America Movil SAB de CV (AMX) 2008 Q2 法說會逐字稿

Good morning. My name is Brad. I will be the operator on today's call. I would like to welcome everyone to the America Movil conference call. (OPERATOR INSTRUCTIONS.) Today's conference is being recorded. If you have any objections you may disconnect at this time.

Now I will turn the meeting over to Mr. Andre Baggio.

Thank you. Good morning, everyone. And good afternoon for those in Europe. This is Andre Baggio, a Latin American telecom analyst for JPMorgan and it's our pleasure to be hosting America Movil's second quarter 2008 earnings conference call. On this call we will have Daniel Hajj, CEO; Carolos Garcia-Moreno, CFO; and Daniela Lecuona, Head of IR.

Now I would like to turn over to Daniel Hajj for his administrative presentation, which will be followed by your Q&A.

Thank you, Andre. Thank you everybody for being in the call. Carlos Garcia-Moreno is going to present the summary of the second quarter financial and operating results. Carlos, please.

Hello. Thanks for hosting the call, Andre. Good morning, everyone.

America Movil obtained solid financial results in second quarter that were supported by good subscriber and revenue growth. The Latin American countries where we operate continue to do well economically, having benefited from a (inaudible) gain coming from the increasing price of commodities, oil, minerals, food stuffs, and the decline in the price of imported manufactured goods. These gains are driving an expansion of consumption that has underpinned the growth of wireless services.

The second quarter was characterized by very strong subscriber growth. Our net addition, 6.1 million, exceeded those of a year before and also those registered the previous quarter. Our subscriber base thus reached 165.3 million subs at the end of June, which represents a 20.4% year-on-year increase. This is after obtaining a total of 11.9 million subs in the first 6 months of the year.

Brazil led the way in terms of net additions, with 1.9 million, which accounted for 26% of the net additions for the Brazilian market in the quarter. The net additions in Brazil doubled those of the first quarter, and they were 17% higher than those in a year before. The rate of growth of the subscriber base has now reached 36% in June, with post-paid subscribers continuing to outpace prepaid subscribers. 3G has been a great success in Brazil and has definitely contributed to our gaining market share in the postpaid market.

Mexico's net adds, 1.3 million, also surpassed those obtained a year before by 12%. Through June we have gained 2.8 million subs, almost as many as in the first half of 2007, to finish the month with 52.9 million subs.

In Colombia we added 1.1 million subscribers in the quarter, which was 88% more than a year before, bringing to 1.9 million the total for the first half of the year. Whereas, in Argentina, we increased our subscriber base by 400,000 subscribers in the quarter and 1.6 million in the six months through June.

Our revenue has expanded 15.6% year-on-year, and 4% over the quarter to reach MXN 84.6 billion. Sequentially, service revenue growth was stronger in Mexico, with 4.4%; Columbia, Ecuador and Peru, which averaged 6%.

In the second quarter the Mexican peso appreciated (inaudible) currencies (inaudible). This brought about some foreign exchange gains, but had an impact on operating cash.

In all our major operations, MOUs have increased year-on-year, more notably in Mexico with 40% growth. We continue to see good elasticity of demand out of Mexico. In fact, it appears that outgoing traffic is becoming even more responsive to price stimulus.

Our EBITDA (inaudible) MXN 34.7 billion in the quarter, which is 13.7% more than a year before, with the margin coming in at 41.0%. EBITDA margins rose sequentially in most operations, the only major exception being Brazil with a marginal sale on account of a sharp acceleration of subscriber growth. Through June, our EBITDA was up 15.7% in (inaudible) to MXN 68.6 billion.

We generated MXN 24.6 billion in operating profit and made a net profit of MXN 17.7 billion. That was up 25.3% year-on-year. It was equivalent to MXN 51 cents per share and 99 (inaudible). Our net profit benefited from strong (inaudible) results and from (inaudible) foreign exchange gains that more than outweigh our (inaudible) financial costs.

We invested MXN 26.7 billion in six months through June, including the amount spent on repurchase of (inaudible) which was in excess of USD 800 million, and bought back shares worth MXN 13.9 billion.

The (inaudible) in cash flow, which allowed us to reduce our net debt by MXN 5.3 billion. So, taken together, the share buybacks, our CapEx and our -- and the reduction in net debt, they totaled practically MXN 46 billion. So, that's quite a strong operating cash flow.

I'd like to turn now the floor to questions. Andre, maybe we can get started. Thank you.

Yes. So, first of all, I'd like to just ask a couple questions. In the first quarter we saw a small rebound in Mexican ARPU, which follows to decline in the previous quarter. What should we expect for the rest of the year?

Well, I think the recover -- we said a lot the third quarter we have some holidays and summer. But I think that the growth in the 3G ARPU subscribers, that growth in the 3G subscribers is going to make ARPU grow a little bit. Plus the low income people, the low segment people, that is coming I think with them. So Spain, the ARPU that we have at right now. I'm saying what we have there today.

