America Movil SAB de CV (AMX) 2007 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the America Movil First Quarter Results Conference Call

[OPERATOR INSTRUCTIONS]

I would now like to turn the call over to Mr. Jean-Charles Lemardeley, Telecom Analyst at J.P. Morgan. Please proceed.

Yes, hi everyone. On behalf of J.P. Morgan, I'd like to thank you for participating in this conference call to discuss another very strong set of results from American Movil.

Joining us from the company today are CEO, Daniel Hajj and CFO, Carlos Garcia Moreno. Gentlemen, please go ahead.

Thank you, Jean-Charles. Thank you everybody to be on the call. As always, Carlos is going to make a small summary of the first quarter results of 2007.

Thank you. Good morning everyone. As Jean-Charles pointed out, American Movil had a strong first quarter that was characterized by good subscriber growth, rapid service revenue increases and improving EBITDA margins practically across the board. Net subscriber additions and EBITDA were both approximately 10% higher than the market consensus. This means that in spite of growing more rapidly, we actually delivered better returns than the market was expecting. In fact, net income was 26% above the consensus.

Revenues were slightly higher than consensus, but analysts generally seem to have erred on over estimating equipment revenues and underestimating service revenues. The rate of scale that we have obtained in our operations is facilitating our growth. It now requires less of an effort in relative terms for America Movil to obtain a given rate of subscriber growth. We have also benefited from lower handset costs and lower subsidies in most of our operations. All these factors have contributed to the improvement of our margins.

All together, America Movil added 5.9 million subscribers in the quarter, which implied a 5.2% rate of growth of our subscriber base relative to December. In Mexico, Argentina, Chile and Peru, among others, we added more subscribers in the first quarter of '07 than a year ago. Only in Columbia did we register a significant reduction in the level of net additions, which was to be expected with the high penetration rate that these countries have already obtained, which is close to 75%.

Our postpaid subscriber base grew more rapidly than the prepaid one in all of our operations, except for Ecuador and Central America. Including the incorporation of subscribers on land lines of Telecomunicaciones de Puerto Rico, which we acquired at the end of March, we finished the quarter with 131 million wireless subscribers and 3.9 million land lines.

Revenues totaled nearly MXN68 billion of which MXN59 billion corresponded to service revenues. Service revenues were up 81% year-on-year. Sequentially we saw reductions in equipment revenues in practically all of our operations. The consolidated number was minus 30%. In local currency terms, most operations registered service revenue increases of approximately 5% on the previous quarter.

EBITDA came in at MXN29 billion, 51.4% more than a year before and 17.4% more than in the previous quarter. EBITDA margin rose 6.5 percentage points from a year before to reach 42.7%. The share of consolidated EBITDA coming from our South America operations has risen to 31.8% from 22.9% a year ago. Three of them, three of our South American operations, more than doubled their EBITDA in the last year.

Margins, EBITDA margins, were up in all of our operations, except for Chile, as compared to the first quarter of 2006. In Brazil and Columbia in particular, we were up 14 and 21 points respectively compared to a year ago. In Brazil, we now have 27% EBITDA margins, in Columbia 48% EBITDA margins.

Our operating profit reached MXN21.4 billion. They were equivalent to 81.7% of revenues. And net profits totaled almost MXN16 billion, which was 23% of revenue. Operating profits were up 56% year-on-year, net profits were up 53% year-on-year. We will be submitting a proposal to our shareholders' assembly for the payment of a MXN20 per-share dividend, which is double what we paid in 2006.

Our net debt, even after the payment for the acquisition for the Puerto Rican operations, remains relatively low at 0.84 times EBITDA. I think these are the main points that we would like to highlight at this stage. I would like to pass this back to Jean-Charles so that we can open the question and answer session. Thank you.

Operator, we're ready for the Q&A.

[OPERATOR INSTRUCTIONS]

Hello?

Your first question comes from Ricardo Araujo. Please proceed.

Hi, it's Ricardo Araujo from Itau. Could you please -- can everybody hear me?

Yes.

Okay. I just would like to understand a little bit what has made your margins to improve so much. And I understand that it's not coming primarily from [tel sale], but mainly from other markets. And in particular -- Brazil, I mean, has shown a significant improvement in the EBITDA margin. Could you please elaborate a little bit more if it came from a reduction in handset subsidies, if there were any one-time items that were accounted in the quarter or if it was indeed only improving and gaining scale, cost cutting measures and all the kinds of efficiencies that you have introduced here in the country? Thank you.

