America Movil SAB de CV (AMX) 2007 Q2 法說會逐字稿

Thank you. Good morning and good afternoon. This is Andy Campbell from Credit Suisse and it's my pleasure to welcome you today to the America Movil Q2 2007 Results Conference Call. We have on the line with us today Daniel Hajj, CEO of America Movil and Carlos Garcia Moreno, CFO, online from Mexico City. And I'd like to hand the call off to Daniel for some opening remarks.

Thank you, Andy, and thank you everybody for being on the call. As always Carlos is going to make a small summary of the results of -- the second quarter results of America Movil. Thank you.

Thanks, Daniel. Thank you Andy for hosting the call. Well, good morning everyone. America Movil has a solid balanced performance in the second quarter. We had good subscriber and revenue growth and with strong EBITDA margins very much across the board. We consolidated for the first time the operations of Puerto Rico, which we had acquired at the end of March.

We must note that sell-side analyst estimates of our second quarter numbers incorporate very different assumptions of the corresponding figures for Puerto Rico. It is not clear to what extent these assumptions distorted the consensus estimates. We added 6 million subscribers in the second quarter, slightly more organic net additions than in the first quarter to finish the first half of 2007 with 137.2 million subscribers.

Our total number of lines including 3.8 million fixed lines was 141 million. In absolute terms, the largest gains were in Brazil, 1.6 million followed by Mexico with 1.2 million and Argentina with approximately 770,000 subscribers. We had roughly 0.5 million net adds in both Peru and Colombia.

Year on year subscriber growth has been more rapid Uruguay and Peru with [132%] and 76% respectively followed by Argentina and Paraguay with approximately 50% each. Altogether we now have 46 million subscribers in Mexico. The third part of our subscriber base, 26 million in Brazil, 21 million in Colombia and close to 12 million in Argentina.

Revenues totaled MXN75.4 billion in the second quarter. They were up 29.3% annually with service revenues rising 33%. The second quarter figures include the consolidation as I mentioned before of our Puerto Rican operation beginning in April. Excluding this operation total revenues would have increased 23.7% year on year.

EBITDA reached MXN30.8 billion in the quarter. It was up 45.2% year on year. These represented an EBITDA margin of 40.9% in the quarter. If we were to exclude Puerto Rico again, EBITDA margin would have been 41.1%. The EBITDA margin went up in most operations year on year remaining flat in Peru and Central America and falling only in Chile due to the more rapid pace of subscriber growth in that country.

In fact if you look at net additions in Chile they were almost 2.5 times larger in the second quarter of '07 than they were a year before. And looking at the increases in margins that we have seen year on year I'd just like to highlight the countries that saw increases in margins. In Mexico, margins went up by 3.6% -- by 3.6 percentage points. In Argentina, it went up by 5.4 percentage points.

In Brazil, it increased by 13.2 percentage points. In Colombia, it increased by 18.5 percentage points and in Ecuador it has increased by 12 percentage points. So we have seen very solid margin expansion in the more substantial operations for America Movil. We are seeing margins flat basically in Central America and Peru, and that is to a large extent due to the pace of subscriber growth and they have only fallen -- they have only fallen in Chile, again where we are seeing net additions growing 2.5 times more rapidly than Peru had last year.

Through June total revenues amounted to MXN143 billion and EBITDA, this is again for the first six months of the year, to MXN60 billion. They were 28.8% and 48.1% higher respectively than a year before.

Our second quarter operating profit was up 52% year on year to MXN21.8 million. This translated into a net profit of MXN14.7 billion, 30% higher than the year before. I must say that depreciation and amortization expenses have not really changed much in relation to revenues as some analysts may have been saying.

Second quarter deprecation and amortization expenses were 11.9% of total revenue. A year before they had been 11.7% of total revenues. So we are really not seeing any major change in this particular item as a percentage of the revenue base.

We ended June with a net debt of MXN75.1 billion, which was equivalent to 0.69 times EBITDA. It came down by MXN9.2 billion in the quarter. It's important to note that the relatively low level of debt that we have -- net debt that we have is obviiusly after having fully accounted for the acquisition of Puerto Rico, the Dominican Republic and North America telecom that took place at the end of last year. So the effect of the more recent acquisition is really fully behind us and the Company is again in very solid footing as it always has been.