Okay. And second, can you comment a little bit on the situation in Brazil. We saw, of course, the strong additions but weak margins. So, would like to understand a big of the market dynamics in that country.

I think (inaudible) with Brazil we've seen greater (inaudible) very significant increase in (inaudible) because it was double what we had in the first quarter. So, that evidently had an impact on subscriber application costs. And the other thing is that, in Brazil's second quarter, we had very significant price reductions that had basically to do with promotions that gave away some free air time.

Really, in Brazil we are moving from what has been a very -- a relatively high price, low MOU combination into one that will be coming -- we will be having lower prices with greater MOUs. Let me just point out that in Brazil MOUs a year ago were 71. And by the end of the second quarter we've moved them up to nearly 88.

So, there's been a huge increase in MOUs in Brazil. And this increase has been driven by a reduction in the prices. The average (inaudible) has come down in Brazil year-on-year by 25%. Okay? So, that is important.

We will continue to see price declines. We will continue to see important increases in profit. Remember, in Mexico today we have roughly half the prices and double the MOUs that we have in Brazil. And there -- it can -- because we have the same penetration, there's really no reason why we shouldn't be able to get Brazil to a situation in which we have much higher MOUs and lower prices.

So, I think that we will continue to try to gain advantage from elasticity. (Inaudible) when you reduce prices -- and this is something we mentioned last month, last quarter, you'll not immediately generate all the traffic response that you would like to see. But I think that over time we will see a very favorable relationship with (inaudible).

And also remember, only to add one thing, remember that second quarter in Brazil is Mother's Day. Mother's Day is one of the biggest promotions that you have in Brazil. So, also you will have big net ads for big promotions in Mother's Day.

Okay. Thanks a lot. So Operator, can we start now the Q&A?

Certainly. (OPERATOR INSTRUCTIONS.) At this time the first question comes from Vera Rossi. Vera, your line is open. Or Andrew, I'm sorry. Andrew Campbell, your line is open.

Yes, thank you. My question is on the regulatory environment in Mexico. And given that portability has taken effect, you have any more -- do you have any more clarity on what impact you think that might have on the business, either positive or negative? And you mentioned in the press release the preliminary findings from COFECO on fixed and mobile rates. And can you just give us an update on what's happening with that process?

Well, I -- let's start with the COFECO. I think what happened is that COFECO preliminarily said that all the players, not Telcel, all the carriers are dominant in their own markets. What they said is only preliminary. I think in the next space they are going to make that decision. And remember that COFECO, the only thing that they are going to do is take that decision. Then you have to go to all the regulators that (inaudible) and they have to take decision.

So, we are starting what we are going to do and I think it's going to take time to decide something. It's first COFECO, then COFETEL. Then if we are not agree on the decision as to in COFECO, in COFETEL, then we have the chance to go to an injunction.

Well, that's -- I think it's not going to be a short period, is going to take some time. And in the other side, you know that the interconnection rate between mobile, that is what they are talking about, it's being -- every day it's coming less percentage to our overall revenue. So, I think I feel confident that it's not going to be bad for telecom, no. So, that's one thing.

The second on number portability, number portability just start. I think we do a very good advertising. I think we have the best network in Mexico. We have the best quality. And we have the best technology. We are the only one with 3G. We have the head start with iPhone.

So, I think that number portability, it's going to be more positive or neutral for America Movil. Maybe it's going to be neutral in the first one or two months, then is going to be positive because people, what you see in all the world, I think the next quarter, I think you are going to see -- or very small positive numbers, or neutral. I don't see that we're going to have more out. I think there -- more port in that port out.

Net is going to be positive for Telcel. It's very important the quality of the network. It is very important. The coverage is very important. The technology. And it's what all the people -- is what we're seeing that all the people like in Mexico. And we're feeling very comfortable with portability.

Great. Thank you.

Our next question comes from Vera Rossi. Vera, your line is open.

Yes. Thank you. Good morning, everyone. I have a question on your 3G coverage. I realize that this quarter you had a big progress in terms of covered POPs. Are you ahead in terms of your plans, in terms of covered POPs? And my second question is that, do you still plan to have all your contract users under the 3G network in the beginning of next year, between the first and the second quarter?

Hi, Vera. Well, I -- we never plan to have all our prospect customers in 3G. I think those customers are going to start changing. We are not force them to change, but we will be very happy if they change with 3G because 3G's going to give us more data and that means more ARPU, okay? But we are not accelerating that.

You're going to see a natural migration of all those customers. The rollout with 3G is what we are expecting to have in Mexico. First quarter we do some cities. The second quarter we accelerate a lot and then, in the third quarter you're going to see more acceleration. But that's more or less what we have in our budget. And it's exactly what is happening in all Latin America.

We don't see that we're going to invest more than the MXN 4 billion that we have on budget, and that's what you can expect. We're going to have a very good coverage of 3G, but we're not going to invest more still of what we have in our budget.

Okay. And my second question is on Columbia. What do you think it will take to improve the ARPUs in Columbia if -- in case you are working in this scenario. Because when I look at the ARPUs in Columbia, they are below the average compared to other countries with the same macroeconomic situation.

