America Movil SAB de CV (AMX) 2006 Q4 法說會逐字稿

Welcome to the America Movil Fourth Quarter 2006 conference call.

[OPERATOR INSTRUCTIONS].

I would now like to turn the conference over to our host Latin American telecom and media analyst Vera Rossi from Morgan Stanley.

Good morning for those of you in the US 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 '07 conference call. Speaking today will be Daniel Hajj, CEO of America Movil and Carlos Garcia Moreno, CFO. And also with us is Daniela Lecuona Head of IR. I will turn the call over to Daniel Hajj. Thank you, Daniel.

Thank you Vera. Good morning everybody. Thank you for being in the call. As always Carlos Garcia Moreno is going to make a small summary of the fourth quarter results. Good morning, Carlos.

Hello everyone. Good morning. America Movil entered 2006 with a good performance. Subscriber and service revenues were fairly strong in the fourth quarter. We added 8.7 million subs in the quarter organically and incorporated an additional 2.1 million through the acquisition of the Dominican operations from Verizon. That means that altogether our subscriber base increased by 31.4 million subs in 2006 taking us to approximately 125 million subscribers by the end of the year. In Mexico we gained 2.5 million subs in the last quarter bringing the total for the year to 7.3 million. It's one of our more important subscriber additions in Mexico ever.

In Brazil, we obtained 1.7 million new subs in this last quarter, which by the way represented 42.2% of the total net additions of the market in Brazil for the quarter. And that means the 1.7 million in the quarter took us to 5.2 million subscribers, net addition of subscribers in the year as a whole.

In Argentina, we also had a strong quarter toward the end of the year. We gained 1.1 million subs in that quarter and 3.4 million for the year as a whole. And in Colombia, we are at 766,000 subscribers in the last quarter making it 5.7 subscribers, net additions in the year as a whole.

In the particular case of Chile, the net additions in the last quarter, which were a total of 70,000, tripled those in the fourth quarter of 2005. That means that since we got started with offering GSM services towards the end of the third quarter we have gained a lot of traction in our efforts to expand our subscriber base in a market that is already highly penetrated. So we have been able, as I said, to triple the net additions relative to the ones that we had in the same period last year.

In the case of Peru we obtained in the last quarter more than 0.5 million subscribers which means that for the year as a whole we added 1.4 million subscribers in Peru. And in Ecuador, we also maintained a very good pace with more than 400,000 subscribers in the last quarter and 1.5 million in the year as a whole.

Overall, our subscriber based increased by a full one third in the year 2006. Importantly, in total the countries where we operate including the two big ones, Mexico and Brazil, postpaid subscribers grew more rapidly than prepaid subscribers in 2006.

Our revenues reached MXN65.4 billion in the quarter, MXN234 billion pesos in the year. Service revenues in 2006 increased at a rate of 26.8%. In the fourth quarter in particular, revenue growth was very strong over the previous quarter. Chile and Ecuador had 11% sequential growth rate, Peru had 14%, Brazil, Colombia, had approximately 8 to 9% and Argentina had around 10% service revenue growth on a sequential basis. Mexico almost 5%.

So the dynamism that was shown by service revenues had an impact on ARPUs. ARPUs increased sequentially practically in all of the countries where we operate. And in one of the two operating the blended ARPU did not increase but prepaid ARPUs and postpaid ARPUs increased in that country as well. So we saw blended ARPU going up practically across the board and where it did not -- blended may not have an increase because of the mix of our prepaid and postpaid but on an individual basis prepaid and postpaid ARPUs increased.

EBITDA rose twice as fast as service revenues in the year as EBITDA margins increased in operations that were seeing important increases in revenue. The consolidated margin went up by 6.5 points in the year to end the year with 36.7% and over the year we saw important increases in Brazil and Colombia of nearly 16 points. In Peru, Ecuador and Argentina we saw increases of approximately 9 percentage points in the year.

In Mexico, EBITDA rose twice as fast as service revenues. It rose at 32% pace for the year as a whole. But it's interesting to note that our international operations saw a doubling of EBITDA in the year and in South America in particular EBITDA tripled in the year with the margin -- average margin in South America increasing by 11 points in the year 2006.

As we [touched], the cash flow obviously with EBITDA going up our cash flow expanded significantly and we ended up having a year where we had significant capital outlays to our dividends that totaled more than MXN8 billion. And of this amount only about 10 billion of that -- a little bit less than 10 billion of that had to be through debt issuance. So that means that we have roughly MXN70 billion pesos of outlays, capital outlays and dividends that were paid out of America Movil's cash flow.

