America Movil SAB de CV (AMX) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the America Movil fourth quarter '09 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer sessions. Instructions will be given to you at that time.

(Operator Instructions)

And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Vera Rossi. Please go ahead.

Good morning, everyone. This is Vera Rossi. And on behalf of Morgan Stanley, we are pleased to be hosting AMX fourth quarter conference call. Speaking today will be Daniel Hajj, CEO of America Movil, Carlos Garcia-Moreno, CFO, and Daniela Lecuona, Head of Investor Relations. I will turn the call over to Daniel Hajj. Thank you. Daniel?

Thank you, Vera. Good morning, everyone. As always, Carlos is going to make a small summary of the fourth quarter results. And he also is going to give a brief explanation of the proposed transaction that we're doing. So please, Carlos?

Thank you, Daniel. Good morning, Vera. Good morning, everyone. Thanks for hosting the call, Vera. Most of the Latin American economy, particularly in South America, recovering from the world economic crisis that shook the world and helped also by strong seasonal elements. Subscriber growth, picked up spin the fourth quarter.

We are a 6.6 million clients to end the year with 201 million subscribers, finally surpassing the 200 million subscriber mark, having obtained 18.2 million new clients, more than what we had estimated at the beginning of the year.

Half of the net adds came from Brazil and the US, which accounted for 2.1 million and 1.2 million subs, respectively. They were followed by Mexico that gained 807,000 subs, even after a cleanup of 1 million subs that were not consuming, probably as a consequence of the economic downturn in the country.

In the US and Chile, we obtained twice as many clients in 2009 as in 2008, although operations placed at lower net adds than previous years. Brazil has 5.7 million new subs, Mexico 2.8 million, Argentina 1.6 million, and both Ecuador and Peru 1.1 million, with the Dominican Republic just shy of 1 million.

In relative terms, the US was the best performer in terms of subscriber growth with subscriber base increasing 29% followed by the Caribbean with 26% and Chile with 20%. Brazil increased by 15% and Mexico by 5%.

Fourth quarter service revenues expanded 13.4% from a year before with data revenue soaring and voice revenues same practically across the board. The median rate of growth of data revenues in local currency terms was 54%, that of voice revenues 4%. In Mexican peso terms, consolidated data revenues rose 48.7% and voice revenues 9.3% in annual terms.

Revenues for the full year totaled MXN359 billion with service revenues rising 17% year on year borne by data services that increased 53.8%. EBITDA rose more rapidly than service revenues in the fourth quarter to reach MXN40.8 billion with the EBITDA margin climbing 1.1 percentage points year on year. EBITDA for the year was MXN159 billion, which was 40.3% of total revenues.

Depreciation charges were raised by MXN4.4 billion. We proceeded to depreciate more rapidly our GSM networks in some countries, which allowed us to reduce our current tax provisions. Our net income came in at MXN13 billion in the quarter and MXN70.5 billion in the year. The latter figure represents an 18.5% increase over the previous year.

Capital expenditures totaled MXN45 billion, which is very much in line with what we had estimated. This is approximately $3.3 billion. Even though we amortized MXN38 billion of debt and distributed MXN50 billion to our shareholders via share buybacks and dividends, which attest to the strength of our cash flow.

At the end of the year, our net debt-to-EBITDA ratio stood at slightly more than 0.5 times. We have virtually exhausted our [COFIN], the accounting reserve that I chose -- the process on which taxes have been paid, which marks the limit to what we can distribute without incurring additional taxes.

Now if I may, I will come up with a brief summary of the rationale for the transaction and some details on the proposed transaction. On January 13th, America Movil announced that its Board of Directors had authorized it to submit, A, an offer for 100% of the equity of Carso Global Telecom, a holding company that owns 59.4% of Telmex and 60.7% of Telmex International, in exchange for America Movil shares at a ratio of 2.0474 to 1; and B, an offer for Telint shares not owned by Carso Global Telecom to be purchased for MXN11.66 per share or to be exchanged for America Movil shares at a ratio of 0.373 to 1 at the option of the shareholders. The offers have been accepted by Carso Global's and Telint's Board of Directors.