The first six months of the year our CapEx totaled MXN10 billion. Our share buybacks reached MXN4.1 billion. All of this was obviously paid out of our own cash flow. Well, I think this is the more important -- these are the more important things to highlight and I would like to pass it back on to you, Andy, to begin the Q&A session.

Okay, thank you, Carlos, for those opening remarks. Again, this is Andy Campbell from Credit Suisse, and just to start the Q&A I would like to go into a little more detail, if we could, on what's happening with the Brazilian business because it seems to be having an exceptionally strong quarter not only were the net adds high relative to the other countries but they were high in terms of leading the market. And you did that with what seems to be a quite strong EBITDA margin. So I was wondering if you could just tell us a little bit about what the dynamic is that's driving that and what the expectation is going forward in terms of growth in margins?

Well, Andy I think we have a very good quarter, second quarter in Brazil. We gained in market share. We have a very good EBITDA margin. Not only in the quarter, I think for the first half of the year we're still gaining market share and we have good margins. I have to tell you that the economy in Brazil is doing very good. I think the economy is growing fast so that helps a little bit on the growth of the market.

Also the competitive environment in Brazil is changing. We have a new competitor in GSM since second quarter, more aggressive and well, that makes the market more competitive. But what we're very happy because we have the fundamentals in Brazil very strong. We have very good coverage. We have a very good brand. We have a good momentum and very good distribution, marketing, so we are doing very good and I hope that we still do that in the next -- we have the highest EBITDA margin in the quarter from the three big companies in Brazil. We have the highest growth on revenue and service revenue, and the highest percentage in net adds. So that's -- we're doing very good in Brazil. We're very happy with the company right now.

Okay, Daniel, and in terms of margin expectation going forward?

Well, in third quarter I think we're going to see a good margin also because you know third quarter you don't have any exceptional sales of handsets. And in fourth quarter there is coming Christmas and then the sales in Christmas are going to be, I think, very high. So I hope we can maintain more or less -- the average that we have was 20. It's the expectation that we have was 20% EBITDA margin and I think overall in the year we can exceed that 20% margin. We are right now at 24% margin and I think it's going to be between 20% to 24% EBITDA margin for the year, growing at a very good -- growing very fast.

Okay great. Operator, can we please open it up for the rest of the Q&A?

(OPERATOR INSTRUCTIONS). Your first question comes from Vera Rossi.

Thank you, good morning everyone. I have two questions -- my first is about Mexico and then Tracfone in the U.S. In Mexico, we saw a slowdown in net additions. Usually first quarter and second quarter have similar levels of net additions. That was in the pace in the last few years. And this year we saw a slowdown. What is the reason for this slowdown? Is because of the macroeconomic situation that was slow in the second quarter in Mexico or you are seeing some effect of the higher competition from Telefonica?

And my second question is on Tracfone. First quarter and second quarter you had a big drop in the second quarter even though the net additions were relatively flat sequentially so what caused this drop in margins? Thank you.

Hi, Vera. Well starting from Tracfone what we have in Tracfone is that we launched two new models of handset so what we have is that we have to put more subsidy, a little bit more subsidy in these handsets at the beginning, and we have to fill up all the distribution channels that we have in the U.S. so the shipments are very high and that cost us around $10million to $15 million so that's really the reason why we have that reduce in the EBITDA margin.

And that's really the reason. And in Mexico, well, we always had a little bit less net additions in second quarter than in first quarter. What happened, first we have a very good first quarter this year? I think was the highest since a lot of time in Mexico and the second quarter was a little bit, I think we have a little bit of slowdown in the economy of Mexico. You have a change in the government so they stop a little bit of things to start new things. So that makes that the economy slowed down a little bit but I think the economy should -- I hope that the economy should recover for the next months.

Second is that we're also focusing in very good customers. We are trying to focus in customers that give us good revenue and that's mainly what you are seeing in our ARPUs, in our service revenues that are growing very good. And I'm -- the numbers that we have in Mexico in terms of subscribers are more or less on our budget so I'm happy what's happening on Mexico. I think 1.2 million subscribers in the quarter is not a bad quarter and it's under our budget. The budget for the year, total year, I think we are more or less on track.