Yes, specifically in Brazil, what we saw this first quarter is that as you said we are controlling our costs and the subscribers that we're gaining are very good subscribers, service revenue is growing as the -- at a good pace. So that's mainly what is happening. We don't have any one-time item that you could see. And all the efforts that we have been doing for the last two years on the branding, on the distribution, on the cost cutting are things that are -- we are looking those benefits in these months. So that's mainly what is happening.

You have to see that first quarter is not, in Brazil, is not high volume sales. The second, that is Mother's Day and the fourth, that is Christmas seasons are the ones that are the good quarters for selling. So that's also why the margins are good -- in a good percentage.

And so it happens -- it also happened in other countries, right? The same effects that you saw here happened in other countries, ex-Mexico?

Yes, like Carlos is saying, the scale that we're having is -- it makes us more easy to grow without putting so much money in the operation. So that's mainly what is happening.

And still -- sorry, in regards to Brazil, did you feel any increase in competition coming from Vivo with the GSM network already operating? Did you see anything more difficult that made your life more difficult here in the country or not?

Yes, Vivo is starting their GSM operations and I think the market is being a little bit more competitive. I don't know exactly what's going to be in the future, but today the market is more competitive than what we have seen a few months ago.

Okay. Thank you very much.

Okay.

And your next question comes from [Ricardo Ortega]. Please proceed.

Good morning everyone. I was wondering if you could tell us something about your new strategy on the push to talk on Mexico. It seems that you relaunched your services.

We relaunch -- we advertise our services. We don't relaunch our services. We start to advertise more, we have new handsets in place in Mexico and the technology has been improving a lot. So that's mainly what is happening with the push to talk.

We feel that push to talk is going to grow, grow all around. But there is the prices that we have in Mexico are also very competitive. So that's really what is happening with push to talk. Push to talk has been a good technology right now, with good handsets, but in the other side, we have good plans in cellular. So that's really what is happening in Mexico.

Could you give us some idea of how many subscribers you have in that service?

I don't have that right now, but you can talk to Daniela and she can give you the amount. I think we have a little bit more than 200,000 subscribers, something like that.

Thank you very much.

Thank you.

And your next question comes from Mauricio Fernandes. Please proceed.

Thank you. Good morning everyone. So, a couple of questions. First of all, I just wanted to get an update on the Telecom Italia situation, how negotiations are going on and what are the next steps that we should follow?

The second question is regarding regulation in Mexico, so we saw 13% reduction in mobile termination rates in Mexico in the first -- in January. And as far I understand, there is three more cuts of 10% coming over the next three years. I'm just wondering if, number one, you can confirm that that's the case. And number two, I wanted to know if there's anything else that Cofitel may be demanding in terms of in addition to the lower mobile termination rates?

And finally, I wanted to know if you have any interest in participating in the spectrum auctions? They're presumably coming towards the end of this year, specifically at the 3.5 gig and the 1.9 gigahertz level. Thank you.

First on Telecom Italia. The -- what is happening today is we're still looking for some alternatives. We -- remember that we were going to buy Olimpis with AT&T still with Tronchetti and also we're going to associate with them to be inside Olimpia and to have something on Telecom Italia.

Well AT&T decides to get out, to pull out and right now what is happening is that we're looking for alternatives and seeing what's the best way to get in and to associate with other persons, other companies on Italy. So that's mainly what we're having today. We're looking for alternatives and that's the only thing that I can say today.

On the regulations, as you said, we have a reduction on termination rate, on calling party pays of 13% beginning January this year. But as you can see, with national and international calling party pays, the volumes increased and we more than compensate this 13%. So national and international, both local calling credit base has been improving a lot their volumes. So that's mainly what is happening in Mexico and, yes, as you said also the termination rates, we have like a contract that we're going to have reductions of 10% for the next years until 2010. That's more or less what we have been talking with the Cofitel and with the other companies, local companies and wireless companies in Mexico.

And what you're saying is we're interested in the spectrum of 3.5 and 1.9. Where -- in which country?

In Mexico.

Yes, we -- we're still looking. I don't know nothing about the spectrum of 1.9, the government has been telling anything about the options, something in 1.9. I know that they are going to do the 3.5 and we are ready and looking for that. We don't know, still today, if we are going to be in the options, but we are looking for that alternative.

Okay. Thank you, Daniel.

Thank you, Mauricio.

And your next question comes from Henry Cobbe. Please proceed.

Hi there and thanks very much for the call. I've got two questions. Firstly, just on the calling party pays or the -- in Mexico. Would you be able to disclose what your revenues are from calling party pays? I can see that there is a positive elasticity in volume terms, but would you be able to give us either the traffic that you've received or the revenues that you have received based on the new rates in the first quarter?

And the second question is just on handset costs for the group wide. What's your expectation for handset costs year-on-year relative to 2006? Is it 75? Is the current handset cost indicative for the full year?

