America Movil SAB de CV (AMX) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your America Movil Third Quarter 2009 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call may be recorded.

I would now like to hand the conference over to Mr. Tomas Lejeu. Sir, you may begin.

Good morning, everyone. This is Tomas Lejeu from UBS. Thank you all for joining us today at America Movil's conference call for the third quarter of 2009. I am pleased to introduce Daniel Hajj, CEO of America Movil, Carlos Garcia-Moreno, CFO, and Daniela Lecuona, Head of IR.

I will turn the call over to Daniel and Carlos for their initial remarks, and then we can move on to the Q&A session. Daniel?

Yes. Thank you, Tomas. Thank you, everybody, for joining us in the call. Carlos is going to make a summary of the results of this quarter.

Hello. Good morning, everyone. Thank you, Tomas, for hosting the call. Although there are signs of an incipient economic recovery in several countries, particularly in South America, subscriber growth has remained subdued throughout the region. Net additions were lower than the previous quarter and substantially below those of a year before. There were two major exceptions, TracFone in the US and Claro in Brazil.

TracFone added 712,000 subscribers in the quarter, which was flat with respect to the previous quarter, but doubling those of the year-earlier quarter, while in Brazil we obtained 1.8 million subs, twice as many as the previous quarter, although still below the same period of 2008. Altogether, we added 4 million subs in he quarter, 11.6 million year to date, which brought to 194.3 million our wireless subscriber base.

We have been increasingly successful in attracting clients that are more sensitive to the overall quality of service and that appreciate the breadth of our networks and our more modern technological standards. All major operations, plus some more have been growing more rapidly the postpaid base than the prepaid one. The increased importance of postpaid subscribers in our base and the significant expansion of data revenues made possible by our investments in 3G networks over the last couple of years were the main drivers of revenue expansion in a weak economic environment.

Our quarterly revenues, MXN100 billion, were up 16.9% over the prior year, with service revenues increasing 19.5%. The depreciation of the Mexican peso versus the US dollar and other Latin currencies, particularly the real and the Colombian peso explain part of the increasing service revenues. The quarter's EBITDA was up by 15.9% from a year ago to MXN40.4 billion, with the margin remaining roughly flat from a year ago at 40.5%. Operating profits in turn totaled MXN27.7 billion in the quarter, bringing the total for September to MXN82.6 billion.

Our net financing costs were down 82.5% year on year to MXN653 million. Year to date, they were down 80.3% in annual terms as a result of foreign exchange gains, lower interest rates and a reduced level of net debt. We obtained a net profit of MXN18.7 billion, which exceeded by 50.6% the previous years.

Our earnings per share rose 57.3% in the period. Our net debt came down by MXN32.6 billion in the nine months to September, while our capital expenditures reached MXN25.5 billion. Distributions to shareholders via buybacks and dividends totaled MXN27.5 billion. At the end of the quarter, our net debt to EBITDA came down to 0.58 times.

Tomas, I think this would be the summary and we could open up the floor for Q&A.

(Operator Instructions).

Our first question comes from Vera Rossi from Morgan Stanley.

Thank you. My question is about Brazil. I want to understand what it takes for the margins in Brazil to improve and what is still pressuring the margins at this point? Thank you.

Good morning, Vera. Well, if you saw Brazil this quarter, we doubled the net adds against last quarter, even the margin reduced a little bit. But if you see all overall the amount of EBITDA is more or less the same that we have last quarter. In Brazil, we still think that we have growth. The economy is not so bad, so in Brazil we're still focusing on the growth and we are also growing a lot on the postpaid. So, those are the main things that we are doing in Brazil. We still think that for the next year or two Brazil is going to have very good growth, so we are still focusing in the growth in Brazil.

And what would the level of normalized margins? So when this growth phase is behind us, where do you think margins in Brazil can go?

I think mid 30s would be margins in Brazil, Vera. Brazil is a country where you have a little bit more cost than other countries, so I think mid 30s would be a good margin for Brazil.

Okay, thank you.

Thank you, Vera.

And sorry, this is Tomas here. I got cut off momentarily. If I can ask a question myself?

Yes.

