America Movil SAB de CV (AMX) 2008 Q1 法說會逐字稿

Ladies and gentlemen, we'd like to thank you for standing by and welcome you to the America Movil First Quarter 2008 Earnings Teleconference Call. (Operator Instructions) As a reminder, today's conference call will be recorded.

I would now like to turn the conference over to your hostess, Ms. Vera Rossi. Please go ahead, ma'am.

Good morning for those of you in the US and Latin American and good afternoon to our few in Europe. This is Vera Rossi and on behalf of Morgan Stanley we are pleased to be hosting America Movil first quarter '08 conference call. Speaking today will be Daniel Hajj, CEO of America Movil, Carolos Garcia-Moreno, CFO, and also with us is Daniela Lecuona, Head of IR.

I will turn the speaker over to Daniel Hajj. Thank you Daniel.

Thank you, Vera. Thank you for hosting the call and thank you everybody for attending the call. As always, Carlos Garcia-Moreno is going to make a summary of the first quarter results of America Movil. Carlos, please.

Thank you, Vera. Good morning everyone. America Movil finished the first quarter of the year with a very good subscriber growth and revenue growth in the context of declining prices that has happened very much across the board but with strong traffic expansion and content churn. I think one thing that is important is to note that relative to the consensus our revenues were below the expected numbers and we are going to be addressing this in the call but the EBITDA margins are virtually identical to the consensus, even in spite of the fact that subscriber growth was a good 20% higher than the market was expecting, so we had a very good EBITDA margin given that subscriber growth was much stronger than the consensus had it to be.

And, as I said, indications for our revenues, we are roughly 4% below consensus and service revenue in the total revenue growth but this is something that we will be addressing here in the call. It's important to know that in the quarter we continued to roll out 3G networks throughout the region and have been most [capable] the first adopter of this technology. Our 3G coverage now spans 14 countries in the Americas and in several countries we remain the sole 3G operator today.

We added 5.7 million subscribers, which is a good 1 million more than the consensus, so we add 5.7 million subscribers and our base reached nearly 160 million, 21.3% more than a year ago. Of our net subscribers additions 1.5 million came from Mexico, 953,000 from Brazil and just over 0.5 million from each of our Argentina, Peru and Columbia. Churn rates have been relatively stable throughout the region. Brazil's and Mexico's are virtually unchanged from a year ago, Columbia and Argentina's about 30 basis points higher.

At the end of March we had 51.5 million subs in Mexico, 31.2 million in Brazil, 23 in Columbia, 14.1 in Argentina and 10 million, nearly 10 million, in the US. Mexico and the US now account for 7% of our subscriber base compared to 66% by South America and 10% by Central America and the Caribbean.

Consolidated revenues were up 20.6% annually to MXN 81.3 billion, with service revenues growing at the same pace even in the even in the face of price declines practically everywhere. Particularly noteworthy have been those registered in Peru, which our average revenue per minute has fallen by 41% year-on-year, Mexico and Columbia where they have fallen 31% year-on-year and Ecuador 25% year-on-year.

In Mexico and Columbia the connection rates were reduced by 10% and 50% respectively beginning on January 1st. It is important to note in comparing the first quarter revenues with those of the prior year that this year the Easter holidays took place in March, whereas last year they had taken place in April and here let me be very precise. The Easter holidays are fairly important also at Latin America in the particular case of Mexico we had an additional holiday take place in the very same week, so what typically is a 2.5 day holiday in the holy week became a 3.5 day holiday in the holy week, which many people made it into a 5-day holiday. So the impact of the holy week was a particularly strong in Mexico than has been the case in other years because of the coincidence of the two holidays falling in exactly the same week.

Other than that, what we can say is that the revenues are in line with our budget for the year and it is important to note that the seasonality of this year is simply [competitive] from that of 2007. We would expect that in relative terms the second quarter should be stronger this time than what it was last year.

Service revenue growth was particularly strong in Argentina and Brazil at 33% and 22% respectively in local currency terms. Altogether our international operations have increased their share of consolidated revenues to 62%. Our EBITDA rose 18% year-on-year to MXN 34 billion. EBITDA margin, as I've said, in line with consensus in spite of (inaudible) subscriber growth still came at 41.7%. And I need to note only the rate of subscriber growth but the fact that we launched the 3G networks in a number of countries in the first quarter. Altogether in the last roughly 4 months we have launched operations, 3G operations, in 14 countries, so this has had an impact on some costs and expenses, mostly that have to do with on the one hand with the marketing a very good launch in the new services but on the other hand simply to having the-- another network operating at a time when that network is still not generating much by way of revenues. So there are certain fixed costs associated with the operation of another network by way of links, by way of maintenance of the equipment, by-- and these things all have had an impact in the first few months of the year. So, as we have said, we are now operating in 14 countries of the region with 3G and all of this has really been introduced for the most part in the last 4 months.