Okay and just one follow up. In terms of competition are you seeing Telefonica more competitive now than they were before or more present in terms of net additions and commercial activity?

I think well Telefonica has been in Mexico here I think for six, seven years and they are improving some things, [call-reduction]. I think they are a little bit more competitive yes, but I think that's very good for the whole industry. I think that we have a good competition in Mexico. It's not bad for everybody. Also, Nextel is doing good. I think also you have some improves in [Ucicell] and Unifon that they get together, their marriage. So there's an industry with a lot of competition and I think that's good for the Mexican market.

Okay, thank you, Daniel.

Thank you, Vera.

Your next question comes from Walter Piecyk.

Piecyk, thank you. Daniel I'm just going to ask the same question I've pretty much asked on every call now. Once again, you had tremendous free cash flow in the quarter. I think if you look at the end of 2007 there's going to be more free cash flow coming. Just trying to understand the decision to buy such a little amount of stock given how much free cash flow you have, where the debt leverage is of the company. Can you give us an update on what your outlook is as far as your use of free cash?

And also on the same topic CapEx seems to be tracking very low in the first half of the year. Do you think you still can I guess top $3 billion of capital spending for 2007? Thanks.

In terms of CapEx I think when you start and you start construction things the CapEx you spend is a little bit low and I think we are more less on track with the 3. We said $3.2 billion, $3.5 billion of CapEx. Remember that we're going to push also Puerto Rico. We're going to change CDMA to GSM in Puerto Rico so I think our CapEx of $3.5 billion including the UMTS that we're putting it's more or less on track and we're going to do more or less that amount of CapEx in the year.

In terms of the cash flow, Carlos, you want to?

Well, we have had almost $400 million in share buybacks in the first half of the year. We are going to pay tomorrow approximately $650 million of dividend so there will already be $1 billion of cash given back to investors in only first -- not much more than the first half of the year. As you know and you can tell from the experience that we have had certainly the last couple of years we always leave a certain amount that is part of our liquidity that would be available for acquisitions and the like during the year. And it is basically until the end of the year that we see what happened. And if we ended up with more cash than we intended than probably, the likelihood that we are going to be ceding this back to the market in some way or another.

Last year we ended up inquiring Amtel at the very end of the year, which was roughly the equivalent of $1.3 billion share buyback. And the previous year we had given $1 billion extraordinary dividend. So I'd say that from what you can see in our numbers we have a relatively low leverage. We're down below 0.7 times net debt to EBITDA and again to the extent that we do not see any acquisitions materialize from here until the end of the year it give sus a chance that we can step up the share buybacks or the dividend pay.

Thanks, Carlos, but I just have one follow-up question to that. I mean why do you have to be tied to a calendar year? I mean you know what the available acquisitions are out there. There's not -- with TSU, with the Telefonica purchase of Olimpia let's say TIM Participacoes would be more difficult to purchase now. So I'm not sure what acquisition could possibly be out that you would need to save this capital for. Why would have you to wait until the end of the year to do one of these large dividends or share repurchases?

I guess that's the way that we operate. And we want to maintain healthy and we want to be healthy for -- we don't know. You're saying right now that we don't have a lot of different alternatives but well, we want to be healthy to see if there's going to be new acquisitions or new things that we could do. So it's worth giving a dividend today. We're doing buybacks through the year and then we can do another dividend at the end of year or more buybacks at the end of the year or at the beginning of next year. So we don't have a calendar and we want to maintain that way.

Great. Just one last follow-up question on that, is it your intention to just maintain the current leverage ratios or would you agree that the leverage ratio currently is too low and that the leverage ratio would actually have to go up?

What we have said is that we've always wanted to remain financially strong. I think that affords us good opportunities in the marketplace. Secondly, the leverage we have had for most of the last five years have been at around 1 times net debt to EBITDA or below. And that's basically where we are. So I think keeping sufficient dry powder is something that's important for us.

Great, thank you very much.