Well, let me tell you what's happening in Columbia. In Columbia we have big and huge competition the last quarter of last year. We have a huge competition with Tigo and with Telefonica. Tigo entered the market and they reduced their prices a lot. So, we have to do that to maintain -- to be competitive and maintain. Their prices were low but they reduced more their prices.

And what you could see right now is that revenues are coming up. This second quarter's are much better than the first quarter. So, the elasticity is coming. We have 2% more ARPU against the first quarter of this year.

So, I am confident that the recovery, it's going to be there. Now the prices are there, the elasticity is there also. And you are going to see the next two quarters or a little bit more on the recovery.

And I think 3G is going to help us, also. 3G is not coming immediately there because the big amount of customers that we have in 2G against the new customers that are coming in 3G is coming slowly. The percentage is not so big. And it's going to take us some time to see the increase on the 3G ARPUs, no?

Okay. And just one follow-up question on the 3G migration. Approximately a year from now, what is the percentage of your traffic of your subscribers you expect to have under the 3G network?

I really don't have that number. I don't know, Carlos, if you have the number, but difficult to say. The traffic, what we are prepaid -- prefer with the capacity. And it's going to depend a lot on the (inaudible). Let's say iPhone. It's bringing a lot of traffic on 3G and a lot of people on 3G.

And I think that's going to give new suppliers, the Nokia, sort of Motorolas or Sony Ericsson, all those suppliers are going to improve a lot their 3G portfolio. And that, it's going to bring us more 3G traffic and more data and everything. So, everything is -- I think everything is going to come naturally. We don't have to force anything. We don't want to force anything, no?

Okay. Thank you, Daniel.

Thank you very much.

Our next question comes from Martin Lara. Martin, your line is open.

Yes, good morning. Only one question. Could you please give us an update in terms of net additions for the year, please?

Again?

The net additions for the year, please.

Well, we haven't changed our estimate. We said that there are going to be between 21 million and 22 million subscribers. And that's more or less what -- we haven't changed our guidance.

Okay. Thank you very much.

Thank you.

Our next question is from Stephen Graham. Stephen, your line is open.

Yes, thank you. It's Stephen Graham from Goldman Sachs. Just a question about the reporting basis. A year ago, second quarter of '07, for example total revenues were reported as 74 billion, 74.4. And in this release for the -- I'm sorry, the report is 75.4. And this release now in the second quarter of '08, a table on page 4 shows a year ago revenues as 74.4, a billion less than was originally reported--.

--Wait, can you explain again because we -- I don't follow you.

Yes. Okay. So, on page 4 of the release that just came out, there's a table that's the overall income statement table. All right? It shows the 2Q '08 numbers. It also shows a year ago, 2Q '07 numbers. And the numbers don't match what was actually reported a year ago in 2Q '07. For example, total revenues is shown in the current release on a year basis it shows 74.4, but a year ago you actually reported MXN 75.4 billion for total revenue.

And furthermore, the table now is labeled millions of constant pesos. And that seems odd because I know you're not reporting in constant pesos anymore. And I'm wondering -- and also, if it were in constant pesos, the number from a year ago would have gone up, not down by a billion. So, could you just explain what's the -- how are you -- how does this table on page 4 -- how is the 2Q '07 column derived?

Well, you can always call Daniela for these numbers, Stephen. I know that you don't usually call. But what I can tell you is that the numbers that we have in the tables, we have been presenting them throughout the year, copying (inaudible).

So, what you had last year was expressed at constant pesos of whatever date the report was. This time we're only showing in millions of pesos, nominal pesos. There is a (inaudible) table, so you're right there in that respect. It is not constant peso that we're reporting. It's only nominal. And whatever (inaudible) with last year, because last year it was reported in constant peso.

Okay. Yes, you might want to check them because, definitely, I have the two statements in front of me and what's reported now as a year ago don't match actually what was reported a year ago. But I'll follow up with Daniela. Thanks.

Okay. But you can call Daniela and she can explain to you exactly and you can check the numbers.

Great. Thanks again.

Thank you.

Our next question is from [Alex Thumler]. Alex, your line is open.

Yes. Hi. Good morning. Just a quick question. On your -- you talk about your second quarter promotions in Brazil. And just wondering whether that has a lot to do with the Mother's Day or with the fact that TNE wasn't coming into the market until fall, or is expected to come into the market at least sometime soon. I mean, is there something that you worry about at this point? I mean -- and what would be your strategy once they're in?

Well, we -- I think when you have on new competitor in the market, it's always more competition. So, what I hear is that [OE] is coming to Sal Pablo at the fourth quarter of this year. We also get in the north of Brazil last week, we start in the north last week.