Depreciation and amortization charges have now fallen to 12.5% of revenues, which have already fully depreciated substantially all of our TDMA networks and these expenses should continue to fall relative to revenues in the months ahead. Operating profits were 24 billion, net profits MXN 14 billion. The later ones reflect in part the impact of additional financing costs, which partly arise from the change in the accounting methodology. As you know, we have moved away from inflationary accounting pursuant with New Mexican GAAP, as we are no longer registering the inflationary gain associated with our net monetary obligations.

Our net debt came down by MXN 5 billion to MXN 87 billion, which amounts to only 0.67 times EBITDA. Share buybacks and capital expenditures totaled MXN 11.1 billion. Our working capital increased during the period. This is typically what happens in the first quarter, as we took in new inventories and liquidated accounts payable from purchases of handsets and network equipment that for the most part originated in 2007.

So with this, Vera, I would like to open up the floor for questions. Thank you all.

Thank you, Carlos. Before we open for Q and A I would like to ask a couple of questions. Operator, could you organize the queue, while I ask a couple of questions to the Company?

Certainly, one moment please. (Operator Instructions) Please go ahead with your series of questions, Ms. Rossi.

Thank you. Daniel, Carlos, my first question is about the costs related to the launch of 3G. Could you quantify what was the additional cost and expenses in the first quarter of '08? Is there a way to do that?

Well, Vera, it's difficult to give you a number because a big part of the network is already in our-- let's say in our towers we put 3G. We have to put more links but you have extra costs by deploying a new network but I think as you put traffic in the network and have revenues in the network I think you are going to have a very good cost on that network, so today we're having some extra costs but at the end of the day when you have that traffic I think you are going to have a benefit on that because we are using a lot of our infrastructure today inside of our infrastructure and costs that we have today in the network, Vera. I don't have exactly the number but I think at the end of the year or beginning-- when you start to see the revenues in the 3G, then you are going to see that the costs are going to go down as quickly.

And, Vera, if you look the income statement you will see that the cost of service is growing, this time grew more rapidly than the revenue and that's, again, something very abnormal and is solely directed or solely linked to the operation of the network, the cost of service.

Okay if we didn't have the launch of 3G the cost of services would grow less than--

And revenues, which have in the case all the time. You can see all the numbers for last year.

Okay and are you offering-- how are you doing the migration of 3G, of customers to 3G? Are you offering just your post paid users to all users?

No we're offering some handsets there but I think we have a very good price of handsets, different prices from high end to low end handsets and we're offering that to postpaid with a lot of services and data included and in the prepaid for voice because you know that voice in 3G is more efficient than in 2G, so that's-- we're offering to all of our customers.

And this migration is causing an increasing in handset subsidies or not?

No, as I said, we are offering all type of prices of-- all segment prices of handsets, so we have high end, mid end and low end handsets and we are not increasing our subsidies today.

Okay and one question about the ARPUs in Mexico, how do you see your ARPUs performing in the next quarters when we won't have the same amount of holidays and potentially an improvement in usage just due to the elasticity of demand?

Well, you know that the ARPUs were a little bit down because first the vacations, second the promotions that we are giving in Mexico and thirdly because we have a reduction on the interconnection staying calling party base of 11%, so all of these things make that the ARPU goes down a little bit. I think that the ARPU is going to recover in the next quarters but I don't know exactly how it's going to react, the elasticity of the minutes, so I am sure that the things that we are doing today in America Movil all around the countries are the right things to do for the long term of the benefit of the long term of the Company. So I don't know how fast does the-- the elasticity is coming but I am sure that the ARPUs are going to recover.

Okay thank you, Daniel and Carlos. And now I am going to open the floor to Q and A. Operator?

Our first question in queue comes from the line of [Richard Denine]. Please state your company affiliation followed by your question, Mr. Denine.

Yes it's Richard Denine from HSBC Securities. I think actually Vera hit upon two of the kind of key questions there in terms of 3G costs. Maybe just to clarify a couple of things in terms of the price, the wholesale price of the 3G handsets, maybe if you just tell us what kind of average kind of costs you're seeing there and how the subsidies might differ versus 2G, really just trying to get a bit more of a feel of how the cost of equipment might trend as these services-- as you start to migrate the customers onto 3G? And also, perhaps just on the elasticity there, could I just confirm that you are seeing you think positive elasticity in Mexico? I mean it certainly seems like that from the minute yield seems to have fallen by about 30% but the MOUs are up more than that again, just not really sure as to why that's not driving a better ARPU trend, so yes just if you can just clarify on those points that would be great.

