America Movil SAB de CV (AMX) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Merrill Lynch America Movil Fourth Quarter Earnings Conference Call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Mauricio Fernandes. Please go ahead, sir.

Thank you. Good morning and good afternoon. I am Mauricio Fernandes, Merrill Lynch's Latin America telecom analyst. We are honored to once again host the America Movil Conference Call to discus its fourth quarter 2008 results, which came out last night. With me today, dialing from Mexico City, we have Daniel Hajj, CEO, Carlos Garcia Moreno, CFO, and Daniela Lecuona, Investor Relations Officer.

I would like now to turn the call over to Daniel Hajj for his initial remarks. Daniel?

Good morning, Mauricio. Good morning, everybody. Thank you for being in the call. As always, Carlos Garcia Moreno is going to make a summary of the fourth quarter results.

Thank you, Daniel. Good morning, everyone. Thank you, Mauricio, for hosting the call. The fourth quarter was our best ever in terms of net subscriber additions. We added 10.1 million subscribers, 3 million of them in Brazil, 2 million in both Mexico and Colombia, and approximately 0.5 million each in Argentina, Peru, Ecuador and the Caribbean.

Although we had a very good momentum in terms of subscriber growth, late in the year the effects of the economic downturn became more visible in various countries. At the end of 2008, we had 182.7 million wireless subscribers, 19.1% more than a year before. During the year, we obtained 29.3 million new subscribers, who were our net gains, net subscriber additions for the year, which was 2.3% more than in 2007.

Of those net additions, 6.4 million came from Mexico, 8.5 million came from Brazil, 5.1 million from Colombia and 1.9 million from Argentina. Our operations in Peru and the Caribbean were the ones that exhibited the fastest subscriber growth in 2008, followed by Brazil and Argentina.

Our fourth quarter revenues totaled MXN94.4 billion for an 11.6% annual increase, driven by service revenues, which expanded 14.7%, on the back of strong subscriber and data revenue growth. Data revenues increased more than 2.5 times as fast as service revenues, rising 37% in the period.

Data revenues represent 15% of consolidated service revenues. Their share of service revenues increased rapidly over the last year, as we rolled out 3G services in our various operations. In Brazil, Argentina and Chile, the first countries where we rolled out 3G services, in the fourth quarter of 2007, data revenues expanded by 70%, 41% and 26%, respectively.

Fourth quarter revenues also reflected the impact of the appreciation of the various currencies, the Brazilian real being the only exception, with respect to the Mexican peso. We generated MXN34.9 billion in EBITDA in the quarter. The EBITDA margin, 37%, was slightly lower than in the year-earlier quarter, [partially] still because of the fast pace of subscriber growth.

Gross adds were 14% higher year-on-year. In 2008, our revenues totaled MXN346 billion and our EBITDA MXN138 billion. They were up 13.6% and 11.8%, respectively. The operating profit came in at MXN97 billion, and it was 15.2% higher than a year before.

Financing costs rose to MXN7.2 billion on account of increasing our net debt position, which rose almost 40% year-on-year, the jump in short term in Mexico and the foreign exchange losses mostly associated with the impact of the depreciation of the Mexican peso vis-a-vis the US dollar on our unhedged dollar debt.

In September, our unhedged dollar debt stood at $1.9 billion, an amount that is half that of our dollar-based revenues, that is the revenue that we obtain in the US, Puerto Rico and [Salvador and Ecuador], which totaled $3.7 billion last year. Our dollar-based obligations can therefore be easily serviced out of the net payments received from our dollar-based operations. Their EBITDA amounts to $1.3 billion. That is to say, we have 1.5 times debt to EBITDA ratio in terms of dollar flows and dollar obligations.

Therefore, irrespective of the accounting treatment, there is no economic loss for the company holding such liabilities as there would have been if the debt was to be serviced out of revenues denominated in the currency that was devalued. In the current and deferred tax line, we have included MXN2.5 billion of tax paid in Mexico resulting from distributions made to shareholders in the fourth quarter.

These taxes may be credited against future income taxes in Mexico. On the other hand, in accordance to accounting standards, we booked a deferred tax credit in the amount of MXN4.4 billion in recognition of benefits associated with carry-forward tax losses in Brazil. The latter one is a non-cash credit to our results.

We obtained a net profit of MXN16.3 billion in the quarter and MXN60.1 billion in the year. The quarter's profit was equivalent to MXN0.49 per share and it was up 19.8% year-on-year, or $0.74 per ADR. Capital expenditures totaled MXN68.2 billion in 2008, including MXN13.9 billion invested in the acquisition of spectrum, licenses and concession. The investment in infrastructure was higher than we had budgeted initially, since we decided to bring forth to 2008 some of the capital expenditures initially considered for 2009.