Well, on calling party pays, what I can tell you is that the volumes with the national and international calling party pays, volumes grow and compensate more than this 13% that we have on the reduction of the price. We don't have the details exactly where we have the growth, if it's in national and international. But overall, the whole volume of calling credit base is growing and compensating this reduction on the price.

On the handset side, well you see that more or less every year, handsets reductions are more or less around 20% and I think we're going to see that also this year and you are going to see that handsets with camera are going down, handsets with emails are going down, PDAs are going down. So and the markets are changing a little bit, markets are -- people want more color screens, cameras and PDAs, so that's more or less what the market is asking in all Latin American countries. But we still think that more or less 20% handset reduction would be for 2007.

And could you help us, just give us a little bit of an update on the CapEx budget and effective tax rate for the full year? And coming back to calling party pays, do you have a breakdown of what percentage of service revenues is from calling party pays?

I don't have it -- I don't have that detail, but Daniela can give it to you. And well the CapEx, it's around $3.2 billion for this year and with that we want to start putting UMTS technology in some countries and some cities of all Latin American countries. So that's mainly what we think that we're going to spend this year, $3.2 billion.

And on the tax rate, I don't know, Carlos --

The tax rate, the effective tax rate, for the first quarter was about 26%, which is close to the statutory tax rate -- the average statutory tax rate that we have in the figures.

Sorry, what was the number?

26%.

36?

26, 26.

26. Okay. And very last question. Just -- I know there have been quite a lot of headlines on the news about you looking at cable TV assets in Latin America. Previously, you'd always stated that your main focus was in under penetrated mobile markets, usually in the [Lat Am] region. Could you just explain what's the logic of going to these cable type bids when something that CMX could do easily by itself, so the question of mine is just plans on capital returns and what you're going to do with the excess cash given that gearing is very comfortable?

Well, remember that we have a strategy in Central -- what is happening is that America Movil is in wireless operations in South America, but we are full service in Central America. And that's mainly what you could see.

We have in Guatemala, El Salvador, Nicaragua, Republica Dominicana, and right now Puerto Rico, we have full service. We have fixed and wireless and broadband. So the news that you maybe were hearing is about a cable company in Honduras that we're looking for a cable company in Honduras. That was maybe the news that you were seeing. And that's still the strategy there. In all South America, we are not investing in cable and that's the -- really the strategy on America Movil now.

Okay. And on capital returns?

On capital returns, over again that question please?

Just on -- looking on the leverage on the balance sheet and the amount of cash generation. What you're going to do with the excess cash.

Well, what we always said is that we're going to maintain our ratios between EBITDA and debt and the rest would be for opportunities or dividends or buybacks. So that's mainly the strategy that we have been having for the last years and that's still what we're going to have in 2007.

Okay. Thank you.

Thank you very much.

And your next question comes from [Alsaid Bah] of AGS. Please proceed.

Hi guys. Congratulations for a great quarter. I have a couple of questions, first on the -- on service revenue. Can you give us a breakdown between pricing and volume, we've seen a 31% compound growth there. I'm just wondering what the breakdown is there.

You mean in Mexico?

Overall.

Overall, it is difficult to provide a breakdown considering that we have so many different countries, no?

What was the average price increase?

Increase? No, the average price decrease is all around Latin America, you could see that in almost all the countries MOUs are growing and ARPUs are more or less maintaining. That means that the average revenue per minute is going down. So we feel that in Latin America we are really competitive on that. We are more or less steady to EUR0.44 lower than in Europe and we are in all of the countries, more or less in a good average revenue per minute.

And on the margin expansion, what's your long-term EBITDA margin target if you have one?

I think in your last question, it's also service revenues are driven by volumes, not by prices, okay? So that's something -- it's - the service revenues are driven by better customers, more customers and more volume. So that's mainly the detail where the service revenues are growing.

And on -- just on that point, you spoke about more volume. Can you give us a split, like could we say that volume's up like 35% and pricing maybe down 4%, is that fair?

I don't have exactly the number, but we can check that. In each country it's different also. You cannot have per country, it's different, but overall maybe it's right. The prices are going down, volumes are going up.

And on the EBITDA margin, if you have a long-term target that you can share with us?

Well, we think that to have a -- our budget on EBITDA margins were around 38% more or less the budget said 37%, 38%. We're above our budget and the EBITDA is going to depend a lot on the competitiveness of the markets, of each market. So depending on the competitive of each market, Brazil is getting a little bit more competitive, Mexico is getting more competitive and depending on each market, it's going to depend the EBITDA, no?

But like so we should expect EBITDA to fall down to 38%? Is that what you're saying?