I'll start actually with two semi-specific questions that will hopefully allow you to shed some light on strategy going forward. The first one is related to the report last night. Things looked solid at the consolidated level, but the margin to net add combo, among others, looked a bit off. Can you help explain the difference a bit more than you have already done? That would be very helpful. Is it postpaid? Is it data links? Is it both, is it data or voice?

And the second question is related. Network expenses are rising and a key theme for America Movil is data network infrastructure. Can you talk to us about infrastructure needs and investment and capital intensity going forward?

Well, the first question is I think it has to be a lot on postpaid, Tomas, as we are growing a lot on postpaid. America Movil is trying to grow on postpaid, take good subscribers. These subscribers on postpaid we think are the subscribers that are going to get data in the future. We're spending more in better handsets, so 25% of our net adds this quarter were postpaid -- are postpaid, so I think it's the highest we have been having since a long time and we're spending a little bit more on better handsets. These better handsets are going to give us more data, more services. So, I think that's the main reason.

In the exchange rates, also, it has a lot to do with this -- in this quarter. It's different in each of the countries, so the weight of the countries in the EBITDA or in the revenues change a lot with that, and that means that the cost also fluctuates a lot because of the exchange rates. But what I can tell you about the investments is that we don't have it. We don't have the final budget for next year, but we don't see any main change in the CapEx for next year, even that we are going to invest a lot on the data -- on the links, as you are saying, on the backhaul, on the backbone, on 3G.

I think we have been doing that for maybe two years, investing in 3G, and we don't see any major change on the investments for the next year, Tomas.

Thank you very much, Daniel.

Our next question comes from Michel Morin from Barclays Capital.

Good morning, Carlos and Daniel. A couple of questions. First, you alluded to depreciation expense being higher than expected or higher in Guatemala in particular because of accelerated depreciation. Is that a one-time event, or should we expect this kind of level of depreciation to continue? And then secondly, if I may, on the topic of mobile termination rates at the Telefonica investor day two weeks ago, they alluded to the likelihood that these rates might come down in Brazil starting in 2011, and I was wondering if that is also your expectation? Thank you.

Well, in the case of Guatemala, I think the depreciation will remain at the current levels through the end of the year, but we don't expect it to continue at that level going forward. And as regards Brazil, well, I think that -- you may recall that a bit more than a year ago, we engaged in an accelerated depreciation of the TDMA assets. So, from time to time, what we'd like to do is make sure that the value in our books of the various assets that we have is really representative of the market value of the assets.

So, from time to time, we engage in assessments of these values, and when needed we proceed to a faster depreciation, okay. That's something that we do on an ongoing basis to ensure that the value of our assets in our books is not far from the market value of those assets.

Right.

And the termination rates in Brazil, I think we are also expecting that they reduce in 2011, but we don't have anything discussed with the government or with anybody still today, so it's very early to know what it's going to be the reduction, but I think it's going to -- we are going to have a reduction on the termination rates.

Great. Thank you very much.

Thank you.

Thank you.

Our next question comes from Gary Powell from Wells Fargo Securities.

Thanks, good morning, everyone. I was wondering if you could quantify just what you think the overall market opportunity is for 3G wireless broadband, just given the relatively low wireline penetration in your country, or in your regions, and do you think that most of your countries can achieve broadband penetration rates similar to that of the US, in the high 60% range?

Well, first of all, I want to clarify it and to tell you that I think America Movil is ahead of everybody, all the wireless operators in the region on the investments, on 3G, on the backbone, on the backhaul. We have been investing a lot. I think that's something that nobody saw that, but at the end of the day is going to help us a lot in the market, as we have been advancing a lot on the infrastructure, we have been also advancing a lot on the growth on the data services.

So, we feel that, of course, we can have the same penetration on data as the US, and we are thinking that the next secular trend of the wireless is going to be data. So, we are very enthusiastic about the data, and we feel that it has a big future in America Movil.

Okay, and then just as a quick follow-up, can you tell us what the most popular rate plan is in Mexico for your netbook offering? And then, I know it's early, but just how should we think about churn and margins on the product?

Well, the -- we have a lot of OpEx in the netbooks only with the PC SIM cards. We have been I think selling for $40 unlimited until 3 gigs or 5 gigs, so I think we have a very good offer today and we have -- we think that it's going to -- the next year also, we have been growing around 58% growth rate of data among all our operations, so the growth has been very good.