The first the wherewithal is that we ship in GSM also all kind of handsets, from $400 handsets to $50 handsets let's say and then we put a price and we have like a formula to put a price and to give a subsidy to all those handsets and it's going to be exactly the same in 3G. we have different handsets from $400 to let's say $100 or $150 and we're going to put the same formula to have the same subsidy so a handset of $300 on 3G is going to compete against a handset of $300 in 2G and it's going to be exactly the same on the handsets of $150 or $200 or I think the subsidy is going to be the same. And what you're saying about the elasticity in Mexico, well the promotions and the prices you see that the most in Mexico are going up but still we need that they go a little bit up. Post paid is growing faster than prepaid and all the new postpaids enter with lower contract plans pushing ARPU a little bit lower and also in the prepaid we're having people that are not consuming the same because they are low segment prepaid people, but it think at the end of the day the elasticity is going to come and we're going to have that.

Henry Cobbe.

It's Henry Cobbe from Nevsky Capital. My question-- I have two questions. First if all, just on the CapEx budget for this year perhaps split between 3G and your regular operations or by geography, but what are you penciling in for CapEx for this year and maybe next year as well? And the second question is just on the competitive outlook in Mexico and how do you see Telefonica contributing to price pressure in the market and competing for high end customers, post paid customers and your view of where your market share is today?

Well in terms of the CapEx I think we're going to get-- we're going to spend around $3.5 billion on CapEx plus 10% less, 10% depending on the traffic and the volumes of traffic. That's if we have to put more capacity in some places so it's 3.5 plus/minus 10% plus the licenses that we buy in brazil, so that's more or less what we think we're going to spend. And what you're saying about Telefonica and the competition, well we have been having competition for the last two years or three years and the competition has been-- we have been having competition for the last 10 years but competition has been more tough for the last two years and I think that's what you're going to see in all the countries so they-- I think all of the competitors today are intelligent competitors and they are going to-- we're going to have some offers in the markets where we think that in the long term are going to be profitable and good offers for all. That's the way we do our promotions and that's the way we have our prices and the plans that we're putting, so that's mainly-- it's not new. It's not this quarter. The competition is not this first quarter of 2008. The competition has been for all the last year very tough and 2006 also and I think we are going to see that in the next year, so that's the way the markets are and that's competition and not only in Mexico. No you can see competition all around Latin America.

Okay and may I just follow up on Ecuador? What's the issue here? I know you're coming up to concession and I saw a report saying that it's still not clear if it's going to be granted to you or not and there's money being offered for investment. Could you just update us on what's happening and is there a risk that you'll lose your concession in Ecuador?

Well, we're not thinking that we're going to lose our concessions. We are discussing the price of the concession in Ecuador and I think we are having the discussions on the concession ends on August so we still have time to discuss that and we're having good discussions with the government. I think in my view the government wants us to stay in Ecuador and to still develop the telecommunications there. It's my feeling it's what they are saying to us and I am very positive that we're going to end having that concession in Ecuador and being there for the next years as giving the cellular services in Ecuador.

May I just follow up on holiday--

Henry, I am sorry for interrupting but it has to be the last one.

Oh, Vera, I thought it was just you and me on the call.

Yes but we have a big line waiting. I apologize.

No problem, okay thank you.

Andrew Campbell.

Andrew Campbell from Credit Suisse. I just wanted to get an update on the regulatory side in Mexico, in particular the spectrum auctions that are coming up for 3G if you have any better feeling for timing on that and also any updates on number portability in terms of timing as well and any other regulatory and developments you think are important?

Well, in the number portability I think the time is 5 of July so everybody I think all the companies are working to have all the technical issues done by that time and we're going to have number portability in the 5th of July. In the auctions of the license I still don't have the date. The government is saying that they want to auction those licenses and that they are going to be-- they are close to giving us all the information and but we don't have the date right now. And well, all the other things they are running. We don't have any big changes in all the other regulatory issues as the [Cofetel] is still making that, the analysis as to about the market, the cellular market. We don't have any news about that. So nothing in that side and the only thing that has a date is portability and it's coming on the 5th of July.

[Will Milner].

