America Movil SAB de CV (AMX) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the America Movil fourth quarter conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Mauricio Fernandes, Merrill Lynch Senior Latin Telecom Analyst.

Thank you, Cynthia. Good morning, everyone. This is Mauricio Fernandes. I am the Latin America Telecom Analyst for Merrill Lynch, and it is our pleasure to be hosting America Movil's fourth quarter 2007 earnings conference call.

On this call with us today, we are honored to have from Mexico City Daniel Hajj, CEO, Carlos Garcia-Moreno, CFO, and Daniela Lecuona, Head of Investor Relations. Now I would like to turn it over to Daniel Hajj for his initial remarks.

Daniel, please.

Thank you, Mauricio. Thank you, everybody, for being in the call, and, as always, Carlos is going to make a small summary of the fourth quarter results.

Good morning, everyone. Thank you, Mauricio. Well, we ended the year with a strong showing of subscriber growth, picking up 10 million new subscribers in the last quarter. This, by the way, was 23% higher than the consensus number that we have obtained, to finish the year with 153.4 million subs.

Overall, in 2007, we gained 28.6 million clients, nearly as many as the organic subscriber additions that we had the year before and roughly 6 million or so higher than the number that we had expected at the beginning of the year. In Mexico, we had 2.5 million net additions in the fourth quarter, slightly more than in the same period last year, whereas in Brazil we had our best quarter ever, with 2.2 million gains, 35% more than a year before.

Argentina and Colombia contained over a million subscribers in the quarter each, while TracFone in the U.S. got over 700,000 subs. Altogether, in 2007, we gained 6.8 million subs in Mexico, 6.3 million in Brazil, which is 22% more than the previous year, 3.7 million in Argentina, Uruguay, Paraguay, 2.7 million in Colombia and 2.1 million in Peru, our fastest-growing subsidiary.

In Central America, we are at 2.3 million subscribers, with Guatemala counting for nearly half of them. In the U.S., TracFone obtained 1.6 million new subscribers. At the end of the year, we had 50 million subs in Mexico, 30.2 million in Brazil, 22.3 million in Colombia, 13.5 million in Argentina and close to 10 million in the U.S.

In Ecuador and Peru combined, we have 12 million subs. In Central America, 8.2 million subs and in the Caribbean, 3.5 million. In the last two regions, Central America and the Caribbean, we also have 3.9 million fixed lines.

Our 2007 revenues totaled MXN312 billion. They were up 28.2% from a year before, with service revenues increasing by 31.4% year on year. Service revenue growth has been strong in several countries, notably Argentina, Paraguay and Uruguay, which had 9.9% on the quarter and 38% year on year, and Brazil, with 8.3% sequential and 24% annual increases. In Mexico, the increase was 14.6% year on year in nominal terms.

Prices per minute have fallen in most operations, with the declines being significant in various markets, of as much as 30% from a year before. Therefore, usage is what is behind the growth in service revenues. Year over year, we saw MOUs expand by [35.2%] in Mexico, by 12.5% in both Brazil and Colombia and by 16.3% in the U.S. Bolstered by this service revenue growth, EBITDA rose by nearly 42% to MXN127 billion. It represented an EBITDA margin of 40.7%.

Over a year ago, we saw improvements in several operations, in terms of their margins. In the case of Brazil and Colombia, the margins increased by between 12 and 14 points on the year. They increased by 8 points, roughly, in Argentina, Paraguay, Uruguay, by 4.5 points in the U.S. and by 2.3 points in Mexico. So we have had strong service revenue growth and higher margins. Our subscuriber acquisition costs come down and other costs are maintained very much in line.

We have accelerated the depreciation of CDMA equipment. It's something that we discussed in the previous quarter. This acceleration was more noticeable in Colombia and in Brazil and, as we had expected and as we had said last quarter, depreciation charges were slated to come down after they had peaked in the third quarter. So that's what they did. They came down from 15.6% of revenues in the third quarter to 13.5% of revenues in the fourth quarter. We expect them to continue trending down as a percent of revenues.

Operating profit in the year ended up at MXN86 billion. This is a number that is up 40% year on year, and MXN21 billion of those came in the fourth quarter. The net profit for the year was MXN58.6 billion.

I think that one of the exciting things of last year was the big surge in our cash flow. Our capital outlays and dividends together came up to be MXN115 billion. This is more or less equivalent to $10.5 billion. And these outlays of roughly $10.5 billion were for the most part covered by our cash flow. Net debt in the Company only went up by MXN23 billion. So that means that 80% of this $10 billion in outlays or the MXN115 billion, 20% of those were funded with debt, 80% by our own cash flow.