We have thus finished the year very well positioned in terms of voice and data capacity in all our markets, which we believe will give us a competitive edge. The investments made in 2008 allowed us to develop an integrated 3G platform all over Latin America. The benefits of this move are already evident in the growth of our data revenues and our greater capacity to compete in voice.

Our distributions to shareholders reached MXN51.9 billion. Taken together with our capital expenditures, they represented an aggregate outlay in the amount of MXN120 billion, most of which was funded from our cash flow from operations, since our net borrowings totaled only MXN21 billion.

Our net debt increased to MXN122 billion in 2008, from MXN93 billion a year before, and represented 0.88 times our 12-month EBITDA. Part of the increase is explained by the depreciation of the peso and only partially reflects the benefits of the foreign exchange hedges in place. The increase in net debt that was attributable to our operations in the year was of MXN11.4 billion only.

Our liquidity position is strong. Today, our short-term debt may be fully paid with the cash at hand, but we also secured recently new credit lines in the amount of $1.8 billion; it will help us cover the purchases of imported network equipment, thereby freeing our cash flow from operations for other uses. Only 5% of our debt matures in 2010, a small fraction of our expected cash flow that year, whereas fully one-third of our debt matures beyond 2015. As can be seen, we do not need to access the financial markets or call on our cash flow to ensure the punctual payment of our debt obligations.

We are entering this period of widespread economic downturn from a position of strength. No financial concerns on the one hand, and on the other a brand new technological platform already in place in our various operations that we believe it should prove strategically advantageous. We likely will emerge stronger from this downturn than we were when we entered it.

Over the next several months, we shall seek out growth that proves profitable and shall strengthen our efforts at improving our cost efficiency. We shall look after our EBITDA, and our efforts will be helped by the fact that for the majority of the population in Latin America, their wireless service has become a virtual necessity. I believe we will find that wireless is indeed a very defensive sector to be in in times of recession and a most attractive one to be in in times of economic growth.

Thank you, Mauricio, and I will turn it back to you for the question-and-answer.

Okay, we'll now turn it over to the operator for the lineup for the questions.

Thank you, sir. (Operator Instructions).

We'll take our first question from Vera Rossi with Morgan Stanley.

Thank you. My first question is about the accounts receivables. Have you seen any change in your accounts receivable, so customers are paying later or after the due date, after we see the slowdown in the macroeconomic environment? And the second question is on the 3G network coverage that you had anticipated the CapEx from '09 to the second half of '08? What is -- how do you compare today in terms of covered POPs, your 3G network coverage with the 2G that you had previously?

Where -- in that -- good morning, Vera. On the accounts receivables, remember that we have a lot of our subscribers are in prepaid, so the postpaid subscribers, we haven't seen any change. Still, we haven't seen any change or any delay on them, and on the prepaid subscribers, we are -- it's prepaid, so we receive the money. There's no credit there. So, still, what we have been very careful is with our distributors and all of the people who are buying us the cards and everybody, all the distribution. And still, we are not seeing any change on that.

On the 3G network, as you said, we have been -- as Carlos said, also, we have been advancing part of our 2009 CapEx, and what we do is we put around 60% of all the cities in Latin America has already 3G as the -- and I think that you have seen that all the data revenues has been growing and mostly is because of the coverage and all the new services that we have been giving in 3G, so that's mainly what we have.

I think in 2009, what we're going to do is our CapEx is going to be mainly putting in capacity, depending a lot on what are going to be the growth on the most and the growth on the traffic. And also, we're going to do a little bit more on quality, as all the cities grow in Latin America, so we need to have better coverage and better quality in all the growth and all the new cities, all the new -- all the growth of the cities that we have. And that's mainly what we're going to do, is stay a lot on prepaid, but that's mainly what we're going to do.

Our budget for 2009 on CapEx is around $3 billion, and we're going to review it every quarter, so if we don't need that quantity, then we're going to reduce it. We need, and the traffic is growing, then we're going to do that. So, that's mainly what we have for the year.

Okay, thank you very much, Daniel, for the very detailed explanation.

Thank you.

We'll take our next question from Andrew Campbell with Credit Suisse.

Yes, hi, my question is about handset costs and with the depreciation in the local currencies that you saw in the fourth quarter, I was wondering if some of the margin declines that we saw sequentially were caused by this increase in handset prices, or do you believe that most of the margin weakness was more related to just the very strong subscriber growth in the quarter?