So, well, we have the whole coverage in Brazil. And what we do is -- remember, Brazil is, on Mother's Day, is that huge promotion day. And on the Christmas season is also a huge promotion. So, the reason is that in Mother's Day everybody starts to do big promotions on some cities, on air time, on everything. And I think that's really the reason why you have those numbers, why we grow our MOU and the reduction on the EBITDA. But remember, Brazil is very important for America Movil and still Brazil and Mexico. So, the penetration is low.

So in Brazil, as we do in Mexico, two, three years ago or two years ago, we're looking to grow with good customers and to grow market share. And that's really our focus on Brazil right now. We have to take care of our EBITDA, but at the end of the day, if you take care about the costs and expenses, the EBITDA is going to come if you get more revenue.

So, that's really what is happening, that's the strategy on Brazil. And that's what we're going to be focus in the next one or two years more in Brazil. Still 60s -- between 60% and 70% penetration for us is low. You have Argentina with 100% penetration. And Brazil is still 70% penetration.

And the other important issue is that we're growing a lot our postpaid base. And when you grow your postpaid base, then you have more expenses, but you are going to have more revenue. Where postpaid net apps (inaudible) as the highest ever in Brazil. So, that's other reason why we have a little bit of the reduction on the EBITDA. But we are really happy how we are developing in Brazil and we're going to follow up our strategy there, no?

Okay. And just one follow up on this. So, should we expect the same sort -- the same aggressive campaign as TNE comes into the market?

I don't know. You'll have to ask OE, not us, if they are coming to Sal Paulo. I don't know how aggressive they are going to come. But it's not only pricing. Remember, when you get in the market then you have to do a lot of things, not only price. You have the whole distribution, you have to have a good network, you have to have quality. And well, if they have everything at the beginning, plus good prices, then it's going to be a little bit more tough.

But I don't think that in a big market like San Paulo and the state of Sal Paulo you can get everything -- all these things immediately. So, you have to construct a lot there. So -- well, I don't know really what's going to be the strategy on that.

And the other thing is they're entering in Sal Paulo, but they have other customers and other regions that they're in Brazil. So, if they are going to be very aggressive in San Paulo, well, the other ones are going to be very aggressive in their market. So, well, it's competition. And then we have to see what's going to happen, no?

Okay. Thank you.

Thank you.

Our next question is from Fernando Ramos. Mr. Ramos, your line is open.

Good morning. It's Fernando Ramos with GBM. I have two questions. Firstly, your SG&As have continued to increase above the growth seen in revenues. And I was wondering if you could comment on this and if this is a result of the 3G launch? Basically, if you expect this trend to continue during 2009.

And secondly, I see that your other financial expenses continue to be high. You recorded MXN 2 billion. And I was wondering if this should continue going forward. Thank you.

The first question, the SG&A, well, it's increasing. I'll have to check exactly what -- how much and in each country why we're increasing the SG&A and we can talk to -- if you can call us later to Daniela, we can see.

But I think it's going to be mainly because acquisition costs, that we have more than what we have last year. We have been growing more subscribers with a higher price of the handset. So, better handsets with color screen, with camera. And that give us a little bit more expenses there.

But if you want to check with Daniela exactly in each country and how much in each country, would be -- we can clarify your question.

And the second one, what you said?

In other financial expenses you recorded an expense of MXN 2 billion, an increase of 155%, but there was a significant increase during the first quarter as well. And I was wondering what this is related to, what we should -- if this should continue during the next quarters?

We have mentioned before that in the other financials you have the effect of derivatives or (inaudible) with which we hedge our currency position. So, sometimes when you have an asset gain on the underlying position you might have a corresponding loss on the other financials. But that part was mentioned before.

Okay. Thank you.

Thank you.

Our next question is from Walter Piecyk. Walter, your line is open.

Thanks. Daniel, last quarter we talked a lot about I guess Easter and now I think Mother's Day is coming up a lot. I guess my kids celebrated Father's Day in June, but I'm told that in Brazil Father's Day is in the third quarter. I'm also told I guess there's going to be some aggressive promotions around Father's Day. But I'm just curious if you can just review with us some of the holidays to expect for Q3 in each of the markets.

What's your question? I don't understand your question. It's the holiday--.

--Well, it seems like every quarter we talk about holidays. So, I just want to know ahead of time what holidays that we need to plan for, for Q3. I know in Brazil, for example, Father's Day is in August. And I think some of the operators there have talked about reinitiating a lot of these aggressive price promotions for Father's Day.

Well, it's very difficult. Do you know what are the holidays, the Easter and Christmas and everything so I don't have to tell you? You can plan the holidays.

Second, it's very difficult for me to tell you what we're going to do, because I'm not decided what's happening in the market. In each market you are going to see different competition, different things.

And what I'm telling you is that I -- in first quarter, I don't know how aggressive is going to come Mother's Day in Brazil. In Mexico what's so aggressive, in Brazil what's aggressive. So, it's very difficult for me to tell you what's going to happen in Christmas, no, and what's going to be the promotion. So, the market, I don't manage. I manage America Movil. I don't manage the market. So, you know which ones are the--.

--I'm just asking because you refer to it in your comments as an excuse on why Brazil was weak.