I think that these are -- we think that are worth highlighting, that we have come up sharply higher than consensus in terms of subscriber growth and we have maintained more or less in line with the market's expectations in terms of EBITDA and a little bit higher in terms of revenues. I think that 2007 was overall a very strong year and we are seeing elasticity respond rapidly with usage trending up in most countries, even as we are seeing important price declines.

So with this I think that maybe we can open up the floor for questions, Mauricio.

Operator, please?

(OPERATOR INSTRUCTIONS)

Thanks, Cynthia. Just as people line up for questions, I just wanted to ask a couple questions to Daniel and Carlos.

First, just on the ARPU, which is I think one of the main value drivers for America Movil, we were impressed to see that the ARPU in Mexico was down only MXN2 sequentially, while subscriber net additions are almost 80% higher, as you highlighted on your initial remarks, Carlos. Can you comment on your expectations for the ARPU in Mexico this year, particularly in line with the economic slowdown in the U.S. and the launch of 3G services soon? Thank you.

Well, ARPU particularly in Mexico, Mauricio, we want to tell you that we were inputting the constant peso ARPU. If you don't put in constant pesos, I think the ARPU was flat for this year. So I think for 2008, maybe we're going to maintain the ARPUs flat, as we do it in 2007. So that's more or less what we budget and what we think we could have this year.

3G, we're starting 3G. In some countries, we start at the end of last year. We're going to start next week in Mexico, so we feel that people is going to spend a little bit more money on data, and that will help us to maintain the ARPU, because in the other side we're getting subscribers, low segment subscribers, prepaid subscribers, in the countries as penetration goes higher, then people start to consume a little bit less. So what we're trying to do is with the actual subscribers that we have, if they move to 3G, then they are going to spend a little bit more. And then with the new subscribers in prepaid spending a little bit less, I think we can maintain our ARPUs.

Okay, just one more thing. As you said, 2007 has been a very strong subscriber growth. Can you talk a little bit about your expectation for 2008 in terms of subscriber net adds on an overall basis for America Movil, as well as in terms of EBITDA margin and CapEx for 2008? Thank you.

It has been very difficult to estimate 2008, because the economic slowdown in the U.S., we don't know how deep it's going to be, how it's going to hurt all the Latin American countries. So I think for this year, our estimating subscribers -- also, some countries are getting more and more penetrated. Like, an example, Argentina is close to 100% penetration, Chile is around 88 penetration. But in the other side, we have good countries, big countries like Mexico and Brazil, with around 65 penetration.

So my view is that we feel comfortable with 21 million subscribers, between 20 and 21 million subscribers for this year, and the CapEx is going to be around $4 billion in 2008. So that's more or less what we feel that we have. In terms of EBITDA margin, we don't give that number, but in CapEx and in subscribers, we feel that that would be more or less the number.

Okay, thank you very much, Daniel and Carlos. I would like now to turn it back to Cynthia. Cynthia, please open the call for Q&A now. Thank you.

Thank you. We will take our first question from Vera Rossi with Morgan Stanley. Please go ahead.

Thank you. My first question is a follow-up on the 3G. In terms of the need to acquire licenses across Latin America, is there any other country that AMX will need to buy licenses to launch 3G, or the only country was Brazil? And my second question is if you can give us some data points about your launch of 3G in Brazil and Argentina, what is the percentage of net additions so far that you have seen buying 3G phones. Thank you.

Vera, good morning. Well, we just bought the license in Brazil, a 3G license in Brazil, but even with that we have been launching 3G in Brazil before buying those license. So I don't think in any other country we need to buy license to launch 3G, but in the future, if there is going to be other auctions, maybe we're going to be interested in being there, but right now we don't need to buy any license to deploy 3G. So I don't think 3G, it's going to be -- prices in 3G have come down, so really I don't think that our CapEx is going to increase because of 3G.

We feel that the $4 billion that I just said to Mauricio that we're going to spend this year are going to include coverage, capacity and quality on 3G. So it will be around $4 billion. If you include license, a little bit more, but I don't think there's going to be much more than $4 billion in CapEx.

What we're going to do, we're going to increase our capacity in 2G. We're going to increase our coverage in 2G also and we're going to increase our quality and coverage in 3G. This CapEx is going to be for doing all of those things this year. So we want to have the most important cities in 3G deployed by the end of March or April. I think all around Latin America we're going to have all the major cities, and then we're going to start to increase a little bit our coverage in 3G.