Overall, we had this MXN82 billion as an outlay with a record 33, nearly MXN34 billion to CapEx, MXN24 billion to acquisitions which was mostly the acquisition of the Dominican Republic and another MXN24 billion of share buybacks and dividends which would include the result of the merger of America Telecom into America Movil, which for all economic purposes was equivalent to a share buyback of the MXN15.7 billion.

The effective tax rate for the year was 27% which is in line with the guidance that we have provided to the effect that we were to expect a tax break, and I think a tax break that will be close to the average of the statutory tax rates that we have in the various countries that we operate. So this was not a surprise. You will see from quarter to quarter probably changes in taxes that may have something to do with tax planning but I think the important thing to consider is that we should be expecting to have an effective tax rate going forward that will be around this 37% mark. With that I would want to give it back to -- pass this is Vera so that we can initiate the question-and-answer session, Vera?

Thank you, Carlos. I have two questions before I open for Q&A. Could you talk about your expectations for net additions in 2007 and if possible for the next three years in Latin America? Thank you.

Well, Vera what we forecast for 2007, it's around 20 million subscribers is the forecast for America Movil in 2007. But the way -- the way we saw that is that I think in the next three years, 2007/2008/2009 there's going to be around 100 million new subscribers in Latin America. And what we think is that America Movil could get around 50% of those new subscribers. So we think that in the next three years there's going to be around 50 million subscribers that we are going to incorporate in America Movil. In 2007 we think that it's going to be around 20 million of these 50 million subscribers.

Okay, thank you and now in terms of EBITDA margin expectation for '07 if you can give us particularly in your major operations like Mexico, Brazil and Colombia?

Well, we think that in Mexico -- we don't give any expectations on EBITDA. We think that we can grow the EBITDA margin of what we have still last year. We think that in Mexico competition is very aggressive and we think we can maintain around 50% of EBITDA this year. In terms of Brazil it depends a lot on the growth. We still think that we can grow a lot in Brazil. We have good momentum. We have cost under control. As I told you last time we do all the investments that we need to do and our preference in Brazil is to grow and depending a lot on the growth, the EBITDA margin that we're going to get. But my expectation is to have around 20% EBITDA margin for this year, average for this year.

And Colombia well, Colombia the growth has been declining as you saw when the growth declined the EBITDA increases a lot, 16 points more or less last year and I think we can get around 40 to 42% average in Colombia for 2007 [estimate].

Okay and thank you very much Daniel. Operator, now you can go ahead and open up the floor for Q&A.

[OPERATOR INSTRUCTIONS]. Our first question comes from Jean-Charles Lemardeley. Please go ahead.

Yes, good morning gentlemen. Just a couple of questions, first can you give us an update on the impact of long distance calling party pays what you've seen so far particularly in terms of international termination, if you're seeing any benefit in terms of revenues there? And then could you explain a bit about the dynamics in postpaid growth, is that something that you're driving? Are you trying to migrate people from prepaid to postpaid and if that's the case what benefits you're getting in terms of revenues? And then finally, if you could give us an update on 3G and Push-to-Talk that would be great?

Hi again, Charles. Well, in long distance -- in the calling party pays national and international long distance it's difficult to say because we get -- we start to do it in November and December. You know that December is a special month, a lot of people calling to Mexico at Christmas and New Year but I think that the traffic if you compare would increase around 15 to 20% with the national and international calling party pays. I hope that this year we'll have more increase on that.

Remember that we have new rates at the beginning in 2007 so it's around 15% reduction on the connection rate in national -- international and local calling party pays so with an increase of the traffic and the decrease on the rate more or less we are even in the last two months. I think it's going to be even for the next quarter or four months. Now we need to recuperate that.

Then on the postpaid I think the economy in Mexico is doing good. That's why a lot of prepaid customers are moving to postpaid customers. The other important issue is that competition is hard so there is always better rates in postpaid and so as you get better rates and more affordable the postpaid contract the postpaid plans people is moving from prepaid to postpaid.

And on Push-to-Talk we're going to launch -- relaunch Push-to-Talk in the next month in Mexico I think the technology is much better. We have more handsets. It's less delays so let's see how it's going to develop.

And what about 3G, I understand you have some form of rollout plan in the short term?

We're testing 3G today. I think we're going to invest in some cities 3G during 2007. 3G is going to start working in 2008, not in all the cities, and we're going to do some investments there. But we think that the middle of 2008, the beginning of 2008 we could have something working and launching. Handsets are still going down so I think it's very important for us that the handsets would be at better prices and that's something --. In terms of the technology of 3G, the technology is efficient. It's very good. The efficiency in 3G is good but we need more affordable handsets to do it. So I think this year prices of handsets are going down in 3G. So in 2008 we can have it working.