I think it depends a lot in each country. I think you could see that not all the countries depreciate the same. In some of them, we have 35% depreciations, in other ones, 10%, so it's very different in all the countries. And I think the reduce on the margin is mainly because of the strong subscriber growth that we have, but in some countries we can have a little hit on that because, at the end of the day, all the handsets are -- we purchase the handsets in dollars and then we sell it in local currency and then, we can have a little bit of delay on moving the prices.

And that's not only the delay. The problem is that one day, the currency is at 13 and the other day is at 13.50 and the other one is at 13.20, so it's not that you have that depreciation and then stays there, so it's very volatile, that, and maybe we can have a little bit on hit on the margins on that. But the reduce on the margins, it's mainly because of the strong subscriber growth.

Okay, I understand, Daniel. So you -- in terms of the prices that you're getting from the equipment suppliers, have they been absorbing some of the currency depreciation for the most part, or is it more or less a direct pass through of the depreciation?

I think that in the fourth quarter, the suppliers -- we already launched some promotions and they help us with some of that promotions, but they cannot take all the depreciation, and sometimes it's 30% depreciation. So, they are selling us in dollars. Maybe they are giving better prices in dollars, but they are not taking that exchange rate, so we have to pass that to the end user. But, as I told you, in each country, it's different, no. In some countries, it's not so -- the depreciation is not so big, so in each country it's going to affect different.

Okay, thank you very much.

Thank you.

We'll take our next question from [Rafael Burba] with Armada Capital.

Good morning. I have just one question. Regarding your policy that you've had about paying excess cash on dividends, do you think this changes for this year because of the credit markets being tighter, or you still intend to keeping a less conservative net debt to EBITDA ratio?

I think that what we have said repeatedly, that we want to remain not too far away from the one time net debt to EBITDA ratio. We have obviously plenty of cash to give back to shareholders this year, as I was mentioning. Remember that the CapEx in dollar terms is probably going to be approximately half of what it was last year.

So, that alone means an additional $3 billion of money that will be available to being distributed, and where this is sort of like our base case, we always are responsive to what we think are good opportunities in the marketplace, so we do not have an absolute limitation in terms of how much we can -- if we can at a given moment expand somewhat more our leverage overall.

But I think a bit prudent in this time to remain conservative financially. That's what we have done always and that has helped us a lot, and I think that in this environment, the financial strength that America Movil has is definitely putting -- giving us at least -- we sleep better and I think that we are stronger than surely our competitors.

Okay, thank you.

We'll take our next question from Walter Piecyk with Pali Capital.

Thanks. Hey, Carlos, just wanted to follow-up on that. So, if you're remaining conservative, I assume that means 0.8 is less than the kind of 1.0 you had been talking about before, so you wouldn't really take it over 1.0?

I never said that we would not take it over 1.0. I think that we have said that this has been our policy generally, but the policy can be revised, depending on what kind of market conditions you are taking. It's not like we have an absolute constraint that would impede us from taking advantage of certain opportunities. We think that that is sensible. So, I think that we basically do have the dry powder, if you will. I think that we have access to markets. We have access to funding and we have put it to good use, even when we have an opportunity arise in the warranty.

I agree, but it's just your answer is a little confusing, because you can definitely take leverage up to two, but if you're being more conservative, that's not really being more conservative. I know what you can do. I'm more interested in what the plans are.

I think what I'm saying is that it depends on what kind of circumstances we're facing. We have been very conservative up until now, and at some point, if the opportunity out there warrants it, we will always be able to revise our policy. That's what I have said.

So, what is a situation that warrants it?

Well, possibly, very low stock prices, for instance.

So, at 28 on the ADR, that doesn't necessarily warrant it right now?

I think at 28, we have been consistent with the policy that we have been having so far.

Okay, but it looks like the share repurchase has declined from the third quarter, so it looks like your repurchase activity has slowed since then and the stock price is a lot lower. Wouldn't it make more sense for the share repurchase to actually increase, not decrease, as far as the dollar amount that's being spent?

Well, I think that we spent something like $800 million or $900 million in the last quarter.

Which was down from $1.8 billion in Q3, and you've spent only about $200 million in January.

Okay, well, I don't know. I mean, It's not that we have a set amount that we have to spend month in or month out. It's something that we do depending on how we see the overall circumstances in the market.

Okay.

There were developments in the last quarter that were different from the ones that we had in the third quarter and that generally made most people become a bit more cautious, until they had a bit more visibility. That's what we have done, and I think that we now have a better understanding of what's the tone of the financial markets. I think that we are comfortable with our financial position and I think that we will be playing things as we see them going forward.