So that's mainly -- what's happened in Brazil with 3G, I think it's too soon to say anything, but my view is that the actual subscribers are going to start to consume a little bit more, using the data, and there is going to be new subscribers who are going to move to 3G that are going to spend a little bit more money. That's more or less how we see it. We think also that the PC card, the broadband PC card, is going to be a good also service for all of our customers. So we think that 3G is going to help us to maintain the ARPUs in all Latin America.

And in terms of percentage of your net additions to date, is there a relevant percentage of your postpaid net additions that are buying the 3G phones or are migrating to 3G phones?

No, it still is low. We are just launching, Vera. When you launch something -- we launch in Brazil in Christmas, but we really put a lot of focus on Christmas on the prepaid and we don't want to lose focus on Christmas because we feel that in Brazil Christmas is a very important month. So we're going to see the first quarter how does 3G -- is doing.

So really it's too soon to say something on 3G. But I don't have any doubt that there is going to be some services that are going to be very important in 3G. It's the broadband PC card for the computer, the phones using a lot more data, download music, so those are mainly the main services that we feel our actual customers are going to use and the new customers are going to move to.

Okay, thank you very much.

Thank you, Vera.

We will take our next question from Walter Piecyk with Pali Capital. Please go ahead.

Thanks. Daniel, can you also give us some sense -- in the past, you've talked about CapEx beyond just one year out. The CapEx, should it fall off in 2009 and 2010?

Well, CapEx is falling down in terms of revenues, and I think we can maintain our CapEx 4 billion, a little bit more, a little bit less, not too much more, not too much less, in the next two, three years. No, I don't think there's going to be big changes on CapEx numbers.

Okay, and then a question on Brazil. The churn rate improvement was very outstanding in the fourth quarter. You were typically in this close to 3% range, now at 2%. Is this something that you believe will be sustainable in 2008?

Well, I think - remember that, it's a little bit cycled, this churn, because in Brazil in December, the disconnections are from September or from August, so there is not a lot of disconnections in that month. Maybe in April or May there are going to be a little bit more because of the huge sales that we have in December, but we have been very careful, seeing that all our subscribers -- and you look at that on the ARPU.

When you see that the ARPU is stable, that your revenues are stable, even with the big growth that we are having, means that you have good subscribers. And, well, that's something that in the Company, what we have been very careful not to put subscribers that they are not going to consume in the future.

But the ARPU was stable in the quarter. It was actually up sequentially. And it's not really -- you can't really say it's seasonal, because your churn rate was 3.3% in the fourth quarter of last year and it's now 2.0%. So it seems like there's a substantial improvement here.

Yes, we're improving. We're being very careful on the new subscribers. And, well, ARPUs are improving also because people, as they spend more money on Christmas -- on Christmas season, but I think all overall, we are having better subscribers and we are being very careful on the new subscribers that they consume and our campaigns, marketing campaigns are campaigns that bring good subscribers and not only a lot of subscribers.

I think one thing that is important is that we've had this year to note is that the number of postpaid subscribers have increased significantly. The postpaid base was increasing 45% year on year. I think it's the countries where we have the most rapid increase in postpaid subscribers and this obviously has a very significant impact on the blended churn --

On the ARPU and the churn.

Given that the churn in postpaid are much lower.

Okay, thank you, and Carlos, just one final question -- in the fourth quarter, you spent over $3 [billion] on dividends and your share repurchase looks to me like less than $0.5 billion. Can you help us understand in 2008 the use of free cash flow? It's obviously difficult with the amount of free cash flow you're generating to find acquisitions to invest in. Your leverage is low.

Can you explain why your mix of dividends versus share repurchase is so high and how aggressive you will be in share repurchase in 2008?

Well, what we do in 2006 is we do a big share buyback when we merged America Telecom with America Movil. We do a big share buyback. Last year, in 2007, we do more dividends than share buybacks, but at the end of the day we're going to return the excess of money to our shareholders and we're going to decide what's better to do, if it's better to do it in dividends or it's better to do it in share buybacks. I think --

With the stock price, how could you argue that dividends are better?

Well, it's going to depend on --

I think what we have said before, Walter, is that very often they have to do with how we have accumulated the liquidity throughout the year. As you recall, last year, we had a succession of certain M&A transactions, including one that was already agreed on, which was the acquisition of CANTV from Verizon. And as some of these transactions did not materialize, we ended up at the end of the year with far more liquidity than we wanted, and it is not practical to dispose of that liquidity in a short period of time.

So that's why we decreed the extraordinary dividend. It's what we did last year, it's what we did two years ago. And to the extent that we have better visibility throughout the year and we are not expecting M&A transactions, chances are that we are going to be more aggressive in terms of share buybacks at the beginning of the year.