No, I don't think -- no, what I'm saying is that our budget was more or less 38% and we're above our budget. Not that we're going to go back to that budget. No.

But what I'm saying is that that's -- that that depends a lot on each market and the competitiveness. And we don't know exactly what's going to happen the rest of the year. No.

And specifically EBITDA was also driven by, I guess, good performance on the SG&A front. Can you help us understand exactly what went on with the SG&A line?

Well, what is driving EBITDA up is lower subsidies. We're taking care about those, the subsidies. We are controlling all our costs, operational costs, sales costs and that's mainly what -- and then the other thing is that the growth that we're having, these 4 or 5.9 million subscribers are less heavy because America Movil is really growing the revenue. So that's mainly why the EBITDA is expanding in this quarter.

And then I've got two more questions. Telecom Italia, why not just buy their Brazilian operations in Brazil? Why would you have to go through Olimpia in Italy?

The question again? On the last question that you have is, we're continuing to add subscribers without increasing fixed costs. So that's mainly also --

That's [inaudible]?

Yes. Yes. Yes. Exactly. And what was your question?

I was wondering why not just go out in Brazil and buy the Brazilian operations of Telecom Italia directly instead of going through Italy? Through Olimpia?

Well, because going through Olimpia, I think it's a different thing, no? If you do something in Brazil, it's only in Brazil. If you go through Olimpia, you are having the whole company of Telecom Italia and we feel that gives us some benefits to have all Telecom Italia instead of only to having Brazil. With all Telecom Italia you have the opportunity to have some things in Brazil and in other places and in Brazil you are only in Brazil. No, that's really --

So in other words you are attracted by a presence in Europe?

No, what -- in that what I can tell you is that our main focus is in Latin America. The growth is going to be in Latin America and the focus is going to be in Latin America and -- but we're going to be open to see other opportunities and these opportunities have to be with the -- limit our risks and maintain America Movil strong financially. So that's the strategy right now, no?

And last question, what was your free cash flow in the quarter?

The free cash flow in the quarter. I will -- let me check that.

We don't have that number. It's MXN10 billion.

10 billion -- 10 billion?

MXN10 billion. MXN10 billion.

So is it fair to assume a MXN40 billion free cash flow for the year? Is that -- ?

Well no, because you're talking -- the CapEx is not linear throughout the year. CapEx expenditures in the first quarter are typically lower than what you would have later on in the year.

Oh, sorry I didn't catch that. Can you say it again please?

Yes. CapEx is not linear. We tend to pay more CapEx in the second half of the year than we did in the first quarter. Daniela Bassit was saying, our CapEx figure is MXN3.2 billion, but we -- for the year as a whole and what we spent in the first quarter was only about 450 million, so that's -- dollars equivalent. So that's basically -- you cannot assume that it's going to be MXN1 billion necessarily in each one of the quarters, no? But you might also have changes in [inaudible].

And also to clarify a little bit more on the transaction in Italy, the transaction with Pirelli did not imply any concessions to acquire in Brazil. The transactions with Pirelli on Olimpia is to acquire and to be a partner on Olimpia, that it's all Telecom Italia and we think that the partnership within one of the largest operations in Europe and the largest operator in Latin America would give us a lot of alsoexpertise and a lot of other things, no?

Alright. Thank you very much. I appreciate it.

Okay. Thank you.

And your next question comes from Vera Rossi of Morgan Stanley. Please proceed.

Thank you. Good morning everyone. My question is about your contract base. We are seeing in several countries your contract base growing faster than the prepaid and I would like to know what is causing that? If you are gaining market share from competition or if the economies are better? What is the main cause and what we should expect going forward? Thank you.

Hi, Vera, how are you? As -- on the contract base, we're focusing a lot on postpaid subscribers. We don't know today if we're gaining or not gaining market share. But one of the focuses of America Movil is to be in that segment. And also it is helping a lot that PDAs have been well received in all Latin America. So that's also part of the growth on postpaid.

Okay. And I have another question on EBITDA margins. Your EBITDA margins in Brazil, they were 27% in the first quarter. And your guidance for the year was -- or is 20%. So should we expect like higher margins in 2007 in Brazil or higher than 20%? Or do you think the margins are going to be going down in the next quarters from -- compared to the first quarter?

Well, remember that first quarter is like summer quarter in -- is the summer quarter in Brazil, so the net adds are not so strong. Second quarter and fourth quarter are more strong than the first one and the third one. So I think we expect to reduce a little bit in the third and the fourth depending on the net adds of those quarters. But we're still -- and also it depends a lot on the competitiveness, no? Vivo is starting GSM and let's see how it's going to be, the aggressiveness in all the markets, with all the competitors and that's more or less what is going to drive the margins in Brazil. But we expect to have more than 20% better.