Okay, thank you very much.

Thank you.

Our next question comes from Andrew Campbell from Credit Suisse.

Yes, good morning. My question is about the balance sheet. As I recall from previous years, you guys had indicated a loose leverage guideline of around one time net debt to EBITDA. I know that was never a firm rule, but do you believe that over the medium or long term that one-time leverage is still an appropriate target for the Company?

Well, we've always said that we didn't want to be above one time net debt to EBITDA. I think in the recent past we decided to be a bit more conservative, given what we thought was a significant lack of visibility out there and we want to be a bit more cautious. I think that we probably think that one times net debt -- it is not what we would prefer to have today. We would like to be a little bit below that, but we are certainly at a very low leverage today, no. We'd like to be closer to 0.8 or 0.75 than to where we are today.

Sure, I understand. And what do you think is the most likely means by which you would potentially get there? I mean, you had very strong cash generation again in the third quarter, even with the dividend payment that you had, your net debt continues to decline. So, how do you think you might get to a slightly more leveraged ratio?

The same way that we have done it all throughout the last several years, Andy. It's always been through distributions to shareholders, for the most part, no. If you look at the last three years, it's almost exclusively been distribution to shareholders, as we have not been engaged in any major acquisitions. So, I think that we have been consistent in terms of maintaining a capital structure that is efficient and in terms of ensuring that the way of maintaining that capital structure is such that it provides the benefits to the investors.

Okay, thank you, Carlos.

Thank you, Andy.

Our next question comes from Richard Dineen from HSBC.

Thanks very much for taking the question. Actually, a couple of questions, if I may. Just the first one relating to general competition in Brazil. You mentioned the release that voice prices were stable over the period. ARPU has now been flat for three quarters. Do you think that competitive intensity is easing in this market, and secondly whether you think that this will be maintained going forward, or is this just a temporary pause in the fighting, if you like? So firstly, on competition.

Secondly, if I may, just on Mexico, you had quite divergent trends there with strong postpaid adds and a prepaid loss, and just given your focus on postpaid, I wondered if you might speak about the value of postpaid subscribers and how this might affect blended ARPU and MOU as they grow as a portion of the base. Thanks very much indeed, guys.

First, the competition in Brazil, I think. Competition in Brazil, it's still there. It's going to be harder in the future. It depends a lot on -- I think competition and reduction on prices depends a lot on the capacity that you have, the capacity that the competition have and maybe competition doesn't have enough capacity to be more aggressive in prices. We have been investing a lot. We have very good third quarter, and I hope that in the next year, we're going to still grow a lot in Brazil. We're investing in capacity, we're investing in 3G, so we are ready to compete and to be aggressive in prices in Brazil.

Of course, I think that prices are going to be down and competition is still there. We have four big competitors in Brazil, and everybody is trying to do the best there. We are growing in prepaid, but we are growing a lot on postpaid, so that's something that the strategy on America Movil is focusing a lot also in postpaid.

And in Mexico, what was your question, sorry?

It was just really about how you -- given your focus on postpaid, if you could speak about what a postpaid subscriber brings to you in terms of what is their ARPU versus a typical prepaid subscriber, maybe what their minutes of use trends, just to give us a sense of how this might affect the overall MOU and ARPU at a blended level as the postpaid subscribers become a greater proportion of the base.

As you could see in the strategy in Mexico has been good. We have been growing the service revenue. ARPUs has been stable. We are growing on data, so focusing on postpaid has been good. We are not forgetting prepaid. What is happening in prepaid in Mexico is that exchange rate moves around 34% year-on-year and handsets -- with that, handsets increase prices.

And when handsets increase prices and you have an economy like this, then you have immediately the reduction on net adds in prepaid, but we are still -- we are not forgetting prepaid. We are really interested in that segment of the market, and I think as the economy gets in better shape, I think growth in voice is going to be higher and growth in the segment in prepaid is going to come again.

Maybe just -- thanks very much. Maybe just a quick -- is -- would it be right to be thinking about a postpaid customer being, in terms of ARPU, being something like four or five times that of a prepaid customer? Is that broadly correct or --?