No, it's not an excuse. I'm telling you exactly what is happening in Brazil. It's not an excuse, no. And that's the decision that we take. The decision is we go more for subscribers than for EBITDA at this moment in Brazil.

Walter, you've followed the Company for quite some time. You've always known that for, in the second quarter in Brazil it is the second largest selling holiday after Christmas. And--.

--I agree. But why would you tell us -- when you look at the numbers in Brazil, you can back out the extra gross ads. And unless you had a jump in CPGA your core margins took a big hit in Q2.

We have just been talking about a reduction in prices--.

--Promotion (inaudible).

Okay. Just the only other question I have, Carlos, is your leverage ratio is still at 0.6. Can you just explain the share repurchase? Is there some type of limit of what you can do as it relates to retained earnings, or is there some type of acquisitions that you're looking at that prevents you guys from taking your leverage up to 1 times.

We don't have any problem with taking leverage up to 1 times. In fact, today we have already with the facility that we have for MXN 2 billion. So, we have the money accessible. The fact that we haven't drawn on it is because we haven't yet had the need to use it because the cash flow that we have been generating, as I mentioned in my summary, has been quite substantial. So, we don't really have an issue with liquidity. We have outstanding facilities available. As of today we have MXN 2 billion in cash.

So why not tender? Why not put like a MXN 2.5 billion tender for stock at 50 bucks a share?

Well, we have -- you know that our preference is to continue to buy in the markets. And we will continue to buy in the markets, but we're open to other possibilities.

Okay. Thank you.

You're welcome.

Our next question is from Richard Dineen. Richard, your line is open.

Thanks very much. Just a question on the iPhone 3G and margins going forward. Looking at your sort of mid-tier plan, I guess the MXN 599 monthly plan. Your pricing iPhones at kind of similar levels to AT&T in the US, about USD $180 for the 8 gig and USD $285 or so for the 16 gig. AT&T's guiding for let's say a 2 to 3 percentage point reduction in wireless margins, and USD $0.10 to USD $0.12 of EPS dilution this year and next due to subsidies and dealer commissions related to the iPhone.

I was just wondering how we might think about this for America Movil? If it might be possible for you to give a similar kind of framework at some stage, or perhaps just for now just to talk in broad terms.

It's a very good question. I don't have exactly the numbers, but what I can tell you what's going to happen with the iPhone is the iPhone is going to give us more revenue, is going to give us growth in the ARPU. At the other side they are going to -- we've going to have more subsidies. The iPhone is an expensive handset. So to sell it at these prices we're going to have more subsidies.

But I don't have exactly the numbers because I also don't have exactly the amount of handsets that we're going to get from Apple and that we're going to sell in each country. Now, it's still very difficult. They are sold out so we don't know exactly what we're going to have for the year. But when we have more clarity on the amount of handsets, then we can tell you exactly.

It's very important also how many people are changing their handsets and how many people are new in the networks with the iPhone. So, we are new on iPhone. It's only 15 days that we get the handset. So, we need to have a little bit more on data to understand exactly what's going to happen.

Okay. That's fair enough. Just if I could just squeeze in one more, just quickly. Just -- I guess with Vodafone this morning and the macro question, relative defensiveness of wireless very much in focus. And also some comments perhaps close to home for [Melecom], suggesting that it's seeing an impact on consumer disposable income from rising inflation.

I just wanted to see if you're seeing any evidence of this in your markets and, if not yet, do you have any expectation of this going forward, I guess particularly as regards data spending. So, any color on that would be fantastic. Thanks.

Well, it's a difficult question. I think it depends a lot on the economies. I think one of the sectors that are going to be less hurt if we have a slowdown in Latin America is going to be the wireless. I'm totally sure on that.

But, well, if we have a slowdown then you're going to see that. At this moment we're not seeing anything there. What we're going to see at this moment is more reduction on prices, more growth on MOU, and elasticity coming. You know what happened in the first quarter in Mexico. The second quarter it is better.

What Carlos explained on Brazil, we're growing the MOU and they're coming, the revenues. So, at this moment we are not seeing a slowdown there. I think maybe Vodafone, because it's in Europe, having more problems on economies than in Latin America. But we're not seeing in America Movil something like that. We're still having that elasticity and the elasticity's coming. And the price reductions are there and we're more or less happy.

On the postpaid customer, let's say in Brazil, the postpaid customers are coming. And when you're having a slowdown you move from postpaid to prepaid. Last quarter we have the best quarter in Brazil on postpaid customers. So, we are not seeing any indicators of those reductions, no.

Okay. Thanks very much. Appreciate your comments. Thank you.

Thank you.

Our next question is from James Breen. James, your line is open.

Thank you very much. A few questions. Specifically in Columbia and Peru, can you just talk about what's going on there? You seem to have good growth in Columbia overall. And in Peru, it seemed that the churn spiked up some. If you can comment on those.

And then just generally speaking, we've seen some revisions lately on the inflation numbers in Brazil upward and remittances coming back to Latin America generally being down. Can you just talk about the economy in general across the regions? Thanks.