Got it, and just two operational questions. Can you just give us an update on what the minutes of use trends are like in Mexico? I mean, I saw obviously MOUs slowed down again in the fourth quarter. Is -- what's the trend so far in the first quarter?

I think that it's early in the first quarter and we're talking about the last quarter last year, that's what this conference is supposed to be about. I think that you have to keep in mind that MOUs in Mexico, at 172, are now the highest in the region. They are higher than in Spain. They are higher than in Germany. They are higher than in Italy, and well, I think that they have grown a lot.

And with the exchange rate, the revenue per minute has been going down a lot, so the trend in Mexico is that we have been declining and declining and declining prices for the last four, three years a lot, and that's why the MOU is growing today with the exchange rate that we have today. The prices are become really, really aggressive and that's why the MOU is only growing 4%, no.

So, does that mean you're expecting more growth of the MOU in Q1?

Well, we don't have the numbers in Q1 still, but we have -- going to still be aggressive and not in Q1, all the year, we're going to be aggressive, but it has to -- you have to review what are the prices in Mexico and what was the growth on the MOU. Today, 172, I don't think in Latin America, no country has 172 minutes of use.

Well, I think Dominican Republican and Puerto Rico, no?

No, Puerto Rico it's --

[250]?

-- [parented]. It's more postpaid and it's like US, and I don't think in Dominican Republic we have 172. I have to check, but I don't think we have 172.

The other thing that's been slowing down is your EBITDA growth. I'm curious if you think you can grow EBITDA by more than 10% this year, because I think you got pretty close to -- in terms of the Mexican peso, you were only I think at the end of the year at 10% or 11%, so can you maintain double-digit EBITDA growth in 2009?

The other question that you told me, in Dominican Republic, we have 88 minutes of use, not the 172, okay? And the EBITDA is going to depend a lot on the growth that we're going to have on the subscribers, no, depending what's going to be our subscribers. We're being very aggressive on the control of the costs and depending a lot on what's going to be the subscribers is what we're going to have on the EBITDA.

But if you added the same number of customers, or let's say your net additions were down 30% in 2009, do you think you can grow EBITDA over 10%?

Excuse me, I think that we can move on to other questions.

Great, thanks, Carlos.

We'll take our next question from Martin Lara with Vector.

(inaudible - technical difficulty) -- for the whole company, and margins in Mexico and Brazil. And also --

Martin, we don't hear you.

Martin, can you repeat the question, please?

The drivers for the year in terms of net additions for the whole company and margins in Mexico and Brazil?

Well, the budget that we have for America Movil for 2009 is around 19 million subscribers, is what we have for this year. It's our budget, and in terms of margins, we are not giving guidance on margins, so that's -- what we always giving is CapEx that it's $3 billion and subscribers that it's 19 billion subscribers for the year.

Okay, thank you very much.

Thank you.

We'll take our next question from James Rivett with Citi.

Yes, I've just got a couple of questions, if that's possible. The first is how long can we expect this sort of strategy of growth over margins to continue? How much growth do you think is left within these markets before you get down to the unprofitable customers? And my second question is on Mexican ARPU. I know we've discussed this a little bit already, but do we ever see a day where we're back at the above MXN180 level, and if so, when? Or are we just having to live now with the fact that you're going to see lower ARPUs going forward?

Your first question was?

Well, as you know, James, the profitability of the marginal clients is very much driven by what is the acquisition costs, so --

We don't have that as the customers. Depending on how much you are spend per customer is if it's going to be profitable or not profitable, the customer.

So even if you have lower ARPU clients, they can be as profitable as higher-ARPU clients, if the investment that you make on them by way of acquisition costs is less. So, I think that there is still good potential for us to keep on growing our subscriber base in a profitable way, and that's something that we have a long track record of doing. So we do intend, as I mentioned in my report, we do intend to keep on going after profitable growth.

Now, on the second --

Now, third, in Argentina, we already have around 110% penetration and we have been growing our EBITDA and I think in Mexico, in Brazil, and in all the other countries we can reach that penetration, being -- having profitable subscribers, no? The other question --?

The other question has to do with ARPUs, and in several presentations that I've been to, and that one of them you attended, I have mentioned that ARPUs are going to be sensitive to the change in economic growth, no, because the ARPUs basically are a reflection of the overall consumption, no, patterns of the population.