I think postpaid is going to be maybe five times higher than the prepaid, but other more important thing is with the postpaid subscriber today you can add a lot of value-added services, so in the future I think could be a little bit more than 5% -- five times, sorry.

Excellent. Thanks very much. Appreciate that, guys, thank you.

Our next question comes from Rizwan Ali from Deutsche Bank.

Good morning. My question was again about prepaid/postpaid. So, you're growing your postpaid quite a bit. Do you think most of these adds in the postpaid are coming from your high-end prepaid customers that you're converting into postpaid, or are you grabbing more market? Are you grabbing subscribers from your competitors or just getting from the market?

I think part of that is from our own base and maybe -- I don't know exactly, but maybe 20% to 30% would be our own base, and the rest would be new subscribers in the market. It's more or less what we have.

And as you convert your high-end prepaid into postpaid, in some of the other markets we've seen 10% to 15% increase in ARPUs. Are you experiencing something similar, more or less?

I think it's postpaid and data services, what it's increasing the ARPU in other markets. It's more or less the same than in Mexico, no?

And one last question about the feedback to the shareholders to keep your leverage in and around one. Given that we are coming towards the end of the year, share buybacks may not be -- you may not be able to buy back enough shares to keep your leverage close to one. Is it reasonable to expect a one-time extraordinary dividend?

As I mentioned before, Rizwan, I mean we have had a perfect operating years, and I cannot tell you that we have anything basically defined today, but certainly we're going to be looking at the options that we have for the remainder of the year and see how we can dispose of the additional liquidity, in the case that we're going to do for this year.

Okay, thank you very much.

Thank you.

Thank you.

Our next question comes from Stanley Martinez from Legal and General.

Good morning, everyone, and thank you for taking my questions, and congratulations on an impressive result, especially for TracFone, on both the subscriber loading and the margin. Do you expect AT&T's commitments to the FCC per the Centennial acquisition could adjust America Movil's strategic options with respect to TracFone? For instance, will you be able to renew your commercial wholesale agreements with AT&T Mobility when they expire?

And maybe more importantly, does a loosening of the Board representation from AT&T at America Movil and the consulting and collaboration between the companies allow AMX, if it were economic, to migrate TracFone to more of an owned and operated network platform? Again, should an opportunity arise to further expand Trac's penetration and long-term profit potential?

No -- there's a lot of questions, but first we already have a commercial agreement with AT&T. We don't have the commercial agreement with AT&T with the Straight Talk business, but we have the commercial agreement with AT&T with other businesses, with Safelink and with the TracFone and with the [net PIN]. So, AT&T is a very good carrier for us.

We don't want to own a network in the US. We're happy being an MVNO. We have been very successful, and we want to maintain like this in the future. And on AT&T, I think that DLJ is asking for some things to AT&T to maintain in the Board. We made some changes in our Board Representatives. I don't have the details at this moment, but we made some changes and AT&T is going to stay in the Board of America Movil.

So, that doesn't -- just to follow up, Daniel, and thank you for that, but it doesn't affect your ability to renew the wholesale agreement. And, as I recall, it was about half of Trac's minutes that were on AT&T. I think more importantly, though --

No, no, no, it doesn't affect anything. Our business with AT&T and TracFone doesn't affect anything right now.

So longer term, where do you think TracFone can emerge, I mean vis-a-vis the 12.7 million subs that you have now on the network wholesale agreement. Really, how much further do you think you can expand or scale this business in America?

Well, we are just launching -- we have some testing in Wal-Mart. I think the test was very successful with our new product, the Straight Talk, and I hope that we just launched last week in all US, so I think this product is going to be very successful. So, I don't know exactly what are the numbers, but we're feeling that Straight Talk is going to be very successful in the US.

Thanks very much, Daniel.

Thank you.

Our next question comes from Will Milner from Arete Research.

Thanks very much. We've recently seen Telefonica set some quite aggressive dividend commitments recently. Do you feel perhaps that their need to maximize Latin American cash flows to support those dividends might present you with an opportunity to take some share over the coming years? Or is your strategy completely independent of this? And my second question is just if we see new 3G operators emerging in Mexico or Brazil over the next 12 months, could you just talk us through how, if at all, that might change your strategy and your approach in those markets? Thanks.