Your next question comes from James Breen.

Thank you very much. Could you just talk a little bit about the regulatory environment? Obviously we saw some news a couple of weeks ago in terms of the potential impact for you in Mexico. Can you talk about where that stands in any discussions you've had with the regulators there? Thanks.

Well, we have been also seeing something and hear something in news. We have not been notified officially from the Cofeco. I think in Mexico we have an industry with four competitors, no restriction for foreign competitors, and we're competing against the biggest companies, the global companies, the biggest companies we're competing against them in other places where we are -- we have less share market than what they have in other places. Let's say Peru we're competing against Telefonica what they have -- they used to have 70 and we have 25% market share. We're increasing so what I can tell you is that we are -- our operations and what we do it's under good competitive environments is what we do in other countries and those practices we are doing that in other markets.

So let's say what the Regulator, the Regulator what he's saying is that he's going to start a control thing -- he's going to start to see if he's going to find some anti-competitive practices and let's see when there's officially and when we start talking with them let's see what does -- is the Regulator thinking or in which markets they are thinking we are doing something like that.

But we are right now feeling that the market in Mexico is really is very competitive and open to foreigners and we have global companies competing with us here.

And one follow up, with respect to your market share in other countries. Are there any other places where maybe you're the third or potentially second in size that you'd think about acquisitions in terms of gaining additional share?

Well, yes we are open to all of those things. Let's say in Chile we are the third. In Peru, we are the second and there's a lot of countries where we have and we are open to if there's a possibility and the Regulator can allow us to do that, of course, and it's under good values then we are happy to consolidate the market. No, I think it's better for all the markets.

Great, thank you.

Thank you.

Your next question comes from Patrick Grenham.

Good morning. Just a question first of all on tariff discounting in Brazil and in Mexico, really your tariff strategy. Are we in a position now where you are seeing general elasticity of demand in Brazil and if so how do you see - how much traffic growth? Do you see further acceleration of traffic growth in Brazil? And my second question is really on your CapEx and on the UMTS overlay and the 3G overlay. When would you be able to actually carry traffic on a UMTS network? By the end of this year or is that really going to be in 2008?

Hi, Patrick.

Hey.

Well, on Brazil I think that a lot of the more recent promotions have really been more based on air time than in the cost of handsets. So the fact that they've been so powerful and effective I think means a lot regarding -- but we think it's been a typical demand in Brazil. But I think that if you look at overall traffic growth has been good in a country that has recently accelerated its subscriber growth. If you look at this trend for subscriber growth it has been one of re-acceleration, and we think that that is going to have also an impact on overall traffic.

And also you can see the MOUs in Mexico, Patrick, the MOUs in Mexico from second quarter of 2006 to second quarter of 2007 are growing around 17 to 18%. So the elasticity has been good. We're reducing prices, more competitive in Brazil, more competitive environment in Mexico and so prices tend to go down and I think the elasticity has been good.

Right.

In CapEx and UMTS what you could see is that we already starting to develop the UMTS. It's going to be difficult for us -- it's a new technology and we need to learn to -- we don't want to launch without having good quality. So I think I'm not so sure that in this year we can start carrying some traffic. Then the other thing is that we're going to have not big areas with UMTS so I think next year is when you are going to see good coverage and traffic in UMTS. No, I don't think this year we're going to have a lot on that.

All right. And just to follow that question on the dividend policy, Carlos, you mentioned before it's probably about a year ago that you were comfortable with a net debt to EBITDA level of around one times. You're getting further and further away from that. Is that one time still there as a comfortable level of leverage? How long do you think it's going to take you to get to that one times leverage?

Well, what we said is that we -- we don't want to be over one times. But we also do not want to be very far away from 1 so I think all of last year we were basically at around 0.8, 0.9. I think that's probably the range where we are going to be ending the year at.

Right. That means either a huge increase in --?

But we do intend to maintain a capital structure with that degree of leverage.

Okay, but that means by the end of the year you're either making a huge acquisition or you really buy your stock back very aggressively or you pay a huge extraordinary dividend?

Well, those are the options.

Yes, which one are we getting?