In the telecom communications sector, technology has evolved in such a way as to create a greater integration between the fixed and wireless networks. This technological convergence is allowing companies to provide integrated services to their clients in a way that is attractive to them, both in terms of the commercial offerings it makes possible and in terms of the convenience it entails regarding billing and customer service, among others.

The evolution of new technologies in both the wireless and wire line worlds will lead to faster speeds of data transmission the next several years. These faster speeds coupled with new, more affordable and thus more prevalent devices and new genders of applications will lead to a significant expansion in the demand for data services.

This will be particularly relevant for our region of operations. Growth and penetration is still low in Latin America, only 6% on average in the top selling countries by population, having been held back by cost of personal computers, which have been relatively expensive for this region of the world.

As more affordable devices are introduced, the barrier of entry several people have faced when looking at ways of accessing data services to browse the internet among other things will come down, offering the way for more people to use such services. We believe the number of broadband accesses in the region, fixed and wireless, will increase significantly in the years ahead, as will the demand for various types of data services, including video.

Pooling our resources with those of Telmex and Telmex International will allow us to attain important economies of scale that none of us individually would be able to achieve. These economies of scale will be reflected on our CapEx -- there'll be a greater bang for the buck so to speak -- on our commercial distribution, and on operation of the networks. But they will also be evident in the stronger position we will have for the procurement of equipment and content and in better customer service.

All said, the move towards pooling together our wireless and wire line networks will allow us to provide integrated services and will ultimately help us in winning the preference of new clients and in maintaining the one of those already with us. The integration of our company will make us more competitive for the benefit of our clients, our employees, and our shareholders.

We do not have any estimates we can share with you at this point on the synergies that will be derived from this integration. We believe they will be quite significant, both in the short term and in the medium and long term. Partly, they will take the form of savings, to extend this over [Latin territories] areas, partly in the form of all getting more done with the same resources, distribution, investment in the networks. It is a strategic move that will bring about important benefits to the combined entity.

America Movil invested heavily in putting in place 3G networks in all of our operations. They have been up and running for not much more than a year. And what we have seen thus far is that the demand for data services took off much faster than anyone had anticipated, not the market, not us. And this was the case even in the midst of a major economic downturn.

At the same time, we moved towards providing quadruple play in our operations in Central America and the Caribbean, where we already have fixed line assets. These experiences and the outlook for data services, given better economic conditions and ongoing developments in the industry -- we have already mentioned the introduction of new, more affordable devices and workings -- led us to act quickly on the reintegration of the mobile and fixed networks.

If our offer goes through as expected, we will be in a position to offer integrated services in substantially all of our operations as required. And we'll be much better prepared to manage the rising tides of data services. In the peculiar case of Mexico, we will have to await clarification on the other regulators before we can offer a service there jointly.

As mentioned earlier, America Movil will be tendering for all the stock of Telmex International and intends to delist it eventually. In the case of Telmex, we are not tendering for the rest of the stock. It is to remain with an important base of minority shareholders. Notwithstanding this, we expect we can mutually derive significant benefits from working together in a more coordinated fashion.

The transaction needs to be authorized by the competition and telecom regulators in all eight countries concerned, Mexico, Brazil, Colombia, Chile, Argentina, Uruguay, Ecuador, and Peru. We expect we will be able to walk out with the tender offers and close the transaction in the second quarter. Thank you. This will be the summary, Vera. And maybe we can pass the floor onto you.

Thank you, Carlos. I have two questions. And then I will open for Q&A. So my first question is about your uses of cash. So given the low level of leverage of AMX even after the transaction is done, does AMX intend to increase the buybacks and dividend this year relatively to previous years? And one question about the transaction -- is there a minimal tender condition? Or you accept any or all shares tendered in the case of TII? Thank you.

Hi, Vera. We're preparing the tender offer. At this moment, we think that there's not going to be any minimum condition for the tender. I think we're going to buy all the shares that they want to sell. So there's no minimum condition. I think if we get 95% of the shares, then we can get the majority, the 100% of the shares. We can delist the company. But if not, we're going to rally all the shares.

And the uses of cash -- well, we need to wait a little bit to see which is the amount of money that we're going to pay for Telmex International. We don't know exactly at this moment which percentage is going to be on shares and which one is going to be on cash. So we're waiting until that. And then when we finalize that, then we can decide more or less what we're going to do.