If you look at the share buybacks that we are doing today, it's been more in the neighborhood of about 5 million shares per day, which is significantly more than what we had at the beginning of last year. So I think that whether we move more towards shares buyback and dividends often is a result of whether M&A transactions that we are expecting to have happen or not. To the extent that we are not depending on those M&A transactions, we think are more likely to start distributing more of the cash back to the shareholders via buybacks from the beginning of the year.

At the end of the day, the excess of liquidity is what we're going to return to our shareholders and it's going to depend on share buybacks or dividends, so it's going to depend -- we want to be flexible on that, no?

No, I understand that at the end of the year maybe you can't drop $3 billion into share repurchase, but if it's on a regular -- I'm not sure what decision there is to make -- if you're going to do, like, say, $1 billion a quarter, why would dividends be a part of that consideration with the stock at this price?

Yes, maybe you are right. Maybe what we're doing right now is to buy more shares at this moment. And I think it's what we are doing right now. We just start do an assembly last week to increase our share buybacks in MXN15 billion more because we have already finished what we have that. So that's mainly what we're going to do, no?

Great, thank you very much, Daniel and Carlos.

Thank you.

You're welcome.

And we'll take our next question from Andrew Campbell with Credit Suisse. Please go ahead.

Good morning. I was wondering if you could just give us a bit of an update on the regulatory front in Mexico, if there are any new developments in terms of the Cofeco investigation or what you're hearing in terms of spectrum auctions or just anything new on the regulatory side?

Well, on the spectrum auctions, I think the Minister of Communications is moving. I don't know when exactly is going to be the date for the auction, but that's moving and maybe we're going to have it in April, May. I don't know exactly what's going to be the date. They are making some changes. They are reviewing, because that's not only for the 3G license. They are also for the -- I think it's WiMAX. So they are doing that analysis and I think they are going to be soon, maybe before the first -- in the first six months of this year, we are going to have that.

In the regulatory issue, well, what we have is that Cofeco is doing the investigation. It's not -- what they are doing right now is an investigation of interconnection rates. So that's the only thing that officially we have, and it's what we are right now taking care of. No, it's they are doing an investigation, checking what are the markets on interconnection if there is something there. That's the only thing that we have.

There's other investigations, but the other investigations are not related to the wireless market. That's the only one that it's related to the wireless market.

Okay, and if I could just ask a quick follow-up, on the tax rate in the quarter, it was very low this quarter. It had been quite high in the third quarter. Was there anything unusual about the fourth quarter that we should take into account going forward?

I don't think so, Andy. I have said that you should look at the tax rates as what would be an expected amount for the year and not look at them on a quarter-for-quarter basis. If you look at the effective tax rate for the year as a whole, it's very close to our statutory tax rate, the average of the statutory tax rate, and it's very close to the one that we have -- it's almost identical to the one that we had the previous year.

So what you see in different quarters sometimes has to take into account different tax planning situations, but in the end I think you should be focused on what is the guidance that we have throughout the year, which is not something very different from the statutory tax rate.

Thanks, Carlos.

You're welcome.

And we'll take our next question from James Breen with Thomas Weisel. Please go ahead.

Thank you very much. I was just wondering if you could talk a little bit about the competitive aspects of Mexico right now, given some of the push that Telefonica made at the beginning of this year. And then also on the equipment side, are you seeing any better on the handset side that's allowing you to put better deals in the market? Thanks.

Well, in the handset side, there is a lot of changes every day, so there is new handsets. The actual handsets are reducing the prices. So there is something, that it's moving every day. So I think you're going to see always better handsets, and even 3G handsets, I think they are starting to be attractive on prices. They are being reduced a lot from the price that they start in 2007, and that's something that we are going to see always, or better price or more things that the handset can do for the same price. So that's more or less what you're going to see.

And in terms of the competitiveness in Mexico, I think Mexico has been very competitive in the last two years. Nothing has been changed and you could see that the MOUs as Carlos said has been increased in Mexico 36% year over year. Prices have been going down very fast, so there is -- not only in Mexico, there is a lot of countries where the things are in the same as in Mexico. A lot of competition, a lot of price reduction and the new handsets, so that's mainly what you are going to see and what we are going to see in 2008 in all the markets. And also what we are going to do is we want to maintain our cost structure to reduce our -- maintain our costs and to increase our revenues. That's the only way to maintain that good results for 2008.

And do you think it's fair to say that as the price per minute comes down on the revenue side, the cost savings associated with 3G will help offset that and keep margins stable?