I think people have already made up their mind to what are the likelihood of acquisitions and that means that we don't really have much outlet for the capital more than giving back to our shareholders.

Right, okay great. Thank you.

Thank you, Patrick.

Your next question comes from Mauricio Fernandes.

Thanks for taking the question. Thank you. Two questions actually, Daniel or Carlos. Can you talk about the progress with your Push to Talk product in Mexico when you launched in March the more aggressive -- the new product and a more aggressive campaign, I was wondering how it's coming? Second thing could you comment on wireless data trends, if you could be precise to saying the percentage of ARPU coming from data in Mexico or Brazil and how much it has been growing a year-on-year basis I would appreciate that too, please?

I don't have the percentage. What I can tell you is that the growth is data is good. We're growing in data and I think for the next year it's going to be higher because with the UMTS I think that's going to give us much more space to give some services, data services, to our customers. So we're growing. I don't have exactly the percentage and with the UMTS it's going to be much better. The other question that you said, what is it?

It was on the progress of the radio service, the Push to Talk service.

What we have -- we launch Push to Talk in Mexico. We launched Push to Talk in Mexico. I think we are doing okay. We are not growing as fast as other one but the thing here is that we have been so competitive in the cellular giving some -- all-you-can-eat inside the corporate and all of those plans that we have that it's more or less Push to Talk, like a radio sometimes, the cost is really attractive to the corporate and the small company. So that's really the reason why Push to Talk is not growing as it should be because we are growing very fast. You could see our post-paid contracts how they are growing so that's really the reason why Push to Talk is not exploding as we think that it's going to explode.

Okay, thank you, Daniel.

Thank you, Mauricio.

Your next question comes from [Valese Jonkoff].

Good morning, everyone. The Mexican average revenue per user decreased 5% on a year-over-year basis. Our question is if there could be a further decrease in this figure and if so, which could be the lowest average revenue per user you could expect?

The ARPU in real terms decreased 5%, which is more or less inflation in Mexico. It means that in real terms -- in nominal terms APRUs have effectively remained flat and what we are seeing is that the ARPUs are at least quarter over quarter vis--vis the first quarter they were flat in real terms also.

Okay, thanks.

Your next question comes from Stanley Martinez.

Thank you. Good morning, Carlos and Daniel, and thank you for taking my question. Last quarter there was again a slightly larger proportion of post-paid net additions in Mexico and in Argentina, Paraguay and Uruguay and obviously in Brazil. And that followed last quarter's high post-paid net add performance in Colombia. My question is roughly how much of this represented migration from existing pre-paid subscribers or is it coming from enterprise contracts? Or basically where is the higher post-paid proportion of net adds coming from? And can you envisage sustainably say 20% or more if you look ahead several quarters of your net adds in major countries like Mexico and Brazil and Colombia coming from post-paid?

What I just said is that in Mexico and I think it's not only in Mexico, in all the countries, we're focusing a lot in good customers, in profitable customers. And that's where we're focusing. I think it's not only post-paid or pre-paid what we want is to have also good prepaid customers that have good consumption also. And that we're working hard to have that. Some of them are migrating from pre-paid to post-paid. Other ones are coming from the new companies, new people. Remember that we still have the penetration in all of our countries is between 50 and 60, 70% penetration so we still have some customers, the young people that are coming to the post-paid customers. So that is really what is happening. Then new value-added services like the Blackberries, the PDAs and all of those things are making that some of the pre-paid customers moving to post-paid customers. So there's a mix of things that are helping us to have better customers.

So Daniel it sounds like it's mainly a consequence of data growth than just organic opportunities in each of those markets. I mean I think as a follow up that would certainly support your margin expansion in a number of those countries as well.

Yes, exactly. I think you are right.

Excellent so congratulations again on the good quarter.

Thank you, thank you.

Your next question comes from Rizwan Ali.

Good morning. My question is in regards to the Mexican regulations. We recently spoke with the SCT, the telecom industry, and they were contemplating adopting bill-and-keep in Mexico and possibly try to force you to open up your distributorship or distributor network for sale of telephone ring and other handsets. Can you just -- I mean have you thought about what kind of an impact that could potentially have on your Mexican operations?