But as Carlos said a few minutes ago, this last year in 2009, we have around more than $4 billion in dividends, extra dividends and buybacks. And I think we're going to -- it's around MXN50 billion what we do last year. I don't think there's going to be big changes depending on what's going to be the amount of cash that we pay for Telmex International.

Okay. Thank you, Daniel. Sencha, I think we are ready to open for Q&A now.

Thank you.

(Operator Instructions)

And our first question will come from the line of Ric Prentiss from Raymond James. Please go ahead.

Thank you. Good morning. My question is in Mexico. The 1 million subscriber cleanup, was that all done within the quarter? And if so, obviously a very impressive gross number. Can you update us as far as what is happening in the Mexican economy?

Well, yes, we cleaned up 1 million subscribers in the quarter. I think these 1 million subscribers, they are not consuming. I think all of them were prepaid subscribers. And I think mainly they stopped the consumption because of the economic situation that we had last year. Still, it's difficult to say what is going to happen on the economy of Mexico. I'm sure it's going to grow. I don't know how much it's going to grow, depends a lot of what's going to happen on the US economy. But even with a difficult situation last year, people used data. We grow our postpaid. So I think the strategy that we are taking in Mexico and in all America Movil is working very well. We have good growth on data. But we are -- in Mexico especially, we had good growth also on voice. So we're doing okay.

Okay. And last year at this time, you gave your initial 2010 outlook for subscribers. How is your visibility into Latin America? And can you give us a thought about what you think 2010's going to look like from a net add or other guidance standpoint?

Well, I think it would be around 13 million subscribers, our budget that we have. And that's our target for 2010, all Latin America, depends a lot on US We're doing very well. So we can increase a little bit, depending on the US platform. But I think our target is 13 million subscribers.

Our next question will comes from the line of James Rivett from Citi. Please go ahead.

Good morning, guys. Two questions if I can -- the first is on the recent CoFiTel ruling about your dominance in Mexican mobile. How does this change the way that you're thinking? What should we expect to change? Or what do you guys expect to change as a result of this?

And secondly, very strong growth within the US business. I just wonder -- I just want sort of confirmation about whether you guys would be interested in acquiring network infrastructure that's available for sale within the US market. Thank you.

Well, James, it was not CoFiTel. The one that gave the resolution was COFECO. And it has to go to CoFiTel to put some conditions. The conditions are in quality, in information, and in pricing, okay, our pricing or our quality or information. So I think in information, we're giving all the information. On quality, we're very sure that we give very good quality to all our customers. That's why we have the preference. And on terms of pricing, that's not me what I'm saying, also as the COFECO Eduardo Perez Motta is saying that he's looking that the market is doing very good on pricing.

So I don't know exactly what those CoFiTel should do. If they lower the price, then we're going to be bigger. If they tell us not to lower the price, then there's not going to be competition. So I don't know exactly what could be on pricing. So I don't think there's going to be something important for Telcel with this resolution. But in the other hand, this resolution is appealable. And we're going to see what -- we're studying what we're going to do with the resolution. So I don't see at the short term major changes with this resolution.

Our next question comes from the line of Andrew Campbell from Credit Suisse. Please go ahead.

Yes, good morning, Daniel and Carlos.

One second, Andrew. I think I missed one more question about [traction]. We are -- at this moment, I think we have very good growth in the market. And we are not looking to buy any infrastructure in US. So I think we're doing excellent. And we're going to follow what we're doing today. Sorry.

And your line is open, Andrew.

Thank you. Just going back to the merger, the proposed transaction again, it would seem that one of the biggest synergy opportunities is in Brazil. And I was wondering if you could give us some color on what kinds of synergies are available in Brazil. And in particular, do you plan on merging together completely Claro and Embratel?

Well, it's a very good question, Andrew. I'm sorry not to answer you exactly what we're going to do because we're still studying. There's some legal things that we need to study in Brazil. How -- of course, we want to integrate the companies. But we're studying how we are going to integrate the companies. There are some fiscal and regulatory issues that we need to look before taking a decision. But I'm sure that in terms of taxes, in terms of networks, in terms of commercial integrated services, we are going to have a lot of synergies in Brazil. So I don't have any doubt that the two companies together, Embratel and Claro, are going to be more stronger in the market. And they are going to have better networks than what we have standalone companies today.