Maybe yes, maybe yes. It's going to depend a lot of what -- for me, something unclear is what's happening with the economy on U.S. and how it's going to hit us in all Latin America. So it's very difficult to estimate things when you don't know what's going to happen, if it's going to be deep, if it's going to take a lot of time, if it's not going to be so deep and it's not going to take a lot of time and how it's going to hit Latin American markets.

But what you are saying, I think, is more or less what we feel is going to happen.

Great, and then just one final question on Peru. It seemed like net adds there were relatively strong sequentially and year over year. Is there something changing in that market that's increasing net adds there?

No, the thing is that in Peru we have 55% penetration, so and prices and the competition is really tough, so when you have low penetration and huge competition, the only -- what you are going to find is a lot more subscribers inside your network. No, it's what you're going see there.

Great, thank you very much.

Thank you.

And we'll take our next question from Rizwan Ali with Deutsche Bank. Please go ahead.

Good morning. My question was regarding your margins in Mexico. Of course, the margin came down because you had very good sub growth, but can you give us an idea as to what the service margin was? On a consolidated bias, your service margin was 55.5%, but I'd love to know what your Mexican service margin was?

We don't have that, Rizwan, but we can give it to you. And what's going to happen, the margin for this year in Mexico, I think what we said last year, no, we feel that over 50 -- or 50%, it's a very good margin. And I think we're going to work a lot to maintain that 50% margin in Mexico. Maybe it's going to be 53. Depending on the competition, maybe it's going to be 50, but we feel that we can support 50% for this year.

I think service revenue margin, it's the number that they are giving me right now, it's around 65%. I'm not sure, but what they are saying is 65% is -- yes, 65.9% is the service, the EBITDA comparing to service revenue.

Another question is, as you launch 3G services, of course you'll be advertising quite a bit. Is your policy to try to convince your existing high-end customers to switch to 3G services or 3G handset via handset subsidy that you'll provide? Or you just wait for the natural change in handsets for them to take up the 3G services?

Well, it's going to depend a lot what's the plan and what customer you are talking to. So it depends, there are postpaid customers of MXN300 and postpaid customers of $30 and postpaid customers of $100. So it's very different, but one thing that we are very clear is one of the biggest costs in America Movil is the subsidy on handsets and we're being very careful to try to maintain that on control.

So there is going to be a little bit of switch. Maybe we give a little bit more subsidy, but they are going to give us a little bit more of revenue. So that's something that we are doing day by day, but it's not a policy in America Movil. We have to look customer by customer to decide what we're going to give them.

One last question, if I may. With the 3G auctions coming in Mexico, as well as in Chile, later this year. When you talk about CapEx being $4 billion for this year, are you including the spectrum cost or is that completely excluded right now?

Look, the $4 billion is excluding the $700 million that we are spending in Brazil. It's -- it includes, sorry, the $700 million that we spend in Brazil. So I don't think in Mexico and in the rest are going to be big amounts of money. And what I said is there is not going to be more than $4 billion, a little bit more, a little bit less, in the next.

We can say that it's going to be around $12 billion in the next three years in CapEx for America Movil, no? Including license, including everything.

Thank you very much.

We will take our next question from Alpha Ba with AGF. Please go ahead.

Hi, thanks for taking my question. On the debate about the dividend versus share buyback, I have to say I would actually like you guys to commit to a certain payout level, as we see dividend as a way to impose capital discipline. Are you guys ready -- and that's a question for Daniel -- are you guys ready to commit to a certain payout in terms of the dividend?

I don't understand your question.

Are you ready to commit to a certain dividend payout, dividend as a percentage of your earnings?

No, I think no, because I think we still have opportunities in the future, so we don't want to commit a certain dividend and then maybe we can find that there is a good opportunity for us in the region and elsewhere. So what we're going to be is being very disciplined in terms of how much -- the [definite] that we're going to get, and we're going to return, if it's on special dividends or buybacks, the rest of the liquidity that we have.

So I think we -- as Carlos said, we want to have the flexibility to do in the next two, three years, to do something if there is some acquisition that would be interesting for us.

In terms of the dividend, still, is it fair to assume that the dividend will grow at least in line with earnings over the next three years?

Yes, I think so. Maybe, yes.

Can you comment on the regulatory developments in Brazil and also any potential impact of the Brasil Telecom merger with Telemar? How would that impact your pricing and the sub growth and the competition in general?

Well, I think Brazil Telecom and Telemar are big companies on fixed. Telemar is also big on wireless. Brasil Telecom is not so big on wireless, so I think the merger is going to be more on fixed and then they are going to have -- both are going to have a big company on wireless.