Okay, great and just on this traffic so your incoming traffic on long distance is already up 15 to 20%?

It's already -- yes it's already 15 to 20%. But remember that it's Christmas so we need to see exactly the numbers on January and February and March -- it's important to see the numbers on the first quarter to see how much is increasing. But my calculation is around 20%, okay?

Okay, thank you.

Thank you, Jean-Charles.

Thank you we'll go to the line of Miguel Garcia from Bear Stearns. Please go ahead.

Thank you and good morning. My first question is regarding the churn increase we've noticed in Brazil and Mexico. I wanted to know if this was only seasonal or you're noticing a trend? Because actually I think it's also -- it happen also in the third quarter of '06?

Another thing is the cost of handsets if you're noticing that people are buying more expensive handsets, maybe it's related to more postpaid subscribers in Mexico, if you could give an idea of how much more expensive are the handsets in average between a range of 10 and 15% or even more significant?

What we're seeing in all Latin America is people are starting to buy -- the really low segment handsets is moving to a medium segment handsets. People are starting to like music. People want the camera, color screen, so you could see that a lot of -- the low end is moving to the medium segment of the market and it's also prepaid and postpaid and it's not also postpaid. People are starting to -- and it's good for us because then with this type of handset then they are going to purchase more value-added services. So I think it's good for the industry that people start to buy mid-set handset.

And the first question you said it's around the churn? I think it's seasonal and in Brazil and Mexico we're growing very fast so I think it's more or less seasonal. In the postpaid we don't disclose the numbers but I can tell you that in the postpaid churn we're doing very good. We're in the international average in both countries and in the prepaid is where we can have a little bit more of churn. But I think it's seasonal. It's not something that worries me.

Okay when you saw international level for postpaid churn is this about 1%?

A little bit more than 1%, between 1.2 to 1.5% it's in the postpaid. I don't remember exactly the numbers but in postpaid we're doing very good.

Great, thanks a lot.

Thank you.

Thank you. We'll now go to the line of Chris King from Stifel Nicolaus. Please go ahead.

Good morning. Two questions for you. First on TracFone in the US, subscriber growth was down substantially year over year. I was just wondering if you were seeing any change in the dynamics within the US that would drive that type of a decline in a seasonally strong quarter? And secondly, just wanted to get a quick update on the Verizon acquisition, specifically the timing of the close of Puerto Rico Telephone, and just wanted to ask about the Venezuelan asset whether you were involved in the discussions with the Venezuelan government at this point or whether you're leaving that up to Verizon at this stage? Thank you.

Let's start with the Verizon asset. You know that in December we closed with the Dominican Republic. Even, in these results, in the fourth quarter results we have one month consolidate Dominican Republic. I hope everything is going well in Puerto Rico and I hope that in the first quarter between February and March we can have the authorization from the FCC to operate Puerto Rico.

And on the Venezuela -- on the Venezuela we have a contract. We don't pay anything so for America Movil nothing happens. I think we are finalizing the contract with -- even the contract is finalizing around this month in the Venezuela asset and the government never authorized the sale of Venezuela so we decided to cancel the contract with Verizon and really I don't know what all Verizon is going to do on CANTV so are more or less what's happening in Verizon, with the Verizon assets.

And then on TracFone well I don't remember exactly the number on -- the number of ARPU but the number of this year is around 1.8 million subscribers that we have in TracFone. Last year it's going to be around the same, 1.7, 1.8 million and I think it's a little bit more. We don't have the number but what you could see is there is more competition in the US more MVNOs and more penetration in the prepaid so we're happy the way we develop. It's more than our budget in TracFone. Our budget was around 1.5 million subscribers. We do 1.8 million subscribers and we're happy the way the company is developing in the US.

But of course you have more competition and more penetration also in the prepaid and more MVNOs so there's -- that's what's happening in the US.

Thank you.

Thank you, we'll now go to the line of James Breen from Thomas Weisel. Please go ahead.

Thank you very much. Just a couple of questions, one on the balance sheet you talked a lot about free cash flow growth and it seems as though there aren't a lot of other countries you need to be in in Latin America right now. What are the chances of increasing the dividend or potentially paying down some debt? Are you happy with your current debt levels?