Well, I think we have a different strategy. What we are doing -- I don't know exactly what Telefonica is doing. Telefonica is giving a very good dividend. What we're preparing is to invest in the business, is invest long term and when we have the rest of the -- what Carlos has been telling is that the commitments that we have, like last year and two years before, then we are going to return to the shareholders.

But the main focus today is to invest in subscribers, invest in data, invest in networks, invest in distribution, and that's what we're doing today. So, that's the main focus and the strategy on America Movil.

And you're right. I mean, we have been gaining market share because the various competitors have not been investing in the business as aggressively as over the last year, couple of years. So, if you look at most markets, I think that we've been gaining market share.

Our next question comes from Henry Cobbe from Nevsky Capital.

Hi there. Thanks so much for the question. Two questions. Firstly, in Mexico, the decline in net adds and how much is that to do with market competition? Are you seeing market competition increase in Mexico? And secondly, on the depreciation expense, how much of that is explained by foreign currency movements, for example, in Brazil?

Well, in Mexico we have a lot of competition. It's not only -- it's Telefonica, it's Iusacell, it's Nextel, so we have a lot of competition in Mexico, and I don't know. I haven't seen the results of my competitors, but what we are doing today in Mexico and the focusing on postpaid has given us very good results and, as I told you before, while we are reducing on the postpaid is because the price of the handsets gets maybe 30% higher and with the economy like this, people -- this is waiting a little bit to buy or to change the handset or to buy a new handsets, but I think that's going to recover in the future.

So, we are still having very good distribution networks. We're taking care about that, so when the economy in Mexico gets better, I think we're going to recover our subscriber base in prepaid, the growth in prepaid.

On the depreciation in Brazil, if you look at the third quarter numbers, you will see that the operating profit numbers effectively doubled from the second quarter to the third quarter, and from a year ago, and basically the -- what is causing that is that last year we were on the process of depreciating in an accelerated faction the TDMA investments as I mentioned earlier today.

So, that means that since all of TDMA investments stopped being depreciated, or were fully depreciated by the end of last year, we were not depreciating them anymore, and you see a very significant increase in operating profits because of that. The depreciation charges in Brazil, as I mentioned before, it's more than anything linked to the market value of the assets that we intend to keep our books more closely linked to the actual market value, and it is less affected, really, by exchange rate movements. And in fact today you don't see really significant exchange rate movements in Brazil.

Okay. And on CapEx, are you sticking with the $3 billion guidance for this year?

We haven't finalized the budget, but -- of this year or next year? No, this year, I think yes, we're going to be what -- we're on budget. I think it's around $3 billion on CapEx.

Okay, thank you.

Our next question comes from Andres Medina Mora from GBM.

Good morning, Daniel and Carlos. I was wondering if you could give us your view regarding the fiscal modifications that are being currently discussed in Congress regarding tax loss carry forwards and tax deferrals? Thank you.

Well, in Congress, they are discussing a lot. They are discussing the UEPs, that it's 3% more on telecommunications. We feel that it's very bad, because that's -- telecommunications is one of the things that drives growth in the economy, so I don't think it's a very good idea to put 3% tax on telecommunication, plus 15% or 16% today that they are discussing, so it's 19% tax on telecommunications. It's too high, what we have. In the consolidation, I don't think there's main issues for us, but Carlos can talk a little bit.

That means that we don't believe what is being proposed, as regards consolidation, is something that will have any impact on America Movil.

Thank you.

Thank you.

Our next question comes from Mauricio Fernandes from Merrill Lynch.

Thank you, good morning. A couple of questions. One on the -- still on TracFone. Net adds are still substantial, but if I understand correctly, Straight Talk was launched in the latter part of the second quarter and still -- so the third quarter was the first with full -- the fourth full quarter with Straight Talk, and still net adds were the same in the third quarter as in the second. Just wondering if there hasn't yet had enough time to see a pickup in net adds or ARPU or MOU?

Well, I don't think Straight Talk -- we launched Straight Talk. We launched a test in 200 or 300 stores in Wal-Mart only as a test, and a test is very different to launch a product. We just launched the product last week, and it's too soon to see how things are going with the product, but we are really optimistic that we're going to have good sales for this quarter on the Straight Talk plan.