Well, I think for us competition right now is very strong and I don't think it's going to change a lot with that merge, no.

So you don't see any impact on our EBITDA in Brazil from a stronger Telemar-Brasil Telecom company.

No, not because of that, no.

And then a question maybe for Carlos. In terms of the working capital metrics, can you just comment on the evolution of the working capital, because I don't see a balance sheet on your results here.

There is a balance sheet on our results.

I'm seeing the PDF version.

Where's the balance sheet?

Can you talk a little bit about the working capital?

The balance sheet is on page five, at the top of page five, you can see the balance sheet of the results.

Yes, you're right. The receivables are up 5.5, and they seem to be well behaved here, if I compare it to last year's receivables. Can you comment on the trends that you see in receivables.

I think generally what you have to know about working capital has to do -- it's less about clients' invoices, because that's fairly steady and has to do with postpaid and it's much more to do with CapEx.

To the extent that we have received equipment and that we are now obliged to pay for that, we account for that in our accounts payable. But often what you have is that there's a lot of work in progress that has not yet been invoices to us and therefore that part -- or has been imposed to us but we're not necessarily obliged to pay. It depends at that point. We often get certain terms of payment from the vendor.

So basically changes in working capital more than anything else reflect either inventories or changes in the accounts to vendors. But if you want, we can go through this with more detail.

Yes, we can do that offline. And then one last question, in terms of the EBITDA margin, if you look at your emerging markets peers from us, I would say from China to Indonesia, the average EBITDA margin is about 40%, and right now you guys are at 40%, but you're growing much faster than everybody else. Should we be expecting margin expansion over the next two to three years?

I think all things equal, what we have been saying is subscriber acquisition costs do tend to fall over time relative to revenues and that has helped to expand margins over time. We have had already two years very significant margin expansion. But it comes a point in which it is more difficult to increase margins and in certain of our operations I think that we are there, it's going to be more difficult to increase margins in Mexico and Colombia --

Central America.

Central America, but we probably still have some time to grow in Brazil, where we still have 25% margin, which we expect to --

Argentina.

In Argentina, which has been growing very rapidly, you're still not seeing the margin expansion that we would expect to see over time. So I think that in Peru it is the same thing. Those operations are growing very rapidly, are still relatively -- have still relatively low margins today.

And do you think over time Brazil can get to 45% margins?

I think that within the existing competitive setup, we have been thinking about probably mid to high 30s. That's our assumption at this stage.

Thank you.

You're welcome.

And we'll take our next question from [Gil Alexandre] with [Darphil Associates]. Please go ahead.

Could you give us an idea what the expansion in G3, how much that's going to cost you in fiscal '08?

The expansion in 3G, what is going to cost? Well, the expansion is going to cost -- it's included on the CapEx that we are --

You don't want to break that out.

No, I think we don't have that, because there is a lot of infrastructure that works for both, for 2G and 3G. We have been putting, let's say, switches that works for both, links that works for both, so that's something that we are not breaking out.

I thank you.

Thank you.

We will take our next question with Will Milner with Arete Research. Please go ahead.

Hi, guys. I just want to dig in a bit more to Mexico, and maybe I'm presenting too bleak a picture, but looking at your annual trends, it looks like churn is going up, margins are down and prices are falling faster than they ever have before. Just against that backdrop, I wonder if you can just talk about whether competition has got worse throughout the fourth quarter and into 2008? And also just give me an idea as to sort of where you sit on relative prices versus Telefonica, both on net and off net.

Well, I don't understand exactly what you said at the end of the question, but I don't see any big change on Telefonica. Telefonica has been very aggressive since the beginning of last year and the beginning of 2006 has been very aggressive, and I don't see any big change.

What I said, well, sometimes it's different when you -- my target is to maintain America Movil above 50% or 50% margins, so some months we're going to have 52, 53, other ones we're going to have 50, but that's more or less what we feel we can get.

I think it's important to note that we had 15% year-on-year growth with 20% growth of postpaid subscribers, where we have been growing for a long time our postpaid base more rapidly than the prepaid base. And we have managed to have very significant price declines, not only on the average revenue per minute, typically, but also interconnection rates that had fallen over the last three years, and in spite all of that we have managed to maintain ARPUs relatively flat.

So with strong [real] subscriber growth and declining prices, maintaining ARPU is I think something that with speaks of the response of elasticity that the markets have been showing to us.