Okay. Thank you very much.

Thank you.

And your next question comes from [Jose Ramirez] of Georgia Bank. Please proceed.

Hi, good morning. Just a quick follow-up on the spectrum question. Do you see any capacity constraints in Mexico? I guess the UMTS might help solve this, but do you see any capacity constraints at this point in Mexico City? Or when do you think you could have some constraints? Thank you.

I think we are in Mexico in very good shape on the spectrum. We have around 50 to 55% megahertz in between 850 and 1,900. And we feel very comfortable with that. And UMTS is also going to help us on the volumes and capacity. But we feel comfortable in Mexico with the spectrum.

Do you have -- are you using like 75% of your capacity at this point or something close to that?

No, no. We're using less than that -- less than 75%.

Your [inaudible] on the spectrum or on the capacity of the infrastructure?

Well I guess it's more important, the capacity of the infrastructure.

The capacity -- on the capacity on the infrastructure, we're using less than 75% and with UMTS, it's going to be much better and more efficient than what we have right now.

Okay. Thank you.

Thank you.

And your next question comes from [Dan Tierkoff]. Please proceed.

Hi, good morning. Just a couple of questions. In terms of the US, your margin has been extremely volatile, it's been jumping all over the place. Should we expect the margin to become less volatile? And at what level do you think the margin should settle at? That's the first question.

Well the volume in US has to be a lot with the growth of the market. If you compare the growth of last quarter or a year before, it was higher than what the net adds that we have today. So that's mainly why the EBITDA is growing, but it's really relative, a lot relative net adds to EBITDA. So that's what you could see in the United States. And scale is also important. We're gaining scale, then it's less costly to grow than the years ago, no?

But what sort of margin should we expect for longer term once growth settles down?

Well it's -- I think as we grow, we're going to have better margins, lower costs of air time and lower cost of handsets. So that's going to give us a better EBITDA margin in the United States. That's mainly what we can see in the future.

But I mean it's a very different model to the rest of your business is where you own the capacity, this is bought capacity. So your margin shouldn't get to the same level as your other markets, correct?

Yes. It's correct. It's a different company than an MDNO. So that's different cost structure, so it's going to be different, the margin. We don't expect to get 40s or 50% in [track, we don't know], we are expecting that.

Do you think mid-20s is more reasonable?

More or less, yes. I would remember this company doesn't have any CapEx. So as you said, it's a different model.

Okay. Great. The second question is on Canada. You've mentioned before an interest in possibly following the track phone model into Canada. Is that still something that you're thinking about?

Yes, we are still thinking, we are not concreting anything there. But we're open to see alternatives there. An MDNO of course.

Right. Okay. The last question's on the Dominican Republic. And on your press release, it says that the ARPU in Dominican dollars is $10 Dominican. And that translates into about USD $0.30. That's not correct is it? I also would be wondering why you'd buy a market with an ARPU of USD $0.30.

[inaudible]

Page 12.

Yes, it's in dollars. It's in dollars, yes. We have a mistake there. You are right.

That's in dollars?

It's in [inaudible] dollars. It's expressed in dollars. We --yes, exactly.

Okay. Great.

[inaudible]

Thank you very much.

Thank you.

And your next question comes from [Claudio Percado]. Please proceed.

Hi, Daniel, Carlos and Daniela and congratulations on an excellent quarter. A couple of questions. When is, on the elasticity of demand, because of what's happening with MOUs and ARPUs, it's clear that there's still substantial elasticity of demand as you cut prices in certain segments. Do you see that continuing for awhile longer? And the other one in Brazil, with Vivo, just in your competitive checks, do you believe what they've spent in the GSM network that they're going to have the kind of coverage that will be competitive with you in GSM in Brazil?

Hello, Claudio.

[inaudible].

I think on elasticity, Mexico clearly extends it for volumes to continue to go up and to [inaudible] compensate the [inaudible] price that we are expecting. Daniel mentioned before we are already slated to reducing the production rates going forward with our volume agreement probably in the next three years and we expect and that has been the case up until now, the volume will at least compensate the price reductions.

And [inaudible] Brazil GSM? On Vivo, we really don't know their number. I don't know exactly how much they're investing in GSM and they have -- are going to have the capacity or the coverage that they have or that we have in GSM either. And I don't really know the numbers of Vivo.

But so far they have been very aggressive, particularly in GSM, right?

But they are starting to be more aggressive on GSM, yes.

Okay. Thank you very much and good luck.

Thank you. Thank you.

And your next question comes from [Sergio Cruise]. Please proceed.

Thank you. Good morning. Could you give us some idea about the development of 3G in Latin America? I mean, you mentioned that one of the drivers for UMTS could be efficiency. I wonder if the -- in terms of services in Latin America we could see a lead drop directly to HSPA?