It's Will Milner from Arete Research here. Can I just dig into the termination rates and the changes in termination rates that you've seen? Obviously that's had quite an impact in the quarter. I mean could you sort of lead us through what is the proportion of your service revenues that are from in bound in Mexico and Columbia? And now I guess specifically on Columbia it doesn't really feel right, the reductions for 2.6% that I think you alluded to in interconnect revenues that would cause the revenue growth trend to go from plus 20 to minus one, so I am just wondering what else is happening there and why you're seeing this sharp degeneration in trend? And then and just finally on that point, where else whichever markets in Latin America are you expecting this year to see either a change to the interconnect regime, the extension of CBP or sharp falls in termination rates? Thanks.

Well, in Mexico the interconnection rate, as we said, was 11% but it's not only the interconnection rate. It's also new prices and promotions that we are having and it's exactly the same in Columbia. In Columbia the interconnection rate was 50% down but the revenue per minute is going down 30. We have been promotions, there is a new entrant in that-- no not new entrant, a new company being more aggressive in the market. Millicom is being more aggressive in the market and well, that's the reason why we are being-- we are so-- we are more aggressive than what we used to be but I think that it's going to give us good customers, better customers and the traffic elasticity is coming in the next months, so that's really what you are seeing in all the countries, in some others are more specifically but at the end of the day I personally think that we still have elasticity on the demand and that the traffic is going to recover the revenues. It's what we're thinking.

It's not only the interconnection rate, if it's your question is the interconnection rate, only a part of all the prices. It's only a small part of the price, but we are having other promotions. Carlos can tell you.

Just to give you an idea of how, what kind of price changes we saw in the first quarter and how is the traffic response so far because traffic response tends to build over time. In Mexico the average revenue per minute fell by 9.6%.

In the quarter.

In the quarter, which is more or less in line with the reduction in the financial rates or as Daniel was saying it's not only the connection revenue that we had a reduction across the board in prices, so average revenue per minute the first quarter in Mexico fell by 9.6% and in the first quarter MOUs increased by 3.7%, so we already see the traffic response to the price decline. And what we have seen in the past is that the traffic response tends to build up over time. In the case of Columbia we have a reduction in prices. Average revenue per minute in Columbia fell by 17.8% in the quarter and MOU increased by 9.8 or 9% in the quarter.

10%

So let's say 10%, so basically roughly half of the reduction, a bit more than half of the price reduction in Columbia was already made up by the traffic response, that very quickly, no? So that's basically when-- you typically tend to have a stronger response from demand when you have a sharper reduction in prices. We have seen that again in the case of Mexico several times. And when it just is smaller it tends to build up to a longer period of time.

Okay I guess I am just trying to pick apart how much of this decline in revenues has come about through the termination rate cuts. I mean the 50% termination rate cut is quite severe and to gage that we sort of need to try and understand what is the proportion of your revenues that are made up inbound--

We don't have that here. Sorry we don't have that but we can-- we don't have that number. I don't have exactly what the percentage of the termination rates.

Walt Piecyk.

Pali Research thanks. I just wanted to focus on this MOU aspect because it seems like if you look at the growth of MOUs year-over-year it was 32%. It was like 35% last quarter.

In Mexico? You are talking about Mexico?

In Mexico yes, yes I'm sorry. That's like the fastest growth you've ever had. I mean I am looking back to 2000 so that's the fastest growth you've ever had, so it doesn't look like the holiday really impacted the usage. It was obviously more the revenue per minute and then I look at last couple years as far as this 10% interconnection, which that's existed for a couple of years now so I'm not sure why that's a surprise, but the interconnection is there and we did have 5, 10 minutes of increase sequentially in Q3, Q4 of prior year so with that revenue per minute that's still going to assume that ARPUs are probably down 6 or 7% unless somehow growth accelerates faster than it has in Q4 and in Q1, which again is the fastest rate that I think you've seen in the past 8 years, at least since I've modeled it. So how exactly does ARPU stabilize? And also if I look at the revenue per minute, revenue per minute came down throughout 2007, not just in the first quarter so what makes us think that the revenue per minute will also stabilize?

I don't know that we can say that the revenues per minute was--

I think that we believe that the next few years that you will continue to see price declines in the markets as we will have more capacity and as the markets tend to growth in size, they come more sensitive to pricing and therefore the demand becomes more elastic, but again going back to the case of Mexico and for the answer that we gave in the previous question if you look solely at first quarter first quarter we have a reduction of nearly 10% of revenue per minute in Mexico, very much in line with the reduction in interconnection rates, which by the way interconnection represents roughly 20% of our service revenues so and at the same time we have an increase in traffic of 3.7%. Now the increase in traffic may have been held back somewhat by the Easter holidays falling in March but this is not abnormal. We have always seen after a price decline you see some response by traffic and the response of traffic does not happen on the once. It's a response of traffic that gradually builds up over time. People tend to build up their usage in response to a lower level o prices and again you have all the historical numbers from Mexico where you can attest to that matrix okay?