Okay, thanks. Can I just have a couple of follow-ups? I wonder if you can just update me and it's probably my ignorance, but mobile number portability in Mexico, my understanding was that was due at some point early this year. If you could just update as to when that is and what --

June. Number portability is already -- everybody has agreed on that. I think that's only time and it's going to be on June when number portability starts in Mexico.

And how do you think that will play out in terms of share of gross adds? Who do you foresee as being natural winners and losers in that process?

In number portability? With number portability?

Yes, will that affect your trends?

Well, it's difficult to say, but what you could see in all the markets is that the big companies start to lose a little bit more and then in time starts to be a little bit more stable, so that's mainly what you could see. But we feel very comfortable because our quality is very good, because our coverage is very good, prices are excellent. So we think that we can -- we're comfortable with number portability. Remember that people are going to migrate to the best network, to good prices, good quality and well, we're comfortable that we have the best network, the best coverage, the best quality and we're very competitive on prices. So there's nothing that we can worry about at this moment, no?

I guess my question was more about whether you see this as an opportunity to go after, for example, Nextel International's contract base. You clearly have a better network, better devices?

Yes, that's exactly. The people go to the best option, and the best option includes price, network, quality, everything, coverage, so I think that's number portability. If you are happy with your company, then you are not going to migrate. There is not a reason to migrate, and that means quality of everything.

Right, and just one last question on the U.S. and the impact of the economy and the question really stems from that, but just what is the percentage of your revenues in Mexico that are incoming calls from the U.S.?

I don't think that's something -- it with calling party pays increased a lot, but I don't think that's going to be something that hurt us a lot. So with the international calling party pays, calls starts to grow, but that's not going to be something that if the economic slowdown in the U.S. gets deep, I don't think that's something that can hurt us. That's not a big percentage of our revenues.

Okay, I can't push you on what exactly it is?

I don't have it right here, but if you talk to Daniela, she can give it to you.

Perfect. Thanks, guys.

We will take our next question from Richard Dineen with HSBC Securities. Please go ahead.

Thanks, guys, for taking the question. I guess you've answered a lot of my questions already, and indeed, your answer to Mauricio's question kind of touched on this earlier. But perhaps just looking into the mechanics of penetration growth going forward. As you say, you're continuing to see strong subscriber growth even in the highly penetrated markets like Argentina, but given that a lot of European and Asian markets have even higher penetration, sort of 110%, 120% and are still seeing decent subscriber growth, often because prepaid users have more than one account each. Have you ever looked into the incidence of subscribes in your markets having more than one account each, which might be inflating the implied penetration levels and leaving more upside from new users? Just if you have anything to share on that and if there's any variation country to country. That would be great, thanks.

It's really a difficult question. I think there are some people who have two phones, one is the company phone, the other is the personal phone. I think with 3G there are going to be people who have two accounts. Maybe one is going to be their phone, the other one is going to be their broadband and, well, that's the way you can have more penetration than the 100%. And I think kids are starting to use earlier the phones, so there is still a lot of things that you see that would make the penetration higher than 100%.

That's great. I guess it's just when I saw in the release, you said, I think you used the phrase that two out of three people in Mexico have a phone and that kind of instinctively gives you the impression that penetration upside from new users is somewhat limited, given the fact that infants are not going to have phones and there are certain sections of the population who won't have phones.

No, for instance, Argentina today already has 100% penetration, Chile roughly has 90%.

There's not any reason why Argentina would have 100% penetration and Mexico and Brazil not. The economies are the same, the countries are -- they are -- I don't think there is a big difference between the economy situations in the countries so one country could be at 100% and the other ones could be at 80% and the other ones could be at 50%, like Peru. So I think at the end of two, three years, more or less all of them, depending on the economy, they are going to be in the same ranges.

So Argentina, it's coming faster, earlier, but I think Brazil and Mexico and Colombia are going to be there soon and the other ones are also coming fast. So there's no reason why the other ones are not going to be in that level of penetration.

Okay, thanks, guys. Appreciate your comments.

We will take our next question from Henry Cobbe with Nevsky. Please go ahead.

Hi, there. Thanks very much for the call. Just a couple of questions. Firstly, on the 4 billion CapEx, what kind of depreciation would that translate into, including the TDMA writedowns? And second question, of the 20 million to 21 million subscriber growth targets, where do you see the majority of that coming from, and does that target include or exclude Jamaica?

Well, on the subscribers, we never provide in the guidance as to where we are expecting it. We always provide in the aggregate some of the subscribers that we are expecting for the Company. And in terms of the depreciation, well, as we have mentioned last quarter, it should be trending down. I think probably it will slow this year. We probably will be in the range of about 12.5%. That's what I would expect it to be, probably going below 12% next year.