So we are in the middle of checking how we're going to do the integration and how -- the best way to do the integration in Brazil. And not only in Brazil, we're going to do it also in Colombia, in Argentina, in Ecuador, Peru, Chile, and all the countries where Telmex International is operating.

Thank you.

Our next question will come from the line of Michel Morin from Barclays Capital. Please go ahead.

Good morning, Daniel and Carlos. I was hoping to look at growth rates and compare and contrast what's happening in Brazil versus Mexico. And specifically, it's interesting that you're now -- you grew faster in Mexico than in Brazil this quarter. Your postpaid net adds were very strong in Mexico but a little bit sluggish in Brazil. And ARPU ticked up in Mexico. And it ticked down in Brazil. So I was hoping you could help us parse out what is happening in both markets. Specifically in Brazil, are we seeing the consequences of a SIM-only strategy and perhaps intensifying competition? Thank you.

Well, I think we have the same strategy in all America Movil in all the countries. And some countries are working better than in other ones. But I'm sure that in Brazil are totally different conditions in Brazil. Still we have a very good growth in prepaid competition, SIM cards only I think that are happening there. But we are focusing on data. We are focusing on postpaid. We need to make some changes in the distribution channels. And we're working on doing more things in Brazil to sell more data services, to sell more postpaid customers, and to increase more our revenue in data.

I think one of the good things is that with -- also in the networks, the networks are going to help us a lot to sell more data. If you compare Brazil Claro to Mexico, of course, we are doing much better in Mexico. But I think if you compare in Brazil Claro against the other ones, I think we're not doing so bad. We need to make some adjustments. We need to do a lot more things. But I think we're in the right direction in Brazil.

Great. And then specifically in Mexico, the ARPU pickup that you've seen, is that a function of you growing postpaid faster than the prepaid base? Or if we were to breakout ARPU between prepaid and postpaid, would we be seeing the ARPU going up for both segments independently?

See, I think ARPU is growing in both segments independently, even I think in prepaid is growing a little bit more than in postpaid because we have a lot of competition on postpaid. So prices are going fast down. But data is helping us to increase a little bit what we're losing on price and everything else.

Our next question comes from the line of Tomas Lajous from UBS. Please go ahead.

Good morning. Thank you very much for the call. Two quick questions related to telecom -- the first one is -- telecom has all this in the money forwards on Telmex and TII shares. How do you look at this forward? How do you value them? It's 9% of Telmex, 9% of TII. And how much -- and what will happen upon the transaction with the TII forwards? Will they be converted into forwards in AMX itself? That'd be the first question.

And the second question -- Carlos was saying how you've depleted COFIN. And Daniel was talking about distributions into next year. If I'm not mistaken, telecom has about MXN80 billion or MXN90 billion of COFIN, which you would inherit. Will you try and take advantage of this? And could we see upside to distributions once the transaction closes from having such a high COFIN balance all of a sudden?

Hey, Tomas, on the stock owned by Carso Global, my understanding is that it's all financing. There's really no upside by way of options or anything. I think on any additional shares to what they have already reported as the own shareholders, the 59.4% of Telmex and the 60.7% of Telint that we have mentioned. So to the best of my understanding, that is the only net position in stock that they have. It happens to be the case that they have financed the acquisition of those shares in ways that probably may involve some kind of forward -- may have been structured a forward. But net-net, there's no additional shares that they could be entitled to other than the one that we have already mentioned.

As regards the COFIN, well, yes, we have to go into all the details of what Carso Global has. My understanding is that, yes, they do have some COFIN. But it is important to understand that you may only be able -- you may only utilize it depending on the way how the company's integrated. And we're not sure that we have the flexibility of integrating it, for instance, within the actual vehicle of America Movil, which is where we would need to have the COFIN. So one thing is that the subsidiaries below have the COFIN and [quite only] one that the holding company on the top actually has it and may be able to use it. But again, these are things (inaudible) we will be able to have more clarity on as the next several weeks, we probably will be able to give you a better perspective later on.