[Thomas Lajos].

This is Thomas Lajos with UBS (inaudible). Thank you for the call, gentlemen. Just two questions really-- the first one is how fast do you think that your customer base is going to be converted into 3G and, more importantly, how fast do you think your traffic is going to be converted into 3G? Roughly what percentage of traffic do you think will be running over 3G by the end of this year or the end of next year? And that would be the first question.

We don't have that number but we are not putting pressure to show what the first question what they ask me is if we are putting more subsidies or we're giving more advantage to the 3G handsets. I think 3G handsets are today in a very good range of prices. There are a lot of models there and I think traffic is going to go to 3G and customers are going to go to 3G when they see better services, better handsets, nicer handsets and that's more or less what we expect. We don't expect that we're going to have a big change of our customers to the 3G network and we're not in a hurry to change them. We want to change them and that they-- when they change it's in per post paid because traffic and in prepaid because traffic and in post paid because new services and that's more or less what we are going to do. I think we have other services that there are going to come new customers like the broadband, wireless broadband, that I think it could be a good service for all of our customers in Latin America, so you don't have to change your 2G handset if you want to have a broadband access there, no?

And the second question would be that given that your highlighting that revenues are going to come back and that 3G will eventually have a positive impact on margins and you are guiding to CapEx of an average of like $4.2 billion with the low net debt that you have, how much money do you expect that the Company could be giving back to shareholders in the form of dividends and buybacks?

Well, can you repeat the last part of the question?

How much money do you think that America Movil can give back to shareholders in the form of dividends and buybacks?

Well, what we always said is that we always give the normal dividend and at the end of the year depending on the price of the shares and the buybacks if we are going to do an extra dividend or we're going to do more buybacks during the year and that we're going to see. Also the spending, the opportunity that we could have in other countries, in other places, so that's more or less the way we have been managing our cash flow and I think we are going to do the same this year. Still we have our dividend that it's around-- it's going to be around $1 billion plus the buybacks that we're going to have and the rest we are going to return at the next dividend. No I don't know exactly if the buybacks are going to be at-- how much they are going to be, the buybacks this year, but what I can tell you is between both dividends and buybacks we're going to return the shareholders the extra cash flow if we don't have an opportunity in other places in other countries. And that's the question?

That answers the question. Thank you very much.

Mauricio Fernandes.

This is Mauricio Fernandes of Merrill Lynch. I wanted to go back to the point of the promotions. As far as I understand those promotions were basically given air time for prepaid and post paid either for free or cheaper than the average around Christmas and my question is the promotions will continue to exist for the rest of the year. I just wanted to get a sense of whether those minutes have been utilized already or whether you have an inventory of minutes yet that people can still use and would put additional pressure on the ARPU in the second quarter? And if in the ongoing promotions for the rest of the year whether we should expect them to be similar to what happened in Christmas or, in other words, if there was a specific promotion directed to the Christmas season?

Well, Mauricio, promotions are promotions, are not reductions on prices okay? And what you see is that we have some promotions in December that we finalized the promotions in January where we have promotions from November and December, Christmas season but we finalized those promotions in January. But we start other promotions on January and February and March and that's the way we have been doing all our marketing, so we have promotions and we have reduction on prices and today we have been having some promotions. Some of those promotions are stay as a reduction on prices and other promotions is that we take them out, so that's more or less we decide depending on the activity of the market, the competition and a lot of things, also the month. May, it's Mother's Day and Christmas and well, depending on the cycle we decide what promotions we use and we do but if we want to take the promotions and we decide to take the promotions if that's your question, we can take out the promotions. So that's not something like that we need or we are obligated to give to our customers for the rest of the year, so that's why they are promotions, not reduction on prices, no?

Okay and, Daniel, just one more thing on given that Easter is in March and April you don't have it, as you said, you would expect over the coming months the ARPU to recover depending on elasticity and all of that yes but can you give us a sense already of April, how that's coming? That would be great and still on another question on the buyback or cash back to shareholders, if you return the exact cash to shareholders you would get to 0.6 to 0.7 times net debt to EBITDA but as far as I remember from previous conference calls that you mentioned keeping it around one time. I just wonder if your excess cash means 0.6 to 0.7 times or if it means getting it to closer to one time?