Okay, understood. Thanks, Daniel. The second question is regarding the Caribbean. Any specific reason maybe the effects why the EBITDA margin fell from the second quarter to the third quarter, and still net adds were lower in the third quarter than in the second?

Yes, there are three main things. First thing is we have a big growth on postpaid in Dominican Republic, that one issue that we have. Second, in Puerto Rico, we have a new tax, a tax for the properties that cost us a lot of money. I think it's mainly cost us like $50 million. It's a new tax for all the country in Puerto Rico. And the third one is that we are growing -- we are -- our greenfield operation in Jamaica, it's starting to grow better and we're doing much better in Jamaica than we have been doing, so the growth in Jamaica has been costing us a little bit. But that's the main reason that we have.

Understand. Thank you very much.

Another important thing in Dominican Republican, we launched satellite TV, and also it's like handsets, no, when you acquire a subscriber, it costs you a little bit. But that's mainly the reason. We are having our costs under control and we are growing, so we are doing okay in Caribbean.

Thank you, Daniel.

There's only one other thing. In Puerto Rico, there's a new tax that appears within the operating. It's a tax on the operations, so it appears in EBITDA and it's not insignificant. And then, you also have to consider that in the Caribbean we have Jamaica, and Jamaica is now going well.

Yes. Okay.

Our next question comes from Peter Lyons from Oscar Gruss.

Hi, guys. Thank you for taking my call. My question is in regards to the actual data revenues in the quarter, if you could give us a number for the revenues from the data and value-added services, and if you can give us a breakdown on the actual number of WCDMA, HSPA 3G connections and what percentage were data cards connections and what percentage were people connecting from iPhones or from any type of mobile handset?

We haven't been disclosing that number. We -- but what I can tell you is that the median growth rate of data plans was at around 58% among all our operations. All that additional revenues from broadband and other 3G applications, it's what we are growing, so 58% is the median rate growth that we are growing in all the operations, no? It has value-added services. It has broadband PCMC cards and netbooks. It has plans in over the voice plans that we have, and all the services, download music and all of those things, that it's still growing a lot.

As a percentage of your service revenues, can you give us an estimate as how much data and value-added services were?

I don't have it. I think it's -- no, I don't have it, I don't have it. But if you can talk to Daniela, she can tell you around what we have.

Okay. And -- okay, so then I'd just like to follow up about the $750 million bond issuance. Any ideas as to how you guys would prefer to utilize that? And I know you've kind of addressed some of the share buyback questions you've gotten and some questions about potential special dividend. But in terms of the investment in the network, I'd just like to understand how the $750 million could be used?

They can be used for a variety of things. They can help in CapEx. They can help finance distributions to shareholders and they can help us finance any change in our debt profile, no. If we want to do debt management operations, that's a way of doing that, of picking out some debt and keeping the new debt.

Okay, great. Thank you guys very much.

One thing that you may have noticed is that we have basically taken out a substantial [all] of short-term debt. Today, we did the EBIT change and the maturity profile has been made possible by some of the issuance of new debt, new obligations, okay?

Okay. Oh, and just one thing I'll ask, and then I'll get offline. Regulatory issues with regards to 3G spectrum auctions upcoming, I know there's some planned in Mexico, potentially Brazil. If you could just give us an idea and update us to any latest information you guys have on that?

Well, that has been a long story, no. They haven't issued the rules still today, so I don't have anything to tell right now, so there is a lot of rumors in the press, in the market, but the rules, they haven't been out today, so in Mexico. So, until we have the rules, I prefer not to make any comment. And in Brazil, well, in Brazil last year, we invested a lot in frequency and spectrum and I think we have enough spectrum in Brazil, no.

Great, thank you.

Thank you very much.

Our next question comes from [Reese Skavez] from UBS.

My questions have been answered. Thank you.

Our next question comes from [Gil Alexander] from [Darphil Associates].

Good morning. Could you give us your estimates for this year on capital expenditures and depreciation, please?

On capital expenditures, I think this year we're going to have around $3 billion, plus 5% or less 5%. We need to -- still there's one quarter left, so -- but it's going to be on the budget that we have. It's around $3 billion to $3.2 billion. It's going to be around that.

And the other question is what?

On depreciation, please, for this year?

Depreciation for the year?

Yes, sir.