I think on bill-and-keep I think well I also hear that from the government. I think it's not a very good idea because then there's going to be let's say it's not my path but it's not a good alternative. But well for us I don't think it's something that is going to hurt Telcel in Mexico. We have today -- we pay them and they pay us so I think that we are more or less even in terms of what we pay to the other ones and what they pay to us. So it's not bad but the bill-and-keep means that some of the traffic that would go through this mobile-to-mobile will go through fixed to mobile. So all the other countries helping, adopting to pay instead the bill-and-keep so I don't know why it's in Mexico we're going to return to have bill-and-keep.

But well, I don't think in terms of money and competition is going to be bad for Telcel. I don't think it's good idea to do it but in terms of economically I don't think there's a problem. In terms of the distribution and all of those things that you are saying well I don't think the SFCT will allow them to do it. They have their own distribution. We have our own distribution and I don't think there's a lot of distribution together. Today the retailers are a huge part of the distribution in Mexico and they are open to everybody. So well they are saying some things but I don't think there is something that will put me nervous of what they are thinking to do, the new government in that city.

Will it necessarily force you to have the same on-net and off-net tariffs?

Well, if they are going to do that so thenthat's going to be Cofeco and it's going to be long term and discussions with them so I don't think SFCT. What I think SFCT wants different than Cofeco is that the prices will go down more in Mexico and what you can see is that prices in Mexico are really competitive and that the market is really aggressive and the price per minute in Mexico is at very -- that's really one of the lowest around the world. So I think they understand that, no?

Thank you.

Your next question comes from [Carlos Safari].

Hi, good morning. Yes, I have a couple of questions on churn rates both in the Brazilian market and the Chilean market. In Brazil, churn rates went down a lot when compared to the three previous quarters and my question is what is driving such improvement especially now that the Brazilian market became more competitive after Viva decided to push it stronger. And so my question is what is driving improvement and can you keep that going forward.

And in Chilean it's the opposite. The Chile churn rate went up to 3.6% in the quarter and I'm also wondering what is behind that move and if there is anything special and non-recovery in that figure?

Well, in Brazil as I told you we're in a very good position. I think the market is very competitive. But we feel that we can give the budget that we have plan. I think we are going to be gaining market share through the year and also having good EBITDA margins.

In Chile, well in Chile you know that we are the third competitor and what we need to do that is we need to invest in the country to have a little bit more of market share to have the scale to be profitable and that's what we're doing in Chile. It's more or less the strategy that we do in all the other countries through the last years.

Okay, so should we expect churn ratio to remain that high in Chile for the next quarters then?

Well, I think in Chile we are going to still invest this quarter, the third quarter, maybe fourth quarter and then you can see an improvement in margins for the next year.

Okay and just one more question if I may in Brazil now Telefonica has a priority to buy TSU at least as I understand it and don't you think that the acquisition of Telemedia Cel and/or Tele Norte Cel is now more important to AMX to gain scale, to compete against Telefonica and TSU in the country?

No, I think -- I don't think we need the scale to compete to anyone in Brazil. I think we already have the scale and we're doing better than the other ones in Brazil. And we are competing against the other ones for Telemedia and Tele Norte but I don't think we really need these two companies to be competitive in Brazil. So that's really what we have.

Okay. great. Thanks.

Thank you very much.

Your next question comes from Ric Prentiss.

Good morning, guys.

Good morning.

A couple of questions for you, the first in Puerto Rico, Carlos you mentioned the CDMA, the GSM overlay that's coming in. It's always complicated when you change out technologies. Can you walk us through a little bit about how you plan to do that over what period of time and how you'll have this spectrum to really make it an efficient one?

And then the second question has to do with your towers. Last week Reliant in India sold a stake in their towers giving an equivalent value of almost $7 billion. In the United States T-Mobile is getting ready to sell their 5,600 towers. Update us your thoughts of the towers being a strategic business, strategic asset versus a financial asset?

