I don't know if it's going to happen. What we hear not from the government, not from anyone. What we hear in the market is that they are going to take the position when they finalize the election. So it's mainly what we're hearing. We already do all our work. We sent all of the information. We do everything that we need to do. And we're waiting for a response from Venezuela. We still doesn't have any response from the government.

Okay. And is it usually a process that is interactive, or is it they would come back to you after the election and ask for concessions? I don't understand exactly how the process works.

The process works as you send the papers, and then they have some time to review the papers and then return to you. Still today, they're saying that they are reviewing the papers and they haven't returned to us is exactly the process that is happening now. And when they return to you they said, okay, I agree with everything. You can buy the company and it's okay for me. Or no, you are not agree because this, this and this. We don't know exactly what's going to be the response of the government.

Okay. Thank you.

And gentleman, we have no further questions.

Thank you.

Well, I'd like just to thank again [inaudible - accent] and everybody that participated in the call. And thanks for attending the call.

Thank you everybody. Thank you Patrick.

Thank you all.

Bye bye.

Bye bye.

And that does conclude our conference for today. We thank you for your participation. Have a wonderful day.