So, I -- we think that a number are going to be talking about specific countries, in different countries, depending on what kind of economic slowdown they have, that will have an impact on ARPUs, so that's very much what I can say. I think it's probably going to be more marked in ARPUs than in subscriber growth overall, but ARPUs I think are fairly income elastic, so if income is coming down, ARPUs will suffer. If economic growth resumes, that will also be shown very quickly in ARPUs.

Okay, perfect. But -- sorry, just one follow-up, if it's possible. In terms of your -- I know you don't want to give guidance for 2009, but when you think about the long-term guidance that you set in May 2008, especially around the EBITDA growth, do you still feel comfortable with those numbers, or do you think that now that -- maybe it's looking a little bit aggressive, given the economic backdrop?

What we had in May were full-year numbers, and we have only seen a change of seven or eight months. I think that we have to look at our -- at this focus -- I do not know. Maybe you know of some economic projections that are already quite confident about the full-year outlook, but if you know about them, maybe help us. It will help us fine-tune our expectations.

But we need to review. I think things have been changed a lot since May to today, so I think it's important to review it again.

Perfect, thank you very much.

Thank you.

We'll take our next question from Rizwan Ali with Deutsche Bank.

Yes, it's Rizwan Ali. Good morning. My question is regarding Brazil, and especially the margins. We are getting directions from the other of your competitors, especially Vivo and TIM Brazil that they expect to have margins in the high 20s in Brazil in the fourth quarter, and obviously you're a bit more aggressive than your competitors in the market, but don't you think -- I'm just trying to figure out why there's such a big discrepancy between your margins and some of the margins of your competitors.

We have something we call core EBITDA, Rizwan, and the core EBITDA is what would be your margins without taking all your acquisition costs, all your growth. And when you saw that in Brazil, we are in track. We are higher than what we have and mainly the reduction of our EBITDA in Brazil is due to the strong growth that we are having.

So, we are comfortable on that. We are still reviewing all our costs and control everything and that's one thing. In the other hand, remember that a postpaid subscriber costs you a little bit more than a prepaid subscriber, and we have been growing a lot on the postpaid subscribers.

Our postpaid subscriber base has been increasing a lot, and I think that's mainly why we have that reduction on the margins, but depending what's going to -- what we're going to have on 2009 is what we're going to have on the margins. I am comfortable, because my core EBITDA is growing quarter-by-quarter in Brazil.

The second question is, if I may, 19 million new subs this year is still quite a bit of a reduction from last year's sub growth. That should really mean that you can improve your consolidated EBITDA margin by at least 200, 300 basis points, given the lower growth. Is that fair to assume?

You know that things are really difficult to forecast today, but 19 million customers, it's -- your question, I can say yes, but it's going to depend a lot on what's going to be the reductions on the ARPUs, also, because the people is going to reduce their consumption. So, that's what it's all about, no, the growth, costs and revenues. And, well, if we can maintain the ARPUs, I think your questions will be yes. If the ARPUs are going to be a little bit down, then, well, that's going to hit us on the revenues, and that's mainly what we're going to see, month by month and in country by country.

The other thing that it's very difficult to forecast is that each country is going to hit different, the economic slowdown. So, I cannot say that Brazil by an example is going to be exactly like Mexico, no, or that Mexico is going to be like Dominican Republic, so it's very difficult to forecast, everything, Rizwan.

Okay. Thank you very much.

We'll take our next question from James Ratzer with New Street Research.

Yes, thanks for that. Two questions, please. The first question is regarding your competitive strategy in Mexico. It looks as if the rate at which you're cutting prices in Mexico has been reduced and that seems to have then also had a knock-on impact on your minutes of use, presumably because of elasticity and partly due to the economy.

I mean, do you think to kind of retrigger minutes growth you're going to need to start cutting prices again in Mexico and maybe that can reaccelerate revenue growth? And then, the second question I have, please, is just regarding your overall rate of service revenue growth in Mexico, which was 6% in Q4. Based on your comments about the economy impacting ARPU, I mean, would it be fair to say that Mexican revenue growth next year could be somewhere between 0% and 3%? Thank you.

Again, what we said is in Mexico we have been aggressive, and we're going to maintain aggressive. It's just we have been reducing a lot the prices in Mexico, and with the exchange rate, the reduction in prices are 30% or 35% less than what we had last two or three months, okay. The peso used to be at 11. Today, it's at 14, so when you do that, the reduction on prices is 30%.

We have to buy a lot of our supplies are in dollars, so, well, it's reasonable to see what are the prices in dollars, not in pesos, and I think this year the reduction in dollar terms of the revenue service is a lot. Today, we are at [$0.057], the price in Mexico, so I think it's really aggressive, the prices that we have been here in Mexico. So, I can tell you that it's the other side. We are not increasing prices. We are still decreasing prices, but with this type of prices, well, Mexico has been really competitive in terms of price per minute, okay.