Well the strategy on UMTS is to roll out around 30 to 40 cities at the end of this year, all around Latin America. We're going to put UMTS and HSDPA, HSDPA is only a software that is going to be included there and it's going to -- the -- it's going to be -- it's going to give us more capacity on the network, but also we're putting UMTS because of the services that we can give. And that's something. Prices of handsets are going down. I think they are going to be affordable for Latin America people this year. So we're feeling very comfortable on the UMTS, HSDPA strategy in America Movil.

Okay. Could -- just to close [I mean], could you give us any indication about the rate of growth over the next years? Or penetration in America for the next years?

I think that we ended last year at close to 65% for the regions that we cover. I think that we may be growing from 8 points per year, so over the next three years, so we think we have our expectations to get to levels of 70, 75% [inaudible] over the next three years. That's really what the target that we have is to get to 70 to 75% of penetration at the end of 2009, 2010.

Okay. Thank you very much.

Thank you. This type of penetration is -- it's -- they're 500 million pops in Latin America, so if you go 20 points of penetration, it's around 100 million subscribers. So that's still a huge number and that's why we want to have the focus on Latin America.

Yes. Okay.

And your next question comes from Alsaid Bah of AGS. Please proceed.

Hi. I missed the post-paid and prepaid subscriber growth that you said at the beginning [inaudible].

The one that Carlos mentioned?

Yes.

I don't think we mentioned anything.

I don't think we mentioned that number specifically. I would say that the post-paid subscriber base grew more rapidly than the prepaid one in all of our operations, [inaudible] and Central America.

Well I guess can you break down to sub base between these two?

Which two?

Prepaid and post-paid?

Prepaid and post-paid.

We don't provide those numbers in -- on the --.

Okay. And then on the CapEx, could you maybe give us a breakdown of your CapEx ramp up trends by region or by country?

We don't disclose that number also. But the total CapEx is going to be around $3.2 billion.

One last one on the competition. You mentioned that you perceive in Mexico competition was increasing. Can you maybe elaborate on that a little bit?

Well not increasing in Mexico, the competition has been high for the last year. I think this year it's going to be still very competitive and in Brazil, what I'm saying is that we're going to have a new competitor in GSM, that is Vivo and that's something that will increase the competition in the market. It's what I'm saying.

Would you expect your EBITDA margins in Mexico to rise despite this tough competition?

No, no, no. I think margins in Mexico will still maintain above 50%. That is more or less what we are saying for this year.

Okay. Thank you.

Thank you.

And your next question comes from Abigail [Bocanadra]. Please proceed.

Good morning everyone. I have two questions for you. You just said you're mainly interested in Latin American markets. Are you interested in acquisition of cable companies in Honduras, for example, which would be the companies you are interested? And the second question is, would you join a bank in the acquisition of Telecom Italy? Thank you very much.

Well on the cable companies, we just explained that we have full service companies in Central and the Caribbean. Central America and the Caribbean and in those places, we are interested in giving the full service voice, data and video. And if we need to buy a cable company, we're going to do it. If we're going to invest in IPTV, we're going to do it. But that's the strategy in Central America and the Caribbean.

In South America, that's not our strategy. I think we have enough scale in the wireless companies that we operate and we don't need to have that -- we don't need to buy the cable companies. I think the strategy there is a bit more TelMex's strategy than America Movil's strategy.

And in Telecom Italia, what you could see is we -- as I am saying, is we are looking for alternatives, we don't know if we're going to join the bank or not or if it's another operating partner. But we're looking and seeing for some other alternatives and that's mainly what I can say on Italy.

Okay. Thank you very much. Would you give any name?

No, no, this is still --.

The companies in Central America you are interested in?

Of the cable companies? On the cable companies?

Yes. Yes.

No. No. We don't have anything that's done until today.

Okay. Thank you very much.

Thank you.

And your next question comes from Henry Cobbe. Please proceed.

Hello, sorry, just a follow-up question on the Columbia market. It seemed like the ARPUs in the first quarter were very, very resilient year-on-year. Were there any adjustments there, or was that the key number? Using ARPU stabilizers, subscriber growth goes down?

Yes, I think that's -- those are the numbers. What is happening is we have a huge growth the last two years in Columbia and today the growth has been more stabilized and with that you're seeing good margins now, the control costs there in Columbia is what's been extremely good. Revenues are going up and with control costs there, then the revenue has -- the EBITDA has been increasing. That's mainly what is happening. Our growth has been more stable there so I think that's what we expect for the rest of the year.