Well, Mauricio, in terms of the promotions, well let me only give you a figure. In the February, February our revenues grow 13.1%. We don't have any vacations, nothing. March, March our revenue grew only 5.8% because we have Easter vacation on March so that's more or less where you can see how those add effects to our ARPU this year but I think gradually-- gradually I think the ARPU is going to recover. I don't know if it's going to be in the next quarter. It depends a lot on the market, on the competition, on the prices and what I can tell you is that we decide that. It's not something that we already give to the market and it's done forever. No we decide what promotions we do and how aggressive we want to be so we feel that today America Movil is in a very good position. They are investing. We are investing for the long term. We're investing for the next years and we cannot decide on one quarter or two quarters the way America Movil is operating, so I think we are doing the right things for the long term of the Company and, as we've said 5 or 6 or 7 years ago when some people do not like what we were doing, well it's that they give us very good regard, give us very good things at the end of that period and I think what we are doing today and the way we are marketing and moving on the markets it's going to help us in the future, so we and I as the CEO of the Company cannot make the decisions for the short term. I think we need to make the decisions on the long term and America Movil is doing the right things for the long term of the Company and I don't know if Carlos wants to talk a little bit about that.

Well about the capital structure we can say in the past, Mauricio, merger we have never felt comfortable going beyond one but we have never stayed much below one either so I don't know exactly at what time we will be looking at the Company but if we don't do any-- I mean there will have to be some re-levering because the 0.67 times EBITDA that we have today is going to keep on falling on a 12-month EBITDA, last 12 months EBITDA basis throughout the year, so there has to be some kind of re-levering of the Company and the process of that I would also be available for distribution to the shareholders.

And sorry did the February, March numbers that you gave were ARPU or MOU?

Excuse me?

The February year-on-year and March year-on-year numbers that you have, were ARPU or MOU?

Service revenue growth okay.

Thank you and thank you, Vera, for the multiple questions, allowing the multiple questions.

Ric Prentiss.

Raymond James. I wanted to ask a couple of extra questions on the revenue side. I think we've gotten a lot of good detail. If you looked back at the promotions versus interconnect versus the vacation and the Easter holiday, how would you rank order those as far as one, two, three as far as the effect on revenues in the quarter as far as which had the larger effects?

I think between vacation I think it's number one and very close the promotions is number two. I think that's the way I would rank these things and then interconnection would be number three but the numbers that we gave you is in Mexico will reduce 9.6% quarter-to-quarter on price and the most growth like 3.7, almost 4, so in two, three months we are half of the road done so I think gradually you are going to see the recover of the ARPUs.

Okay and then--

I don't know how fast and I don't know if it's in the next quarter or in the next one but gradually you are going to see a recover there.

Okay and then on the vacation and the Easter effect, was it-- do you think it was really reduced usage then and that might have slowed down the elasticity, that people just went on a long holiday and didn't use the phones? Is that kind of the thought?

We have found that people that go to the beach usually leave the phone on the beach until they are well into Mexico City in their car.

And then just a touch of definition that hasn't been talked yet, on the economy obviously in the US we're seeing some sluggishness here, some signs of recovery but still sluggish. What have you seen in your Mexico as far as any effect from the US economy or just the general Mexican economy outlook?

Okay I think this is important. We haven't really felt anything and in fact what we have seen in terms of economics that the picture of Mexico have been better than what has been expected. We have seen a pick up of economic activity in Mexico, contrary to what again most people were expecting, so we really haven't felt ourselves like there is any need to change basically our view of how we should be doing throughout the year based on the market circumstances and, as I said at the beginning of the call, whereas the revenue differences with the market seems to have been more on the base that people, or analysts, underestimated the impact of the vacations that fell in March. In our case, within America Movil, we are very much in [regular] budget, so we did factor in the effect of these vacations and we have not felt any need to change our own budget ourselves.

Okay and then a quick question on the stock buyback, do you guys do a 10B-5 type plan or is it just when the market is open and closed for quiet periods? How do you do your buybacks?

They are done everyday when the market is open.

Okay and so you're not restricted by quiet periods?

No. We are typically doing it practically all the time, more or less at the same rate.

Okay so you could be in the market today doing some buybacks?

Oh yes.

Fernando Ramos.

Fernando Ramos of GBM. I have two questions. First, I wanted to know how much impact you expect in your costs in Argentina as a result of the launch of the Claro brand, if you could give what you expect in terms of EBIT to margin for the second part that would be great. And secondly you recorded 1.7 billion in extraordinary financial expenses and I wonder if you could give us a little bit more color on these so we can see what we can expect going forward? Thank you.