And the second question, we are going to maintain our aggressiveness in Mexico. We're growing. You can see that we're growing postpaid a lot more than what we grow third quarter, and that's the trend. We are not making any big changes in Mexico and in other countries, no. And what was your second question, sorry?

My second question was how the economic growth forecasts of, say, 2009 in Mexico might affect revenue growth. You mentioned that you thought ARPUs were fairly income elastic. Does that mean we're going to see revenue growth in Mexico slow down towards, say, below 3% next year? Or do you think that's too negative?

You said, what, that ARPU would be --

Well, I was wondering what the revenue growth, say, for next year in Mexico could drop down towards 3% or below. I mean, you've just done 6% service revenue growth in Q4 and presumably the economic outlook in 2009 is going to be worse than we've seen in the fourth quarter 2008.

I think we will not provide guidance on revenue growth, but what we have said, basically, is we will continue to see subscriber growth, but on the other hand, we will see low ARPUs, and that's about as much as we can say regarding the outlook for the year.

Okay, thank you.

Thank you.

We'll take our next question from John Henderson with Scotia Capital.

Thanks very much. Just a couple of questions. On COA in Brazil, you mentioned that it's down just slightly, despite the increased focus on postpaid. I wonder if you could comment about COA in other markets, just directionally. Is it moving higher because of 3G handset costs or increased subsidies or FX?

I think if you look at the markets, we actually have -- the cost of acquisition per gross add has remained roughly flat. What has changed, particularly in Brazil, was that we had that many more gross adds, because we ended up adding 3 million net, no. 3 million net means more than 3 million gross adds.

So, basically, on the one hand we have been growing more in postpaid, which doesn't pay as high a subsidy. On the other hand, we have reduced subsidies on the prepaid side, so in the aggregate in Brazil, the subscriber acquisition cost per gross add remains flat year-on-year and all of the increase in total acquisition costs were due to the fact that we had more gross adds. We had 3 million net adds in all.

And the share of the growth in Brazil is more on postpaid than in prepaid against our other countries. It's also important to tell you. The share of net adds in Brazil in postpaid is a very good share, so that's also why Brazil is that, with the big growth that we had, plus the share that we had postpaid.

Year-on-year, the acquisition cost per gross add in Brazil is -- was down 2%.

Down 2%? And in Colombia and Mexico is roughly flat?

Yes, roughly flat.

Then, on equipment revenue, I noticed a pretty sharp drop in equipment revenue.

In Colombia, it was down 11%.

Okay.

In Mexico, it was roughly flat.

And what was your other question?

Just on equipment revenue, that has dropped off, tailed off quite a bit, and wondering is that -- I guess it's not because subsidies are higher. Is it because costs are lower, or SIM only sales, or what's driving that?

We have not changed a lot of percentage about SIM and handset sales. It has been more or less at the same percentage that we used to have in all the countries. We are not more focusing in SIMs, and I think people is also buying cheaper things, no. One of the things that we saw last quarter with the crisis, with the slowdown, is that people, instead of buying a $200 handset, they are buying a $100 handset, or a $120 handset. So, it's more or less what you are going to see, that people is going to reduce the purchase price of the handsets.

Okay, that's fair enough. And finally, sort of a philosophical question. In Mexico, I wonder to what extent your view toward sort of price reductions, aggressive pricing, is influenced by Coveco, and to what degree -- I mean, you can either decide to take a less aggressive stance and allow a lower market share position but higher ARPU and maybe higher profitability, or you can be aggressive on prices. You have been, and show that prices are as competitive as the most competitive prices in Latin America, for instance.

Well, what I can tell you is there's a huge competition in Mexico. There's competition with Iusacell, Telefonica, Nextel and us. There's big competition, and I don't know exactly what does Coveco wants, if they are trying to look for the customers and that everybody will reduce price, or if they are trying to look for the other companies, okay.

So, I think Coveco -- and my understanding is Coveco wants to also look for the end customers that they have -- that we don't do, like the bad practices, let's say. It's the dominant practices, and we are not doing anything on that. And that the other one, that the prices and that all the things that are in wireless are prices are good, ARPUs are good, MOUs are high.

So, I think that's also what Coveco is looking, okay. It's not only looking to help my competition. It's looking to help the consumers and reducing prices is what you do and it's what benefits the consumer. So, what we are going to see is we are going to look to benefit our customers and our customers are going to be benefited if we reduce the prices, and that's what we're doing, no?