Okay. And in the US, do you have an idea of what the addressable market is for [track phone]? I don't know if you're targeting a particular part of the community and just what percentage of that addressable market you've already penetrated? So just really kind of what's the upside to penetration there? And just in Chile, just tell us a bit more what's happening to margins? It looks like you're having to subsidize handsets very heavily in that market as margins have reversed.

I think that in the US there is still a huge market on the prepaid side. Penetrations in Europe are 100%, penetration in the US is 75%. So I think still the US is going to be more penetrated and the prepaid is going to help to penetrate more as the US market.

Yes. And isn't it targeting a particular part of the community? I'm just wondering what percentage of that market you already have?

No, there is no -- I think -- we don't have any particular on that.

Okay. I thought it was mainly on -- a Spanish speaking thing or was it -- is it?

No, I don't think that's any particular target that we have in the US. I think prepaid is more for control and we are all around the United States. And I think we have a Spanish market, but we have also huge markets. So we are all around the region. It's an national company, not only a Spanish company.

Okay. And what would you say, I mean, the -- is it -- the mature margin would be in the US for an MVNO like TracFone?

Well it's difficult to say, but depending on the scale that you have. But we said, we can get to 20% EBITDA margin, something like that, no?

So 20?

20% EBITDA margins in the [inaudible].

That's where you are at the moment, yes?

Yes, yes. But remember that that's not -- depending on the growth that you have, no? As the company gets more scale, then you can improve that.

Okay. And are handset costs in the US similar to Latin America?

Well if it's the same handset, yes. We buy -- America Movil, it's the same company. So we have the same prices all around, depending on the tax, but in each country. But we have more or less overall the same prices for America Movil.

Okay. And lastly, in Chile, can you just explain what's happening with the margins there?

Well, what happens in Chile, we start to do GSM. We roll out all our operations there, all our coverage, capacity and to date we're growing a lot. No ,I think the numbers are we're growing like 100% more, something like that. Triple net. Triple net adds that last year, so that's why their EBITDA is going down. But as we get scale, this has to go up. So in Chile, we are right now -- we want to gain market share and we have everything. We have a new brand, [Laro], we invest in distribution, we invest in coverage capacity. So we are going to gain market share there and as the scale of the company goes up, then the margins will return to better margins.

We have been growing, I saw here, 56% on revenues quarter -- one year to the first quarter of 2006 to first quarter of 2007. So good subscribers. We are acquiring good subscribers.

Okay. And lastly, would you consider putting in -- I mean, some of the smaller markets, it's very hard to get detail on the overall market size. Is that something you may be able to include in future press releases?

Which markets? Paraguay?

Yes, for the Central American markets, for Chile in fact, in Columbia and the information that's quite hard to access given you cover 70 different markets, it would be very helpful if you could perhaps provide your estimate of market share?

You can talk to Daniela. There's some things that we don't disclose and others that we. So we're happy to give you what we disclose and there's no problem there. If you can talk to Daniela, it's perfect.

Okay. Thank you very much indeed for your time.

Thank you.

And your next question comes from Walt Piecyk of Pali Capital. Please proceed.

Thank you. Daniel, the Telecom Italia, I just want to return to that. I think you have an exclusive negotiating period that expires on Monday. Do you need -- are you looking to get this partner before that time? Or is this going to be an open-ended attempt to find a new partner to replace AT&T in that? And is also one of the considerations for you and TelMex to basically take on the economic stake of what AT&T was supposed to bid and just go at it alone in order to try and buy the stake in Olimpia? Thank you.

Well, I don't think we're going to do something before Monday, so it's -- we have an exclusivity until Monday, but we don't think that we need to do another exclusivity. We're still looking for alternatives. I don't really know exactly why those AT&T pull out, but what we feel is that makes a lot of sense to us to make a transaction with Pirelli. A partnership between this company and our company and TelMex company makes a lot of sense and will give us a lot of expertise and synergy. So that's mainly what we're looking there. The risk is limited. We're going to -- the financial situation is okay for us. So there's no risk today on doing a transaction like that, no? We don't have anything to date. But we're looking for other alternatives in -- with Olimpia and in Telecom Italia.

Okay. And I believe there was a situation a year or two ago where I don't know whether it was Anatel or a court that prevented you from selling services in Mina Gerais because of some minor ownership that I think Mr. [Silim] had had and I forget the exact details, but it seemed like a small item. So I guess I'm curious that if you are in fact ultimately successful in purchasing this stake in Olimpia, which gives you a stake in Telecom Italia, which obviously controls TIM, do you anticipate having to make any change to your ownership of licenses in Brazil or is your belief that if you had owned this stake in Telecom Italia that you can continue to operate Claro in market as well as TIM? Thank you.