No, I think the towers are a strategic business. You are going to put a lot more things in your towers. We're putting UMTS. We have GSM. We used to have CDMA that in some towers we are taking out that. So I think the towers are important for us and we're going to remain with that as a strategic asset. In Puerto Rico well we do -- we changed that -- we already changed that in the Dominican Republic and we're changing to GSM in Puerto Rico. And what you are seeing in Puerto Rico is what we do in Chile last year, we do in Argentina when we bought Argentina. So that swap from CDMA to GSM we have been doing that in a lot of countries so that's mainly the same way that we do it in other countries. But in terms of timing for GSM I think we can start GSM maybe next -- maybe beginning of first quarter of next year I think that we could have a GSM network in Puerto Rico now.

Great, good luck. Thanks.

Thank you.

Your next question comes from Rusty Johnson.

Hi, good morning and the question relates to your equipment revenues and costs and presumably that is predicated on some sort of handset subsidies. I wonder if -- I believe that's correct but also in which markets are those most burdensome, presumably either Mexico and/or Brazil, could you talk about where they're likely to have any further change?

Again the question, I don't understand.

Relates to your equipment revenues as part of your service revenues they've been fading as percentage of sales, as forecast, but the bulk of that revenue side is that coming from markets where there is greater handset subsidies on let's say post-paid side? Could you tell us where the bulk of that revenue is generated or is it smooth across all markets?

I don't know if there's a huge difference in terms of subsidies in some of the markets in terms of subsidies per gross add. So you would not expect them to be more concentrated in some countries than others. I think that you have more -- very similar proportions. Obviously, you might not sell the same types of handsets in a country with a higher net income than a country with lower net income per capita.

And the other one is that you have a little bit of -- you have different competition so in some markets you have a little bit more on subsidy on this side. But what you could see is that we're starting to sell higher let's say color screen and camera handsets instead of really the low, low-end handsets. I think the people who had white and black are moving to color screen and camera. And then the lowest segment of the market is entering to black and white so there's more or less the same trend in all the countries.

Okay, thank you.

Your next question comes from Miguel Garcia.

Yes, regarding your -- the migration of the Puerto Rican network to GSM I understand that this is one of the markets, one of the most challenging markets because of the high penetration and the good quality of the current network. So I wanted to know if this would require additional CapEx or we could consider this and next years our CapEx is going to be able to cover this cost?

Well, we don't have any additional CapEx still anyplace. We have the CapEx to migrate from CDMA to GSM. We have 55% penetration in Puerto Rico so it's more or less the same penetration that we have in other countries. It's a really competitive market yes. It's a competitive market but all the other markets are also being very competitive the last two years. And I think for the next years you're going to see more competitive markets. So that we need to have a very good network in place with good quality I think that's what the thinking is of America Movil in all the markets that we put GSM. I think quality, coverage is being something that we have been taking care of. So that's -- and we have to have the same common platform.

Also we have a good share of market in Puerto Rico. That does not mean that we need to change our CDMA customers immediately so we have a good CDMA network in Puerto Rico and we are not going to worry that these customers will migrate to our GSM platform. So we're going to maintain our CDMA customers and platform and if they want to migrate we're happy that they migrate. And if not we're going to still grow with our GSM platform.

Okay, but on the operating side the fact that these are mostly post-paid subscribers doesn't mean that you would have to spend a lot of money subsidizing the new handsets and that could take the margins say close zero at some point?

No I don't think so. I don't think so and as I told you I'm not going to force to migrate all our CDMA customers to our GSM platform. We are going to do it slowly as they want to, as they need to migrate. And as I told you we have been doing this in every country. So we're doing that in all the other countries. So that's more or less the strategy that we have. But don't worry I don't think Puerto Rico is going to go down from our EBITDA margin that we have to zero margin. I don't think we're doing to have that.

Thank you.

Your next question comes from [Andrew Morris]. Andrew, your line is open.

(OPERATOR INSTRUCTIONS).

There are no further questions at this time.

Well Andrew thank you for hosting the call and thank you everybody for being in the call. I don't know, Carlos, you have something else to say?

No, no.

Well, again, Andrew, thanks.

Great, on behalf of Credit Suisse, thanks Daniel, thank you Carlos and thanks to all the participants today. Have a great day.

Thank you.

This concludes today's conference call. You may now disconnect.