And then secondly how -- what's going on in Mexico in terms of the margin expansion? You've clearly added a lot of subs sequentially from third to fourth quarter incremental and the margins were up a little bit. What are some of the dynamics in that market? And then finally in Venezuela did I just hear you correctly you said that you were no longer involved with the deal in Venezuela?

Okay, well, in Mexico two things, we have a higher base of subscribers so when you grow more with a higher base it's not -- it's not hurt you so much. It's when you grow more and you have a higher base. And the other important issue we have been very careful on the subsidies of the handsets so as we're growing a lot we're not subsidizing the cost, acquisition cost. We're taking care a lot on that. So more traffic, more traffic on net, better acquisition cost is making us that in Mexico in the fourth quarter we can have a good margin. So that's mainly what's happening in Mexico.

And Venezuela, well Venezuela, nothing happens, it's transparent for us. We do a contract with Verizon. The contract was subject that the government would authorize the sale of the company. The government never authorized the sale. Instead of that they said that they are going to -- they said nationalize or I don't know what they are going to do. And well, so my contract is going to be finished in the next days with Verizon and then Verizon is going to deal with the government the way they are going to pay the company or nationalize the company. But I don't know really what is going to happen there. And the first question you said?

In the balance sheet, in terms of uses of free cash flow?

The uses of free cash flow well what -- Carlos can explain a little bit because we're going to do some between dividend and buyback and maintain -- why don't you explain, Carlos?

Well, I think the intent all along has been that we will be returning back to ur shareholders whatever excess cash we have at the end of the day after acquisitions. I'm trying to stick with a capital structure, debt to EBITDA, we make more or less at the same levels where we have it today. I think what this means is that to the extent that we have the liquidity available that we will be engaging in share buybacks and dividend payments.

Great, thank you very much.

You're welcome.

Thank you, our next question comes from Mauricio Fernandez from Merrill Lynch. Please go ahead.

Good morning, one question back on the calling party pays fee, Daniel, I think you mentioned that it fell 15% this year. I'm trying to understand the previous agreement was a decline of 10% but the regulator was trying to negotiate new terms. Is the 15% a definite agreement already with the regulator and so from now on we're not going to see further CPP rate declines?

Mauricio, we do -- we sit down with the companies. Almost all the companies are inside, I think. There's one company that still is on an injunction on the calling party pays national and international. But almost all the industry is already on an agreement. The rates reduce around 15% this year and it's going to reduce for the next three years more around 10% more every year so it's again a reduction on the rates. And I think that the agreement on the companies, on the telecommunications between the fixed and the mobile companies. So we do a deal -- we sign a contract and that's mainly what you are going to see. This is good because it's going to have reduction to the end customers. So that's more or less what we do so we feel that the traffic would increase more with the reductions on the rates to the public. That's one thing.

The other thing important is for tel sales, we don't want to disclose those numbers but the traffic between fixed mobile is not a big share of the traffic in tel sales so I think with the reductions plus the national and international calling party pays that we're going to increase traffic, and with a small share of the fixed mobile traffic then I will feel very comfortable on the next years with that, Mauricio.

Okay so just to confirm then, so it's a 15% reduction this year and then two more or three more in 2008, 2009, 2010?

I think are three more. I don't remember exactly the numbers. It's not 15 -- it's something in 2010, I think, it's three more is the years -- it's until 2010.

And it applies to local CPP, domestic and international?

Yes, it's the same -- it's the same interconnection rate between mobile, local, national and international.

And only Axtel is out of the agreement basically?

One yes, only Axtel.

Okay, just, sort of apologize, but just one more question. I've been noticing the EBITDA margin for Central America has been falling. Is there any particular reason for that and what is kind of the outlook for it?

Well, we're doing some investments that give us some extra expenses but really what's happening there is that the competition in the wireless it's really strong, and well that's really why margins are going down now.

Okay, all right thank you, Daniel and Carlos.

Thank you very much.

Thank you our next question comes from Patrick Grenham from Citigroup. Please go ahead.

Hi good morning. Could you just go through the nationwide CPP again? You had the termination fee wherever the call comes from it's exactly the same CPP rate?

Yes.

But you're competing in those markets as well so imagine the average tariffs you get on those calls is substantially higher than a regular local call. And if I look at the average yield per minute it looks as if it dropped in the fourth quarter a little bit anyway. How much of your margin has come, of the extra margin has come from the introduction of calling party pays? You say it's 20% of your traffic?

Let me explain to you, I'm not saying that the rate to the public is the same, okay? What I'm saying that the interconnection rate from the fixed to wireless it's the same in local, mobile -- local, national, and international calling party pays. If you don't do that then you're going to have a problem because then traffic of national will go through local or from international will go through. So the interconnection rate is exactly the same in each of -- in any case, international, national, and local calling party pays.