And what I told you, prices today are really, really competitive. It's [$0.057] per minute is really competitive. You can check what are the prices of the OCD countries or the European countries or other countries in Asia. Well, you are going to see that prices in Mexico and all Latin America are really competitive.

Absolutely, I've done the study. It's very competitive, and I just wonder how long that aggressive stance -- how long do you think that lasts? For how many years?

I think that we're not going to increase prices, no. I don't think that we are looking to increase prices. So, these competitive prices are going to maintain for a long time.

Thanks very much.

And, Carlos, why don't you --

And generally, you see a declining trend in prices that is supported by technology and by penetration. So, I think that's the general trend in the industry.

Yes.

We'll take our next question from [Stanley Martinez] with Legal and General Investments.

Thanks. Good morning, Daniel, Carlos and Daniela. All my operating questions have been asked and answered so far, so let me just ask a couple of brief ones on cash taxes and the credit facility. The MXN4.4 billion Brazilian tax credit in the quarter, how is that going to impact cash taxes, and the effective tax rate on the income statement going forward, should we expect those to converge in the balance of 2009, maybe some thoughts on what you think your cash taxes will be in '09 would be helpful.

And second on the --

Why don't you do one by one so we don't forget the questions?

Okay.

Okay, well -- yes, I think the recognition of these tax credits in Brazil has to do with the fact that there will be some tax losses that we expect will be able -- that we will be able to cancel them against taxes in the future, no? So, yes, there will be some cash savings on taxes to be paid, not only what would have been paid in Brazil, and that's what is being recognized with the [fair] tax rate.

And as regards the overall cash taxes paid, well, you really have two parts, Stanley. One is the regular operations will be close to the average of the statutory rate. It will be somewhat less, so I would say that cash taxes will be probably in the neighborhood of something like 26% or so of taxable income, the consolidated America Movil, but more or less it's a little bit less than the weighted average of the statutory rates.

But then just another component, which is the taxes that would be paid in Mexico to the extent that the distributions to shareholders go beyond the retained earnings that the company has, as were detailed last year. And if that happens, then we have to pay the taxes on those distributions, but those taxes may be paid, or may be credited against taxes to be paid the following year.

So, net-net, that would not be a cost to us, although it would appear in the books as an additional tax cost. And I know that Walter is basically listening, so we think that this year the distributions to shareholders will still go beyond the retained earnings of the Company, and that's why I'm making this comment.

Okay, that's helpful, and that kind of leads into my next question on the credit facility. You mentioned in the release the $1.8 billion facility from the EDC or some such like supernational credit agency. Would you expect to use it in 2009 to fund the CapEx, even though your CapEx is coming down year over year? And, importantly, and to that point, about the share buybacks being greater than retained earnings, does it free up some more resources, either for that or maybe for a higher-level recurring dividend, especially in the absence of the one-time dividend in the fourth quarter this past year?

No, you're absolutely right. Not only is the CapEx coming down, but these financing facilities that are put in place are basically going to be drawn this year, because they will be helping us pay for the import of network equipment from the countries whose credit agencies gave us the lines. So, yes, there will be an additional amount to be distributed, in excess of what would be simply the regular free cash flow of the company, no.

Now, that was the last question?

Yes, if I -- just two brief follow-ups. Is the pricing of the EDC facility significantly cheaper than your normal marginal financing grade, either in Mexican peso or in the term market, and I presume it's an unsecured facility.

I think it's a -- I don't want to go into the details, but I can just say that it's much, much lower than what you could get market funding for these days in any currency.

That's outstanding. Thanks.

Thank you.

And, Ola, we will have time for probably a couple more questions, only.

Thank you. We will go ahead and take our next question from Henry Cobbe with Nevsky.

Hi, there. Thanks very much for the call. Just on the Brazilian tax loss carry forwards, are there any more of those to come through, or is this an NPV-type number that you've booked just this one time? Secondly, on CapEx, how much of that is denominated in dollars, would you argue? You're saying it's basically capacity, so presumably this is all just network equipment. And lastly, are there any licenses coming up this year that you will be looking to buy? And, very lastly, how do you view the potential rollout of WCDMA by Nextel in Mexico as threatening your postpaid market?

Well, I'm going to start with the last one, because I forget the first one. So, I will -- in the last one, it's the license. I think there is going to be auctions in Mexico and I don't think there's going to be any more auctions in the rest of Latin America. So, that's more or less -- in Mexico, the way to do it is you have to pay per year, so I don't think it's going to be a big amount of money in front, and then there's going to be like a fee in the next year. So, I think the licenses in Mexico are including on the CapEx number that I told you.