I think we're in the neighborhood of about 12% of our revenues.

12% of revenues?

That's right.

Right. And could -- I don't know if you are willing to disclose this, but could you give us an idea of how much you've spent on 3G in the last two years?

No, we are not disclosing that.

Okay.

There's a lot of things together, between 2G and 3G, but what I am going to insist that we have and we are ahead of all of our competitors in 3G, in coverage, in capacity and maybe in quality. So, I think we are doing good in all over Latin America in 3G.

My congratulations. My last question, if you look at Mexico and you look at Brazil and you've been through this economic downturn, how do you see the economic outlook for Mexico and Brazil for the next six months versus the last six?

I think Brazil, it's bottomed earlier. I think probably the first quarter was the bottom for Brazil. It's stabilized the second quarter. You are seeing already good momentum picking up in the third quarter, so I think that Brazil is likely going to continue to do well economically over the next several months. Again, I think they have everything going for them. There's good growth expected. In the case of Mexico, I think that we may have touched bottom in the second quarter.

We are basically stabilizing the economy in the third quarter. That's what it seems like. And then, we may begin to grow in the fourth quarter. That's I think the base expectation, so we are lagging Brazil, and already, whether -- next year coming indeed picks up speed or not is going to be very much a function of what happens to the US.

All right, thank you very much.

Thank you.

Our next question comes from Ric Prentiss from Raymond James.

Thanks. One question, really, on the significant increase that you guys are seeing in your postpaid and your data sales. Can you talk to us a little bit about what you need to do with your distribution channels? Specifically, do you need to add different channels for postpaid, how many different channels? And with data, what are you having to do with the distribution and how is that affecting maybe your margins in the short term?

On postpaid, of course, you have different distribution channels. They're more specialized. You have to train them more to sell postpaid and you have to train them more to sell data, and it's a little bit more difficult because then these guys have to have some credit, so it's not like a prepaid where you go and pick a handset, you pay it and then you start talking, okay. So, it's a little bit more specialized sale.

The other question is?

How that's affecting your margins maybe in the short term, as you establish these new distribution channels and I assume pay some probably slightly different commission structures?

Well, of course, postpaid costs you more on the acquisition cost is higher on commission, on handset, on everything, but the return is very good on postpaid. I think it's a very good business to invest in the postpaid segment.

Do you know if there's another question?

Our next question comes from Andre Baggio from JPMorgan.

Hi. I would like to get a little bit more details on the negative additions in the postpaid sales or the prepaid segments in Mexico. Was it really only related to the price of the handsets? Because in a sense, we had a similar price in the second quarter.

I think it's mainly 30% increase on the price of the handset. It's a lot, and in this type of economy, where things are not so good. So, people -- it's -- remember that we have churn, no, so still we are selling a lot, but people are not buying as they usually do it. So, that's really the reason. We still have our distribution channels very good, our distributors' chain, retail stores, so everybody is carrying our product. So, it's mainly that, and I think, and I'm sure that when things get better in the economy, I think we're going to start to have again growth on prepaid.

Andre, you are looking at it from Brazil, so you probably -- in Brazil, it goes from -- the value went for 160 to 250 and then it came back to 170, so it's really more or less what it was about last year or so. In the case of the Mexican peso, it went from [MXN0.10 to MXN0.13 -- to MXN13.20 or MXN13.30] and that's where it has stayed, no?

From MXN10 to MXN15 and then returning to MXN13, so it has 30% year-over-year.

That is an effect of the devaluation of the currency in Mexico. In real terms of about 25% in a year.

Okay, and a second question. I did some calculations and I reached that in constant currency, so excluding FX, growth was around 7% this year versus one year ago and some 8% in the second quarter. Is this number reasonable? Is it what you have more or less in terms of constant currency?

I think that is reasonable.

Okay, thanks a lot.

Thank you.

Our next question comes from Andres Coello from BBVA.

Hello, good morning. Can you give us any light on how the legal case against Axtel, regarding the 50% interconnection con in Mexico is going? What will be the consequence if the [court] is confirmed by the judiciary authorities?

We're in an injunction with Axtel. We need to finalize the injunction, but the only thing is that they are paying us less. So, if they win the case, then there's nothing else for Telcel for America Movil. But if they lose the case, then they have to pay us everything that they don't pay through this year. So, that's mainly what we have. There's no risk for Telcel in this case, because we're giving -- putting everything on the results.