In Argentina I think we already booked part of that launch in this quarter and maybe the other part it's going to be in the second quarter but that's what we do. I don't expect because of that to have a difference on the EBIT to margins for the second quarter of this year so it's already done as we do a lot through January to March, April and some of the cost has already booked so-- and Carlos can explain to you.

And the other has more to do with inter-Company transactions whereby part of the funding that is part of the funds that are located in subsidiaries end up being loaned to Mexico and what has happened is that really we don't hedge those transactions because that is really the Company. We don't really take an economic vis--vis the market but what has happened is that in some cases in some countries exchange rates appreciated notably in the first quarter and that means that some of the countries have had or have to register relevant of the tax losses but there this is really more noise than anything else. It is not an economic impact vis--vis the market.

[Vincent Walden].

[Thornberg Investment Management]. Concerning interconnection rates again, could you remind us what the expectation is for additional rate cuts in the next couple of years say?

Again? I'm sorry I don't hear you.

Concerning the interconnection rates, could you remind us what the expectation is for additional changes in interconnection rates in the next two or three years?

In Mexico I think we have another 10% reduction in the next January and another 10% reduction then 2010 I think. It's what we already have signed with all the competitors. No it's what we have for the next two years. In the other countries we don't have anything signed for the future and we don't have that already. We negotiate every year, still every two years what's going to be the interconnection rate.

[Anthony Durant].

Yes Anthony Durant, [Vanguard]. Just looking you have approximately 6.0 to 2% of your portfolio in the US. Do you with the weakness in the US dollar and your strong cash flow position do you look to possibly expand further into the US, possibly with a joint venture or a purchase, you know Sprint perhaps or somebody else?

No we haven't had any discussions with Sprint or with any other company in the US to do something at this moment.

Okay do you think possibly going, looking forward into the future, that it could be a possibility or--?

No. What I can tell you about the US is that TracFone is doing good. Power (inaudible) is doing excellent. We have been growing our EBITDA a lot from the last quarter and we're happy. We have more than 10 million customers there and we're going to maintain our MBNO there at this moment.

[Andre Bajiva].

Yes it's Andre Bajiva from JP Morgan. The first question I would like to know is on these promotions. I would like to know how much of these promotions are under your control and how much of the promotions are a response, for example, to the Fonica promotions in the markets?

Well, I think all our promotions are under our control and sometimes-- everything is under our control. We decide what promotions we want to do and we make the studies before they make any promotions how much they are going to hit you in revenue but how much they are going to give you on new subscribers on or retention or fidelity or so the promotions have some always been studied and all the promotions are under our control.

So with that can you say that you are attracting new subscribers with promotions can you say that there is a negative effect on ARPU just because you are adding new subscribers?

No, no we have led the market in price reduction so we want that we have been reducing the prices in the market. I think it's good for our customers. It's good for America Movil. We have been doing that in all the other countries. It's not only in Mexico and that's the way we operate, so it's not only a reaction, it's promotions and sometimes fidelity, sometimes because churn, sometimes-- there's a lot of things that we could do there.

Andre, just to point out, in Mexico today first order are the revenue per minute for voice is actually less than $0.08. It's 84 peso cents, okay, so that's--

7.8.

7.8 or thereabouts. That would be probably about Columbia would be compared to for instance what you would have in the market in brazil today that would in the neighborhood of, you know, it's much higher than that. So what you have is that yes there's competition in several markets. We have strong competition in Mexico and we have strong competition in brazil but in Mexico we have taken a bath but we have been able to reduce prices faster because we have seen very good elasticity of demand in the market and that's why we have led the market in price reductions downward as Daniel was explaining.

You should take a look at our average revenue per minute in the different countries and you will see that now Mexico is really amongst the lowest and it's not because-- it's one of the most competitive not only in Latin America, all around the world, so I think elasticity has been very good for us in Mexico and that's why we're driving the prices down in Mexico and if we saw that in other countries we want or we need to do that, we're going to do it. I think that's good for also for the Company.

The customers, of course.

And just a final comment or question, you did a very good margin in Brazil. It's at 29%. That's in a country that we have a flexible guidance of [time] that we will have just the 23% EBITDA margin for the year. Can you explain a bit better why do you think that's such a better performance of clout in Brazil versus what the competitors are doing?

Well, you study the competitor so you can tell us better what are there. I think we have a very good cost structure in Brazil and that's the reason why we are having better margins than the other ones, no? And I think that's cost because we're growing more or less the same and especially in brazil we need to review exactly what's the growth in the market because I think in some of these we have been very careful that all our new subscribers are bringing revenues in brazil and all around Latin America and I think some of the customers in brazil are not going to bring these good revenues in the future. The market has been growing 100% a year two years in Brazil and I don't think that's it specifically so I think you need to take a look very close in Brazil of what is happening.