Okay. On Peru, basically the increase in churns (inaudible) connections from our clients that we have taken on in November and December. And they basically were churned in the second quarter.

In the case of Columbia, we're actually seeing very, very good MOU growth. If you look at -- and this in spite of the significant change in the increasing subscriber growth that we've seen there. Quite a substantial reacceleration of subscriber growth in that country.

But just -- to give you some perspective, MOUs have grown from an increase of (inaudible) 2% year-on-year in the first quarter of '07 to 33.9% increase in second quarter of '08. So, we have seen a consistent expansion of MOUs in the country. And this has helped turn back what had been some declining ARPUs reported in this last quarter. As Daniel has mentioned, we have seen an increase of 2% in the ARPUs in the country.

Now, as in Mexico and as we're now seeing in Brazil, we are seeing quite substantial price declines; this over and above what we have seen in the connection rates that, as you know, fell by 50% last January.

But if you look at the average revenue for (inaudible), the decline today, year-on-year, is steady 3.3%. Okay? So, we are seeing I think good usage growth with traffic increases basically offsetting the decline in prices. And I think that we are quite optimistic about the potential for Columbia.

Columbia's doing very well economically. They are (inaudible) country and they are next to Venezuela, which handle a lot of -- a big (inaudible) country that buy a lot of products from Columbia. So, the economy in Columbia is doing quite well. And as we had mentioned before, the expansion of consumption in several countries have benefited the wireless role. So, we expect to continue to do well in Columbia.

What was the third question?

Just economically, it seems as though we've seen inflation revisions in Brazil upward. And just wondering how sort of the state of the world, so to speak, is affecting the economies of both Brazil and Mexico.

We have seen some increases in inflationary pressure very much across the board. And as you know, that's led to some hikes in interest rates. But we are not really seeing this having a major impact -- again, at lease on our market, no? The fact of the matter is that the countries are growing well. There's been money. And partly because of the sales of commodities, partly because of foreign investment. But the fact of the matter is investments and consumption are growing at a pace and that is driving growth and that is driving our revenues.

Great. And then just one final question. We've been talking about the -- for the special options in both Brazil and Mexico for about a year now at least. And we were supposed to see roles in Mexico months ago and it hasn't happened. What's the latest that you guys have found out in terms of what are some potentials options there?

In Brazil we already have the options and we have the license and we are putting -- we already pay them. So, in Brazil we already have them. And in Mexico, well, I don't know if the regulators are saying -- well, what the last thing that they said was June, July. And what I'm reading in the news is they're going to be at the end of this year. I don't know exactly what is happening or what's the reason why they are delaying things in Mexico. But well, in Mexico, Telcel doesn't need immediately licenses. So, we can wait until they decide to auction them.

So, Mexico doesn't sound like this year. And in Brazil, I think the H-band was still unresolved. Is there any -- have you heard anything further there?

No. No. I don't hear anything there.

Great. Thank you.

Thank you.

Our next question is from Steve Malcolm. Steve, your line is open.

Thank you very much. Steve Malcolm from Arete Research. Three questions, please. First, can you give us your current expectation on the Brazilian termination rate regime and framework? When do you think we'll get notice on the new framework and what your expectations are for moves and termination rates over the next couple of years?

Secondly, on the CapEx number for the first half, can you try and break that down into tangible CapEx spend and intangible, which most notably, I guess, Mexico and Brazil.

And the final questions, just sort of a housekeeping question, the tax rate which came in a bit below your 28% I think guidance for the year in the second quarter. Can you just update us on what you think the tax rate will turn out for the full year? Thanks very much.

Well, no, I don't -- what they said in Brazil is that the -- I don't have exactly the date, that in 2008 there's going to be cost structure, the interconnection rates. But still nothing has been done and we're waiting for more information in Brazil about the interconnection rates.

The second question, what you told me?

I just wanted to understand your CapEx split between the bit that goes on fixed assets like network building, and that that goes in intangible. Trying to split the 26.7 and work out what the depreciation base is. Thank you.

I don't understand the question again. Sorry.

Trying to split the 26 -- your CapEx spend in the first half was MXN 26.7 billion. I'm trying to split that into tangible and intangible. Does that not make sense?

What -- I think the only intangible was the license, or the spectrum of Brazil. That's around MXN 800 million. The rest is the CapEx. That's the number.

Okay. So (inaudible) intangibles, the Mexican -- the sort of Brazilian spectrum. Thank you.

Yes. It's only the Brazilian spectrum, the MXN 800 million.

And on the tax rate, the effective tax rate in second quarter was 25.7%.

Yes.

It's a little bit less than our guidance. I think the guidance for the year should be -- it hasn't changed. It should be approximately 28%.

Okay.

(Inaudible--.)

--Coming back to my first question. I mean, in terms of -- I understand that we don't have visibility yet on what [Oratel's] going to do. But in terms of your planning, are you expecting steep cut in termination rates or a more moderate glide path? And when you plan the tariffs and the makeup of your Brazilian business going forward. Thanks.