I think your point is that we are indeed booking the revenues at the lower rate we are getting paid today, so we don't have any contingencies, only positives or profit to the extent that we win. But that's not what is being done in Axtel. They are not -- they do have the contingencies.

Okay, but if they do win, do you think other operators could also cut interconnection rates using the most favored nation, plus --?

We don't know. We don't know, so we need to understand the way they are going to win and why they are going to win if they win, no. So, it's been -- the interconnection rates has been a problem because we have some interconnection rates and then the Cofetel uses other ones to use as the Land Telefonica with others, so I think what we should expect is that Cofetel puts in all this interconnection rates for the future.

And what you are asking is if everybody can ask for a most favorite. I think they cannot do it for the past. If they could do it, they -- maybe it's going to be for the future, but not for the past, because with the past we have contracts with all of the other competitors.

Oh, I see, so it's only an issue that could affect the future, not the past, right?

Yes, of course, of course.

Okay, thank you.

Our next question comes from [Fernando Ramos] from GBN Global.

Good morning, Carlos and Daniel. Thank you for taking my question. It appears that voice tariffs have continued to post year-over-year declines and I wonder if you cold give us a sense of what the trend will be going forward, particularly in Mexico, Colombia and Brazil? And my second question is whether you'd be interested in acquiring some fiber optic backbone in the coming auctions of the electric company in Mexico. Thank you.

Well, I think prices are going to go down. Let's talk a little bit about Mexico. Mexico has $0.05 of $1.00 on price, so it's very competitive. I don't think any country on the LCD has those prices. Well, US has better prices in postpaid, but in prepaid I think we are one of the lowest countries, the lowest prices countries on the LCD, so we have very competitive prices. I think we are going to still be competitive, because there's a lot of competition, but we are in a -- the price of $0.05 of $1.00, it's really competitive.

What was your other question?

Well, just a follow-up to that one, whether -- what trend do you see going forward in local voice, in voice tariffs in local currencies? And my second question is if you would be interested in acquiring fiber optic backbone from the coming options of the electric -- of the CFE in Mexico? Thank you.

Well, again, on rates, we are comfortable that the rates are really competitive, and I don't think that for anybody it's going to be easy to compete against us because prices -- it's easy to compete when prices are higher and quality is bad, but it's not the case in Mexico. In Mexico, prices are really low and quality is good if you compare with other countries. And the other important issue is that we have a lot of capacity, so we can still reduce the prices as much as the competitive environment can make us do it, no?

So, we are let's say in very good shape in Mexico, and I don't think we need right now, because the links that they are going to now auction, the government, I don't think we need it because we already have some links in the same root. So, I don't think we have it, but we are going to get deeply to see if there is some special places where we can need some of those links, and of course we can -- if there is a case, we're going to get it.

That's very clear, Daniel. Thank you very much.

Thank you.

Operator, we're going to call for the last question, please.

Our last question for today comes from [Andre Razendi] from Goldman Sachs.

Hi, it's actually Stephen Graham from Goldman. Thanks. Can you comment just a little bit on the operations in Chile where the growth was almost flat for the year and the margins were low also? What's going on in there?

I don't hear you very well. Can you repeat that question, please?

Yes, I wanted to ask you if you could comment on the operations in Chile just because both growth and margins were unusually low.

Well, I think this quarter growth was not so bad in Chile. We are growing a lot more in postpaid. We are growing in prepaid, so Chile has been growing and I think for -- we double the net adds this quarter, so Chile, we need to grow. We have a very small market share, so we still are looking for more growth, for more revenues. So, that's mainly the focus on Chile, no?

If you look at it, Stephen, the -- what we call the core EBITDA, as percent of service revenue, basically EBITDA before taking into account acquisition costs, it picked up nearly 3 percentage points from the third quarter of last year to the third quarter of this year. So basically, the full change in EBITDA margins is explained by greater subscriber acquisition costs that has to do with the fact that we more than doubled net additions in third quarter of '09 versus a year before.

Okay, thanks.

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

Thank you very much, gentlemen, and I think that concludes our call for today.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.