Okay, but you're competing in this market. You're offering long distance services so you can capture all of the -- you can capture the end customer revenues. So some of the long distance revenues will come from Telemex let's say. But you also capture some of those revenues straight from the end consumer, correct?

Between mobile to mobile?

Mobile to mobile, yes, or mobile to fixed.

Yes, yes well that's the -- that's exactly the same in the local list, Patrick. When you do from fixed to mobile in local you are competing against mobile to mobile. It's exactly the same case in national and international. International, non-international is a little bit different but in national it's exactly the same as local.

Okay how much do you think the increase could be in your MOUs as a result of the change in CPPs?

It depends a lot on the international. The international the first two months has been growing around 20% but still remember that it's Christmas. People need to understand how they dial from the rest of the world, from US, so I don't know, I don't know. But I think it can increase a little bit more because what is happening is that the people who had more money outside Mexico is calling to Mexico. And before the international calling party pays there's a lot of phones that they don't have balance so they cannot receive the call. And today any phone without balance can receive the call. If you don't have balance today and you're going to buy a card tomorrow you call receive a call, an international call today. So there's a lot of international calls that you're going to complete with that.

Right, okay. But you don't have a number of what the ARPU gain could be because of this change?

No because it's -- one thing is you'll gain a lot of traffic. The other thing is you have reduction on rates. So I think it's going to be even more or less on that.

But it helps your margin because it's an interconnection and that's got like 100% margin attached, correct?

Again, I don't hear you.

Even if the rate is lower it helps your margin because there's no cost associated with interconnectioning them?

No I don't think so, no. It's more or less the same because you reduce the rate, Patrick.

Okay.

You reduce 15% the rate -- we were receiving MXN1.54 and today we're receiving MXN1.34 more or less so I don't have exactly the number.

Okay, okay could I also ask a question on the balance sheet and the financial stuff you mentioned, Carlos? You mentioned to keep the net debt stable and to pay out the money whatever is excess free cash flow to shareholders, how does the tax considerations on that work? It seems as if -- how much tax credits do you have that would allow you to pay out tax money to shareholders in a tax-efficient way?

I don't really track the amount that we held COFINSwhich is what you are talking about. I think we have something like -- we took on something with the purchase of AMTEL and we already had from ourselves. So we're probably thinking about -- talking about some 30 billion or so pesos that we have outstanding. But remember, the COFINS increases alongside the profits that we generated from the year. So [inaudible] will be generating cash flow it is almost understood that it's going to be nearly corresponding an increase COFINS. So I'm not seeing that we are facing any --

Tax constraints.

Any tax constraints, certainly not at present. The other thing is that to the extent that we start bringing dividends from other countries we can also bring into Mexico the equivalent to the COFINS. So essentially we can get the taxes -- I mean great for Mexican taxes based on the taxes that we have paid abroad.

As long as you're passing the cash into Mexico?

As long as we're paying the dividends into Mexico which is what you would expect from --

Of course, okay.

-- the current structure that we are operating under.

Okay and how does the COFINS work? You're allowed to buy up to 5% of the capital back or pay out up to 5%?

The COFINS is simply an accounting measure of the profit on which taxes have already been paid.

Okay.

Irrespective of these profits, the taxpayer will pay in Mexico or in other subsidiaries.

But I suppose my question is if you were to pay a dividend yield of 3%, let's say, would you have to reduce the 3% dividend against the COFINS tax or does the reductions against the COFINS account only kick in when you're paying above 5%?

No well I don't know -- maybe we can talk about this later. We have a lot of people on the call.

Okay, all right. Thanks guys.

Thank you, Patrick.

Thank you our next question comes from Walter Piecyk from Pali Research. Please go ahead.

Thank you. A couple of years ago at your Investor Meeting in Mexico you had talked about subscriber acquisition costs and I believe around MXN800. I'm just curious it looks as if you kind of roll through the numbers that it's down about 25% over the past couple of years. Can you confirm if I'm in the ball park as far as how much the subscriber acquisition costs have come down on a consolidated basis? And then also just kind of -- is that a result of mix or is subscriber costs coming down in all of the markets to that degree?

First, I don't have the number here with me. If you can talk to Daniella she can give you the number. I don't know if it's 20%. But I think in every market is different. In every market we have a different strategy depending on the penetration, depending on the competition, depending on the rates, depending on a lot of things. But I think the acquisition costs around the last two, three years have been down. Plus more traffic that we're having, plus more subscribers, good subscribers because it's very important to have more subscribers, but good subscribers.