Gil Alexandre.

Darphil Associates. In answer to Vera's question you mentioned that if you didn't have 3G the cost of service would be less. Were you implying that your EBITDA margins would have been up from last year?

Well I don't think-- it would be more or less the same as from last year. I think if we don't have 3G our-- we don't have some extra costs and our EBITDA margins would be a little bit less, a little bit high. We don't have exactly the number because it's very difficult to know exactly what is the cost on the network on 3G but, as we said always, it's I'm happy and I said that one year ago, above 50% EBITDA margin in Mexico I think it's we are okay with that and we feel that all this year is going to be above 50. I don't know how much above 50 but to be above 50 will be very good.

And if I can just ask and you may not be able to answer this or you may not want to answer it, when would you hope that for your Company the EBITDA margin would start expanding again?

Well, this is when the growth would stop or when we stop growing I think the EBITDA margin would grow higher, so I think that in the future as we get less subscribers then our EBITDA would go up okay, but I think still we have in the next year a lot of the subscribers will still in some countries have low penetration and in the other side we have an extra revenue on the 3G handsets with different services. So I still think that we're going to have revenues growth on America Movil for the next years.

Rodrigo Ortega.

This is Rodrigo Ortega from BBVA Latam. I was wondering if you could just [full] off on the migration to 3G services could you give us a sense of how many users you already have running up in this new network and what share of your gross adds are going to these kind of services?

We don't have the number. I think it's still very small. We have just launched that and but we don't have that number.

Operator, we have time for one more question.

Very well and that question will come from the line of [James Rassiter].

Yes it's James Rassiter from New Street Research. The first question I had was just regarding the calendar effect. You've talked quite a bit about this on the call. You said it's in line with your own internal budget, so I was wondering then for the benefit of the analyst community if you could quantify please what the impact on overall revenue growth has been in the quarter from the change in the holiday season? And you also haven't mentioned the fact that 2008 was a Leap Year, so we've had a whole extra day in which you can bill customers. To what effect or extent to that also alter the rate of growth for the first quarter? And the second question I had is if we look around the world at the moment there has just been quite a lot of talk in the last few weeks about consolidation, whether it's in Europe there was a story today about Bharti in India looking to be interested in MTN in South Africa. If organic growth does continue to slow in Latin America, what would be your interest in expanding outside of the Americas region? Thank you.

Well, on expanding we're always open to see opportunities. Still we are not having anything today. We are not discussing on any opportunity today but we are open to see opportunities. We have always very-- have been very disciplined on all the things we do in terms of buying companies or going to other countries and it has to be more or less on the same way we have been doing all the other ones now, so that's something that we're going to maintain the way we have been doing that. And well, we have been again, talking a lot about the ARPUs, the service revenues most and the only thing that I want to comment is that we have been doing those promotions because we feel that the elasticity in Mexico is still there and that it's going to have a return on America Movil, these promotions, so we feel comfortable. We decide on those promotions and I think for the future it is good the way we have been doing these type of things.

We already gave all the numbers. We already gave more or less as to how much is the holiday, how much is the interconnection, how much is promotions and well, that's more or less it. I, again, I think gradually we are going to see more or less the recovery of the ARPUs. I don't know how fast but I think gradually we'll have that. On the other side we are having customers that maybe at the beginning they are consuming less, at the low end subscribers in the prepay. As penetrations go higher then you have subscribers that are going to consume a little bit less but our subscribers that we have today I think-- I'm sure that the elasticity is coming in the future.

If time for one quick follow-on so if I might ask please what's happening in Chile at the moment? That market in the first quarter seems to have seen a more dramatic slowdown than in other markets. How is the outlook in Chile looking for the rest of the year please?

Now in Chile what happened in Chile last quarter we take-- we cleaned up our base. We have some of our-- some of the customers during last year that we take them but they are not paying, so we have to clean the base and to clean this type of customer, so I think we are starting in Chile this year with better customers, better revenues, good revenues and that's the way you are going to see the improvement in Chile for the next months.

Thank you and thank you everybody for being in the call.

Thank you, Daniel, Carlos and Daniela, and the replay of the conference call will be available starting today at 4 PM until May 9. Thanks everyone.

Ladies and gentlemen, that does conclude our conference call for today. We'd like to thank you on behalf of today's panel for your participation and thank you for using AT&T Executive Teleconference. Have a good day, a great weekend and you may now disconnect.