And are there further TDMA writedowns to happen this year?

No, I think that we are all set. We are all set at the level of depreciation that we are having today.

Okay, so 12.5% includes the additional depreciation on TDMA assets?

That's correct.

And lastly, just on the non-operating income, I know for the full year '07 there's kind of a MXN4.4 billion non-operating loss. Could you talk a little bit about that and what the outlook is for the non-operating income and expense?

What is it?

If you look at the full-year '07 number there was other income and expenses below the line of MXN4.472 billion --

I don't have the detail here. If you want I can go through it --

Page four.

I don't have the detail of the other income and expenses here. If you want, you can go through that with Daniela, okay?

Okay.

Thank you.

Thank you.

We will take our next question from Miguel Garcia with Deutsche Bank. Please go ahead.

Yes, thank you. The first question is regarding the handset subsidy. If we take only the revenues and cost of the handset, that suggests there is a big decrease in the handset subsidy and the fact that we have heard there is some increasing competition in some countries, so I wanted to know if the competitive conditions are actually allowing you to decrease effectively the subsidy you are granting your new subscribers.

And, secondly, in the U.S. operations in TracFone, you have reported a very strong growth in subscribers and also decreasing churn, so how do you explain that? What's going on in the market that's making the churn to decrease so dramatically?

The first question, on the handset side, the competition is not only on subsidies. The competition is also on rates and on plans, tariffs, so competition has been strong and also in subsidies what we said, well, a lot of subsidies has been going down, so there is a mix of everything. So what I said is, well, there is a big cost on subsidies and we're being very careful to maintain and to be aware of that.

And in terms -- what you said on TracFone, what's the question on TracFone?

What we saw was a big increase in net adds with a strong decrease in churn in this quarter, so I wanted to know what was going on in the market that is causing this behavior.

I don't have it specifically the answer on why the churn in TracFone came down from five to 3.6, but we can review it and check with you exactly what's happening.

Okay, but there is definitely something going on in the U.S. market that is making the operation to grow faster. Can we expect this growth to continue or it was just a nonrecurring event in the fourth quarter that we shouldn't see this in 2008?

Why we have a very strong quarter, first, it was Christmas and Christmas is a very good month for us in the U.S. Other competitors have been not doing very good, on other MVNOs has been very good. The other thing is that we are a GSM operator. There is not a lot of GSM operators in the U.S. as a prepaid reseller, prepaid. So there are some things that have been helping us and that's really why we have been developing and why is TracFone in such good shape.

And going back a little bit on the handset subsidies. Do you think that one of the biggest reasons for the lower subsidy is actually Brazil, because of the lower growth and lower competition in the market, as the margins are reflecting?

Lower competition and lower cost?

Subscriber growth.

No, we don't have any lower subscribers -- we have 6.2 million subscribers net adds in Brazil, so I don't think it was -- it was much higher than what we expect and much higher than last year.

I was thinking in terms of percentage of growth. You went from 25% in '07 to 17% this year.

That's not the reason. The reason on the subsidies is that we have been a little bit more careful. And all around Latin America people are not looking only for low-end handsets. They are looking also for camera handsets, music handsets. And in those types of handsets, we have -- those big subsidies are not in those types of handsets. So there is a big mix and change between that, and we have been very careful, again, on taking care of the subsidies on the handsets. It's a big cost for America Movil and we're going to be careful also this year. As competition and the markets allow us, then we're going to be careful there.

Okay, thanks.

Thank you. I think the last question, Mauricio.

And we will take our last question from [Fernando Ramos] with GBM. Please go ahead.

Good morning, yes. Follow-up, following up on last questions. My question is precisely regarding your strategy for net additions during 2008, if you plan to put a higher emphasis on lower tariffs rather than on handset subsidies. In other words, if you plan to trade off lower handset subsidies for a lower service margin.

We don't put the conditions in the market so it's going to depend on each country and each market and with all the competitors. So it's a very different image of the country, so I cannot tell you that we are going to switch between subsidies to rates or rates between subsidies. So it's not a tradeoff of anything. So in each market it's different, and we have to play different in each market.

Great, thank you.

Thank you very much. Thank you, everybody, for being in the call, and thank you, Mauricio, for hosting the call.

Thank you very much, Daniel. On behalf of Merrill Lynch, I'd like to thank you, Carlos and Daniela and thank everyone for taking the time to participate today. Have a nice day, everyone.

Thank you.

Ladies and gentlemen, this will conclude today's conference call. We do thank you for your participation and you may disconnect at this time.