Again, I'm very sorry. And I don't hear you very well.

Sorry. I'm calling from -- just to come back on the first question with regards to Brazilian termination rates. I just -- I understand that we don't have great visibility yet, but I just wanted to understand, in your planning horizons, what you think is likely to happen in terms of the direction, speed of change, whether -- when you look at your tariff plans whether you should be expecting a big cut in the next two or three years or a more moderate--.

--Yes. I think the best thing to do is to moderate -- to have, let's say, a two, three, four-year planning in -- the interconnection rates in Brazil are high right now. And I think they're going to go down. And the best thing for the industry, for everybody, is to have, during the year to slow down the interconnection. So, I think that is what's going to happen and what we're going to see there.

And I think that's -- what we're likely to see is that, as time goes by and we continue to reduce our prices, there's going to be much more traffic on our own networks and in the mobile-to-mobile networks. So, the importance of fixed-to-mobile, which is really what would be more affected by a reduction to connection rates, will eventually come down significantly. As you know, for instance, in Mexico today fixed-to-mobile revenues are less than 10% and only 8% (inaudible).

Becoming -- coming from 25% or something like that.

And Columbia, probably about 5%. So, I'd say that in Brazil in a couple of years fixed-to-mobile revenues will become a relatively small portion of service revenues. So, they will not be as affected by a reduction in interconnection rates.

So, do you have the percentage of those revenues in Brazil at the moment?

I don't have them right in front of me. But if you call up Daniela or myself, we'll provide them to you.

Okay. Thank you very much.

I think (inaudible) 25% to it.

Okay. Super. Thanks.

You're welcome.

Our next question is from Henry Cobbe. Henry, your line is open.

Hi. Thanks very much for the call. It's Henry Cobbe with Nevsky Capital. Just a few questions, if possible. The first is the pressure on ARPU in Mexico, would you say that is predominantly from promotions or is it from declining fixed-to-mobile volumes? That's the first question.

The second question, also Mexico. Since the launch of MMP in early July, are you seeing or budgeting for increased retention costs, as well as the higher acquisition costs from the iPhone and 3G rollouts?

The third question is--.

--Wait. Remember, the second question is we start iPhone on July. So, you don't see anything on the numbers with the iPhone. iPhone starts on July the 11th.

Oh, okay. But on retention costs for postpaid subscribers, whether you're seeing competition increase on the postpaid side?

Maybe with portability. What we have been doing is retaining our subscribers, and maybe it's going to take us a little bit more cost, but that's the only thing that you saw in April, May and June, no? To have that retention a little bit sooner.

Okay. And on the tariffs? I mean, in terms of what's from promotions and what's from fixed-to-mobile volumes.

Well, fixed-to-mobile, at the beginning was 10%. At the beginning of the year we reduced 10%. That's something. But well, the competition is high and then we have been having some promotions there so we have both. But ARPU returns from 174 to 178. So, I think the recovery on the ARPU was good, no?

Yes. But I'm just interested, actually, in the fixed-to-mobile volumes. Because, although there's a 10% reduction in their rate, it seems like it's the volumes that have taken a nosedive.

Well, fixed-to-mobile, I don't have the number here. But certainly, they haven't increased. And I think that that's something that we have been mentioning to investors. We're not seeing any elasticity on the fixed-to-mobile--.

--A little bit--.

--Information. Because basically, first of all, it was not a big reduction. It was 10% reduction. Secondly, the people in fixed line (inaudible) do not advertise that the prices have come down. We ourselves do not tell our clients coming from our fixed to mobile now costs less. So, people are now aware of the price reduction and, therefore, they will not react at the other consumption accordingly. So, we're not seeing much elasticity there. There's been a little bit of growth, but not much.

Thank you.

Basically, what you are seeing is fixed-to-mobile continues to reduce its importance. And we have seen in all the other countries, in Columbia I mentioned before, in Argentina it's come down. In Mexico Daniel mentioned we have come down from more than 35% to less than 10% today (inaudible). And I think the plan will continue.

Okay. And the last two questions are just on MTN. I mean, there's -- as you know, you may have been watching the interesting story with Reliance and MTN and this bid that got scuttled by the Reliance Industries. Would you be interested in acquiring an African asset that's going to be further down the penetration curve? Is that something that you'd be potentially interested in?

Well, we're interested in acquiring any company that would be -- that looks financially good for us. I think we're open to any place. We prefer growth places like Africa, but it's going to depend a lot on the price. So, that's what we have been telling and that's what we're waiting. So, if that's -- the price is a good price for America Movil, then we're open to do anything there, no?

Okay. But previously, you're really focused on the South America, Central America. So, is it a new change that you're now looking at assets outside of your traditional area?

Henry, I've been mentioning this for quite some time now, that we, America Movil, are open to going to other regions of the world so long as it is something that makes sense. I think that we are capable. We have the resources. We would be (inaudible) to do it. But we are by no means in a rush.

Okay.