That's mainly what is giving us and remember that two years ago what's different we don't have all the markets that we have two years ago and two years ago there was a difference in each market. Maybe in some markets you have 20% penetration or 30% penetration and today you have 50% or 60% penetration. So two years ago it's totally different than what you are seeing today in the markets. But we don't have one strategy for America Movil. We have 16 strategies because we have 16 countries where we operate.

Right, so on a consolidated basis I mean if you look at the margins there's no way to explain the margin performance other than assuming obviously a very strong improvement in the subscriber acquisition costs. So I guess even if you look at the mix issue between -- because you provided those numbers by country a few years ago.

I don't think we're disclosing those numbers in each country but again it's not only the acquisition costs. The acquisition cost, it's the traffic, on net traffic.

And I think you have to take into consideration the dynamic of the business because initially when you are paying certain acquisition costs and bringing in subscribers those subscribers are not immediately, more revenues The subscribers tend to generate more revenues after a certain period of time. So you always will see that acquisition costs will tend to fall relative to the rate of revenues. So even if you were to keep subscriber acquisition costs fixed relative to your revenue rate subscriber acquisition costs are falling and that's we're explaining --.

Carlos, I'm talking about on a per gross addition basis so I'm just saying on a per subscriber basis your subscriber acquisition costs look there's been a tremendous improvement over the past couple of years which would obviously would irrelevant regarding the revenues. I'm not talking about the absolute amount of subscriber acquisitions during a per gross addition basis.

Okay.

It looks like it's been coming down in all of your markets by about probably 25% over the past couple of years. Does that sound right?

We don't know -- we don't have, as I told you, we don't have the number. But it looks like it's going down in all the markets, no? Different markets, an example in Chile is different what is happening in Mexico, in Peru, no? Or in Brazil, no? So it's a little bit different in each market that's why we don't have it as a whole, okay?

All right just one strategic question in the Venezuela telecom transaction the price that you offered to Verizon was the same price that you had offered to the public shareholders and I know that your comment was that was I guess in part required by either the law there or something. I'm just curious in acquisitions elsewhere in the world when there's different share classes would it be the management's intention to pay a similar value for different share classes?

I don't understand your question.

Venezuela telecom --?

You want to know about Venezuela or you want to know about all the world?

No, I just want to know in future transactions if we're to understand any future transactions that the company would be involved with is it the management's policy that if there are two different share classes that you would pay a similar price for, let's say, a voting share class and a non-voting share class? Or would you ever consider paying a much higher premium for a voting share class over a non-voting share class?

Really we don't have a policy on that. It depends on the transaction and it depends on that. But if you are saying, what?

Legal obligation.

Yes ,what you were saying was specifically the case of Venezuela where there was a legal obligation to tender for these shares.

Right.

So I do not know if Venezuela have a policy because I do not know that we have faced this issue before.

But Carlos if there was no legal obligation in the case of Venezuela telecom should we have assumed that you would have paid a higher or a lower price?

Treating, what you're asking me is are we going to treat well the minority shareholder? Well we always treat them well, but it depends on the transaction -- it depends on the price. Maybe you can pay a little bit more because they're voting stock -- maybe you don't pay anything else. So it depends a lot in the transaction.

I think that's exactly what I wanted to hear from you. You just said that you would treat the minority shareholders well and maybe there will be a small premium to the voting shareholder.

Well I don't know if it's a small premium or it's going to be a higher premium or there's no premium depending exactly on the price and depending on the company, no? But you know that the policy on America Movil in our minority shareholders have been to treat them well always.

Great, thank you very much.

Thank you.

Thank you, our next question comes from Charles Chichester from Cazenove. Please go ahead.

Hi there I've just got a question on Brazil. I was just wondering in terms of the level of competition that you're seeing there at the moment you could just give us a bit more on that. Because obviously the last quarter of last year the subscriber adds were down between 30 and 40% in October/November/December. It looks as though you've still got an element of pressure on KPIs and churn. I'm just wondering if you could talk about the level of competition whether it's less or whether you've got a more subtle grade of competition and competitive moves now that the growth is slowing down in Brazil? Thanks.

Well the level on competition in Brazil moves let's say every quarter. Every quarter is different -- it's different first quarter than second quarter, then it's Mother's Day, than fourth quarter that it's Christmas. So I can tell you that last year the level of competition was also strong. But we feel that if I told you one year ago the companies are in much better shape to compete. We have done all our coverage. We have done all our branding. We have done all our distribution. So we are in a better position to compete and that's why our costs are going down and we're doing better than what we do the last two years because the last two years were fixed and we were consolidating the companies there.