The way we are doing things in Telecom Italia is we will have a minority, non-controlling share on Telecom Italia. So that's very important to say. We are in partnership with other ones in Telecom Italia. We are not buying the control. So that means that we shouldn't have any problems on the Brazil assets. So that's the --.

Wasn't that the same case in Mina Gerais, where there wasn't a control situation? It was like a ownership and a pension fund where two entities owned Telus shares and it wasn't a controlled stake there anyway?

No, it's a totally different. What we have in Mina Gerais and that what we're doing in Telecom Italia. Even that in Mina Gerais's there was an injunction from other companies that then we fight on that and we gained -- we win that situation. So that's also -- it was different, but we have the reason in Mina Gerais. So that's why we're giving service and doing everything in selling and having the same ownership that we were -- that we are starting in Mina Gerais, no.

And if you ultimately did get control of either Telecom Italia or more appropriately TIM in Brazil, would it be your anticipation that you would have to divest of one of the licenses in each market or is it possible that you can own both licenses in the market?

Firs, we have to decide if we're going to take the control on Telecom Italia and then the decision has to be -- we are going to include in our decision what we have to do in Brazil. But there's still today, we don't want to change anything in Brazil. Brazil, we are gaining market share, we are increasing our EBITDA. I think the company is having a good momentum there and we're being very careful not to do something that will hurt the Brazil operations that we have.

Okay. I just also wanted to return to a comment, I believe, that was made by Carlos. Or maybe it was you in your comments, saying that you were going to continue as you said before to maintain your leverage ratios. I seem to recall Carlos Moreno making reference to taking your leverage ratios to 1.5 times as opposed to just maintaining them at current levels. Could you just -- I mean I understand that you want to keep the balance sheet where it is for some of these potential acquisitions that you have coming up, but I mean ultimately over the longer or intermediate term, can we assume that you're going to take your leverage to a higher level than its very low level that exists today?

I think at the beginning I tried to be very clear that one of our focuses is to maintain strong financially. I never heard that Carlos said that we're going to go to 1.5 or 2 or to have that. So something that we have been doing for the last five years is to limit our risk in each of the operations that we buy and in each of the countries that we enter and maintain the company strong financially and it's exactly the same thing that we're going to do in the next year. So that's something that we are really interested to have now.

So -- but don't you believe that you can operate at a ratio of 1.5 or 2 times and still be very financially strong?

I don't know. We have to look at that and we have to see exactly for why we're going to increase our leverage and the -- what's going to be the returns and -- but still today we are under 1% EBITDA -- 1 times EBITDA debt and we don't have any reason to date to increase that. No.

Okay. Can you -- and just one operational question. Is the CPGA number, it seems to be coming down, especially in some of the lower ARPU markets. Has there been -- I know your confident about the handset costs coming down, but is there also a mix shift to selling more SIM cards directly to the end-user as opposed to handsets?

No, no. That's something that we have not been increasing, since SIM cards a small number of our net adds. A very small number of our net adds. And the subsidies are more on the controlling our subsidies, the cost of the handsets and offering better handsets for our subscribers, no? That's the whole that we have there.

Okay. Great. Thank you very much.

Thank you. Thank you for being on the call.

And your next question comes from [Romina Nicolletta]. Please proceed.

Hi. I have a question about your earlier statement. So you said you're looking for associations with persons and companies in Italy. Does it mean that you're negotiating -- we're looking for Italian partners? And if that's correct, if you're talking with Intesa and Mediobanca? Thank you.

The only thing that I am going to say is that we are looking for alternatives in Italy and that we don't have anything with nobody today and we are interested to have partners. We are not -- what I am saying is that we are not going to get the control and of course we're interested in having Italian partners of course. We're interested in having Italian partners.

Okay. Thank you.

Thank you very much. Well --

And your next question comes from Henry Cobbe. Please proceed.

This will be the last question.

Okay. , thanks very much for taking it. But the last one's, again, on the TI and Olimpia bid. Let's say it worked and you got the stake. What would be your strategy for TSU and also what would be your strategy for Telecom Italia? Would you look to combine TSU with Claro? And what would you do with the -- your stake in the rest of the Telecom Italia

Well again we're going to buy a minority stake in Telecom Italia and still to date Claro and TIM will compete in the market as they are competing today, no?

We don't have the -- I want to clarify that the transaction with Pirelli did not imply any concession to acquire it in Brazil. So we don't have anything, we don't talk about that when we discussed with Pirelli.

In which case, what's the logic behind the transaction?

Well to get some of the synergies and to have a partnership with a big company in Europe.

Okay. Well -- okay. Well thank you very much indeed.

Thank you. And thank you everybody and thank you Jean-Charles.

Thank you very much.

Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.