We have been always very disciplined with having acquisitions and we intend to continue to be so.

Okay. And the very last question is just on Brazilian margins. You highlighted in the report that acquisition costs have increased and sales and marketing costs have increased again in the second quarter versus the first quarter. And it comes back to the issue of whether you would consider doing a SIM-only strategy in Brazil. TNE or [Oria's] pursuing this quite successfully. Obviously, it has a lower ARPU, but the payback period versus the acquisition cost is also much quicker. So, I'm just interested in whether you were considering launching something similar.

I don't know exactly what they are launching and what they're -- exactly their promotion. But overall, our strategy in Brazil is we think that the penetration is low. We're going to go for good subscribers. We're going to be growing, is what we do in Mexico sometime ago. And it's what we're looking in Brazil.

So, we are of course worried about the EBITDA. But we are not going there because of EBITDA and to have instead of 23% or 25% EBITDA to have 30% EBITDA. Then we're going to lose our market share of good subscribers. But still, I think in Brazil you're going to see 20 million or 30 million new subscribers in the next months or years and we want to get more subscribers. Then EBITDA will come later. So, that's what -- that's really the strategy in Brazil, no?

Okay. Thank you very much.

Our next question comes from Mauricio Fernandes. Mauricio, your line is open.

Thank you very much. Two questions. Good morning, everyone. First of all, it's a bit surprising that in Mexico the EBITDA went up to 53.5%, roughly speaking, from 52% in the first quarter. There is the dilution to costs coming from you, revenues from 3G. But at the same time, I would have expected the handset subsidies to be higher, particularly because you have people migrating to 3G handsets.

So, the question is one to Carlos and Daniel, the outlook for the EBITDA margin in Mexico, whether we should see it at these levels now or come back to first quarter's 52%? That's the first question.

And second question, not sure if you have addressed this already, but in terms of the CapEx for the year, if you could give us an update now, including the spectrum in Brazil or excluding, just to be clear. That would be great. Thanks a lot.

Mauricio, at the (inaudible) quarter I had mentioned that we have seen a reduction in service revenues that have had a direct impact on EBITDA. And that was, as we have mentioned before, partly on account of seasonal considerations. So basically, weaker in second quarter is a normalization of that. We have more service revenues which had a direct impact on EBITDA as well. And that quite explains what the big change in margins.

We don't -- we're not in the business of forecasting our EBITDA margin on a quarterly basis and so I'm not going to be giving you any numbers. But the only thing that I said is first quarter we have abnormally low service revenues because of a number of factors, including (inaudible), and those had a direct impact on the EBITDA. They were (inaudible) and that's something that disappeared in second quarter.

From here now on I think -- the only thing that is important to be very clear about is we -- as Daniel said, we have launched the iPhone. Increasingly we will have more smart phones in our menu or our offers, of handsets. Increasingly, moving from the not smart handsets to smart handsets will represent a greater subsidy and that makes (inaudible) impact on margins initially, which we expect that we will more than make up for with our increased ARPU down the road, no?

So, I think the only thing -- again, I wouldn't want to get into anything predicting the EBITDA margin on a quarterly basis. We don't -- we have never provided that, but I think (inaudible) are very good. And the only thing that I would make to adjust is that we will have the mix of phones that we sell is going to change and that will entail somewhat greater subsidies on the (inaudible).

Hello?

Yes. On CapEx?

Oh, the question on CapEx was the new guidance? The-- (multiple speakers).

--MXN 4 billion and we're going to stay there. We're not gong to spend more than MXN 4 billion.

Just one more thing, if I may, on Columbia.

Yes.

With the 50% (inaudible) cut that happened in December, the ARPU went down in the first quarter, couple with the seasonality. I would have expected the ARPU to increase more than the 2% Q-on-Q increase that we saw in the second quarter. I know often that rates prevent this small amount of portable traffic for AMX in Columbia. But just as a sense for the dynamics, whether you see the ARPU outlook for Columbia, given what I said.

Well, I think that in Columbia one of the things is that in the quarter the growth of the subscriber base was 4.6% (inaudible) huge. And as you know, all of those new subscribers do not immediately generate traffic that we want from them, but they weigh on the ARPU numbers, no? So, we went up 2% in ARPU in the quarter, even in spite of the fact that we ended up adding 4.6% more subscribers. Okay?

So, I think that's basically the thing. I think that Columbia's really in good shape. As I mentioned before, the country is doing very well economically. It's growing nicely. And we are in a very good position in our market. We have nearly 70% market share. And we are introducing new product. We're doing the 3G rollout. So, we are quite comfortable with our (inaudible) Columbia to grow.

Thank you. Andre, I think that's -- we'll go now to final the call because it's been a little over an hour.

Okay. So, we're going to end the call now. We'd like to thank everyone for participating in the call, especially Daniel Hajj and Carlos Garcia-Moreno. Thank you all and have a nice day.

Thank you.

Thank you, everybody.

Thank you for participating in today's conference call. All parties may disconnect at this time.