But I don't think we're going to see this year non-competition in Brazil. I think we have four, five different competitors and all of them are very strong, and all of them are intelligent. They look for long-term -- all of them are in the long-term basis so you're going to see competition. But I hope that the competition is an intelligent competition, no?

Thanks very much.

Thank you our next question comes from Henry Cobbe from [inaudible] Capital. Please go ahead.

Hi there. Thanks very much for the call. It's Henry Cobbe from [inaudible] Capital. Just two questions, the first is you book the AMTEL debt onto the balance sheet for December '06 but the share number you give is 35910. Am I right in thinking you haven't deducted the 603 shares that you will cancel on that deal, yet?

The second question is just on the CapEx outlook, you said you hope to get 20 million subscribers in '07 and another 50 million between '07 and '09 or a total of 50 million as of '09. What's your CapEx budget for 2007 and perhaps for the next three years? And those are my only questions.

What I'm saying is that the penetration is still around 50% in Latin America so I saw that for the next years, that the next three years we can increase 20 points of penetration. That means 100 million subscribers and that will give us around 50 million subscribers for America Movil. 50 million subscribers includes the 20 million subscribers.

Okay, okay.

That we are putting this year in 2007. So what I'm saying is in 2007, 2008, and 2009 you could see that America Movil is going to increase 50 million subscribers is what we're saying. I want to ask because there's a lot of questions on the terms of the acquisition costs, subsidies. Well what I want to mention in that case is that well subsidy, acquisition costs are going down and that you could see that for the next years we're going to try to improve that. People is moving from low handsets to medium handsets. That helps us a lot on the subsidy and acquisitions costs and that everybody can see, you see that this year that the acquisition costs have been reduced and for 2007 and 2008 I hope that we can reduce more the acquisition cost. But that's something that we need to see every month in every market because competition is different in every month and in every market. And depending on the competition it's going to depend the acquisition cost. But if you are asking me how I see that well I hope that for the next two years we have much better -- much lower acquisition costs than what we have today.

I was asking about the CapEx, the capital expenditures?

Yes, yes, yes, it's a question that I want to answer to everybody. In terms of the CapEx these 50 million subscribers plus the UMTS that in the next three years I think we're going to have UMTS. It's going to take us around $10 billion -- that it's around $2.3 billion per year. So I think that's mainly what we're expecting to have, $10 billion in the next three years on CapEx.

The first question?

The first question was just to confirm you put the AMTEL debt onto your balance sheet but you haven't done the share reduction as yet, is that correct?

You're correct. The shares held in AMTEL until January so the numbers that appear in the report have to do with the shares that were then outstanding at the end of December. But if you run the numbers you will see that after the cancellation there's an increase in earnings per share of approximately -- it goes from MXN1.21 per share to MXN1.23 per share.

Okay and lastly just on the gearing ratio, previously you guided for just under one times. Today you're saying maybe the current level is 0.8 times net debt to EBITDA. And just to check the timing of the next dividend announcement, is that going to be at the AGM in April?

I think that -- it's not something that we need to manage on a day-to-day basis. I think that the range where we are is one where we feel comfortable with. So I think that we should be expecting to be in the 0.8 to 1 -- all the time, but it's not something that we manage on a day to day. Okay?

Okay thank you very much.

So we will not go out and get more financing tomorrow if you want to buy more shares.

I understand. Thanks very much.

Thank you.

Thank you our next question comes from Rizwan Ali from Bear Stearns. Please go ahead.

Good morning. My question was regarding -- we actually recently met Telemex Chile and we were told that you plan to have bundling of wireless/wireline in Chile by the middle of the year. I'm wondering if that's a plan for South America and should we expect bundling would be in Telemex and AMX in South America any time soon?

And my second is regarding the Reg-free environment in Mexico. During a recent visit we heard some rather very hawkish statements from the Regulators how they want to open up the markets for more competition. Just update us what you are expecting in this regard.

First on Chile on the bundle, I think what America Movil is one company -- Telemex is another company and what we're going to do we can on this strategy, bundling between both companies but everything has to be good for America Movil and for Telemex. I think we have like a strategic partner at Telemex to do things, to compete in Latin America but well it's going to depend in each country and depending what our competition is doing. So we don't have any strategy today but I think we could have it so that is something that we could do together. But it has to be business for them and business for us.