The next one, what'd you say about WCDMA?

Nextel may be getting one of these new licenses that have come out from Mexico, which will enable them to roll out WCDMA, and I'm just wondering how much of a threat do you see that to your postpaid business?

Well, any competition is threat to always, no, but I am feeling comfortable. I think my subscribers -- one thing that I have to tell you in Mexico, by an example, number portability, all the things that we read was that we're going to lose customers,. and in the first six months, from July to December, we gained customers, in prepaid and in postpaid.

So, that means that we have a very good network, very good quality. Our customers are happy with us, even that we have the biggest base of subscribers we gained. So, I am feeling comfortable the way my customers feels about Telcel. So, of course, if Nextel do that, well, there's going to be a [threat] for the market, but I hope that Telcel will compete against that, no.

On the tax credit in Brazil, no, we are not going to be having another one this year, but is conceivable that later in the future, some more tax credits could arise, similar to this one.

And on CapEx?

What was the question on CapEx?

The percentage of CapEx that's dollar linked?

It's $3 billion, so less than 10%. 10%

It's probably about [there].

Sorry?

What you say, CapEx against revenues?

No, what percentage of CapEx is denominated in dollars? All of it?

No, no, no, half. Maybe half, a little bit more than half. All the electronics are in dollars, all the civil works are in local currencies. All the software is in dollars. Maybe 60% in dollars, 40% in pesos, or 50-50.

Okay, and very lastly, what is your kind of marginal cost of debt in the markets at the moment?

Today, it's about 7%.

Okay, thank you very much indeed.

Thank you. Local currencies.

We'll take our next question from Rick Prentiss with Raymond James.

Yes, good morning. Thank you, guys. I want to switch -- you talked several times on cost controls. The cost of service line items spiked up a little bit in the fourth quarter from what had been MXN16 billion to MXN17 billion, up to about MXN20 billion. First, just what caused the spike? Was it 3G network rollout? And as we look into '09, is that the kind of run rate we should expect from cost of service?

Well, you have an extra cost when you roll out a 3G network, and then you don't use it, as the capacity is there and you don't use it. And I think in 2009, capacity in 3G, we're going to start to use - you're seeing that we are having a lot more revenue from data, and I think that that's going to help us a lot. In 2009, we're going to use a lot more our 3G network.

Okay, and then you mentioned no other auctions in Latin America, except for Mexico. I thought there was one coming up in Brazil, as well, but it might be just a spectrum that you wouldn't be eligible for, possibly. Is that your thoughts?

Maybe yes, yes.

And my final question --

Yes, but -- here, a lot of the spectrum --

-- in the Central American markets, you saw what looks like some pretty stiffening competition there. I was wondering if you could just talk a little bit about the competition, competitive environment in the Central American markets?

Well, in Central America, we have big competition. In Central America, we are fixing a lot of things there. I think you are going to see a much better company in Central America. We need to invest a little bit more on distribution. We need to maintain our costs, so there's things that we have been doing for the last five, four months, six months, and I think we're going to have a good return on that in 2009.

Great. And one more quick one, since you answered those all so quick. In Caribbean, the ARPU dropped pretty significantly, down to $14. Was that just a rounding issue or is price competition accelerating in the Caribbean?

I don't have that, but if you call Daniela, we can tell you, because I don't have that number here, so I'm sorry, I cannot answer you that.

Perfect. I'll get back with Daniela. Thank you.

Thank you very much.

All right, before we wrap up, Daniel and Carlos, just want to ask one question. The blended ARPU fell by only 3% in Mexico, despite the weak economy. Can you give us a sense about the Q-on-Q growth better for prepaid and postpaid, how it was versus blended? And also, I think you've referred to that during the call, but just as a wrap-up message, what's your expectation for 2009, given what you have seen happen so far in the fourth quarter?

Well, the year-on-year, quarter-on-quarter, we have this MOU -- let me see, ARPUs. Year-on-year, we have a reduction in both of around 6% in both, in prepaid and in postpaid, that it's going to give us around 6%. And in quarter, third quarter against fourth quarter, it's a little bit more on prepaid, but it's not too much -- it's more or less the same. We're seeing exactly the same trend. It's the economic slowdown is what has happened.

All right, so, again, on behalf of Merrill Lynch, I'd like to thank Daniel, Carlos and Daniela for the call and thank everyone for joining us today.

Thank you. Thank you very much. Thank you, Mauricio.

Once again, ladies and gentlemen, that does conclude today's conference. We thank you for your participation.