In the regulatory environment in Mexico, what you hear in Mexico you hear that. We don't have any notice on that and we just signed the contract on the calling party pays. I have to tell you that in the calling party pays interconnection rate there's nothing that the regulator could do. The regulator, I mean COFETEL, if the two companies, the fixed company and the wireless company get on an agreement. So the decision is between the fixed and the company. When you don't get an agreement then is where the COFETEL will make you and give you the rate they think it's going to be. But if you get on an agreement then they are not allowed to change you anything. So that's what we do in November and December for the next four years until 2010. And this year we're starting with a lower rate that it's got for the public and with our contract for the next four years.

Okay, thank you very much.

Thank you.

Thank you we'll go to the line of Eduardo Kibel from Frost & Sullivan. Please go ahead.

Good morning, my question is related today the Brazilian market. VIVO is just launching its GSM overlay network so I was wondering if you comment about what would that impact on your market share or on your roaming revenues in that market and specific in Brazil? Thank you.

Sure we don't hear you very well. Can you repeat it?

Sure, sorry, I just took the handset. Basically in Brazil VIVO just launched its GSM network the overlay network at VIVO. So I was wondering what would be the impact that you are calculating for Claro Brazil in terms of market share and in terms of roaming revenues?

On roaming revenues I don't know on the market share where -- what we're thinking is to gain a little bit more of market share for this year. I don't know what those people is going to do as to the GSM but we are making all the efforts to gain a little bit of market share in Brazil.

Okay, so you're not expecting any roaming net revenues decrease? You're expecting to stay stable or even to increase as well?

See I don't think we do a lot of roaming revenues with VIVO. I don't have that number but that's not something that would change a lot.

Okay, thank you.

We have been growing our market share in Brazil every quarter so I hope that this year we can have the same, no? That's our strategy.

Okay, thank you.

Thank you our next question from Stephen Graham with UBS. Please go ahead.

Hi, Carlos, can you give us a little bit of color on what's happening in Chile? Specifically you added a quarter of a million subscribers in a country of only 15 million people. That seems to be getting close to saturation so how are you doing that?

Well we're happy -- we just developed our GSM network. We're putting more coverage. We're launching our brand and well we are having more subscribers and well we hope that this year we can have also a good year in Chile so we're happy on the develop -- the launch in Chile and the way --. Remember that in Chile there's still a lot on CDMA and TDMA subscribers. So well those subscribers are in all the companies, and they are going to move to GSM and we hope to get a lot of that -- of those subscribers.

Is there a sense that any of the competitors are losing share particularly or is the whole market accelerating?

I don't know but I think the whole market is accelerating.

Thanks.

Operator, we have time for one more question please.

Thank you, ma'am. That will come from the line of Dan Kwiatkowski from Schroder's. Please go ahead.

Hi, just a couple of questions. Just to follow up on Chile what level do you think you can get to in terms of margin and over what timeframe? That's the first question.

Well it depends a lot on the growth on Chile but in the next three or four years I think we can get on the high percentage, mid percentage so I don't think we can less than that.

I mean what sort of market share does that imply?

The market share is not important. I think is the number of subscribers that you could get. You need to have like scale there and if you have a scale then you get that number so that's mainly what you could see. It does not depend on the market share, no?

But I mean in terms of numbers how many million would that -- where would that imply, 3 million, 4 million, what's the market do you think?

Three to four million, yes, more or less. I think we feel very comfortable. In Ecuador we have 5 million customers and 6 million customers and we're doing excellent on the better numbers. So you get to the -- each country has a different cost structure but when you get to a number of subscribers than you have today, we have 2.4 million subscribers in Chile and well I hope to get a little bit more and to have the scale to give the 30%.

Great. A couple of questions for Carlos, just to repeat in terms of the AMTEL shares they haven't been reduced in the quarter but the debt for AMTEL has been assumed on the balance sheet, is that correct?

That's correct, the debt already was selected, these shares were not cancelled until January.

Fantastic, the last question was in the quarter on the Other Income and Other Expenses there's a very large outflow. Could you just comment on what that was and if it's recurring?

Not it is not recurring and it has mostly to do with the effect and accounting movements associated with having won earlier this year, last year, some proceedings regarding the cost of the license that had applied in [Region 9] so we effectively had to backtrack on some previous movement that had been done prior to the -- prior hasn't been resolved. That's part of it and it's a lot of miscellaneous things so therefore there's nothing really important.

Great, thank you very much.

Thank you.

And with that I'll turn it back over to you for any closing comments you may have.

Thank you Carlos and Daniel for the call and congratulations on your strong results.

Thank you everybody. Thank you Vera.

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