Right. But there's a filing at the SEC by Telmex and a filing by TII saying that in addition to the shares held directly by telecom, they own forwards and something like 1.6 billion shares or something, so about 9% of Telmex and 9% of TII. This has been filed with expiry dates and specific counterparties.

I've already told you what I have heard. What I have been told is that they don't have any additional shares and that what they have -- whatever filings you may be referring to have to do with the way the financing has been structured, the financing which -- that was put in place for them to acquire the shares. And I have not said that they may not have any kind of forwards. They probably have some kind of forwards. What I know, what I have been told is that they have no additional rights on any other shares to what they have already announced in their own share holdings.

Next we will go to the line of Chris King from Stifel Nicolaus. Please go ahead.

Good morning. Two quick questions for you -- first of all, with respect to track phone in the US, really breakeven from an operating cash flow or an EBITDA standpoint in the quarter -- just was wondering what you see that as meaning for your pricing strategy there going forward, whether you view it more as a market share opportunity rather than a near-term cash flow generation opportunity.

And then secondly, I just was wondering if I could get your thoughts on the wireless auction rules in Mexico and whether or not you plan on contesting them legally in court now that they have been formally published. Thank you.

On track phone, the strategy that we have been follow in the US was around subscribers. But we also want to grow on a profitable way. And that's the way that we're going to still do it this year and next year. So I think our product is working. And the new product, Straight Talk, is working very good. And we're going to grow as much as possible but on a profitable way.

When I mean profitable way does not mean that our EBITDA is going to be reduced because of the big growth that we could do. What I'm talking is that these subscribers that we're acquiring in the future will be profitable. And if we have that, then we're going to grow as much as possible and as we can.

In the wireless auction in Mexico, the rules are already in the market. So they are letting us participate to buy in some regions 20 megahertz, in others 30 megahertz. And we're working to define which frequencies and where we need to buy spectrum. So my answer is yes. We are interested in participating in these auctions.

We are not 100% happy with the rules that they give. But in some cases, we're going to participate with 20 megahertz, in other regions with 30 megahertz. And I think that's okay with us. No?

Our next question will come from the line of Martin Lara from Itau Securities. Please go ahead.

Hi. Good morning. Only if you could give us the breakdown of your ARPU in Mexico and on a consolidated basis, the breakdown between data, interconnection, and voice, please.

We are not disclosing this. I think it's because competition. We want to maintain that -- this information inside the Company. I think we're doing very good. And we want to maintain that as inside the Company. But I think Carlos told you that in America Movil, we grow data around 45% to 50% this year. So --

39% in Mexico.

What?

39% in Mexico.

39% in Mexico. So we are growing very good.

Okay. And the second question is with respect to your 3G coverage, how -- if you could give us an update with respect to Latin America and Mexico.

I think if you talk about 3G, we are the only company in Latin America that has 3G coverage all around in all the big cities and I can tell you medium and a lot of the small cities in Latin America. And we're well advanced on that. We're working to put more capacity. I think this transaction that we're doing is going to help us to be more robust on all our networks. And I think we are well advanced against our competitors.

Our next question will come from the line of Richard Dineen from HSBC. Please go ahead.

Thanks very much for taking the question. Yes, a question on data, I guess, in two parts -- firstly, if you could give us a way of thinking about the growth in data demand in terms of its percentage revenue contribution to the group today and how this might grow, given that it's surprised thus far.

And secondly, what does this mean for the network in terms of traffic growth? How are you positioned to cope with what you admit is a surprising level of demand growth and given that a lot of the growth is now in terms of video, as you say? Do you think that's going to prompt further investment in spectrum, I mean, maybe outside Mexico but also things like base stations and backhaul? Any sort of color on those would be fantastic. Thanks.

Well, we are not disclosing, as I told you, the percentage of data. But we're growing good. We are being investing a lot in the backbone, in the backhaul. I think if you see Latin America, still data revenues are low. Still penetration in ADSL is not so high, in television is not. So in the future, we have a lot growth in these three products. And it's, again, why we decided to do this transaction because we're going to offer integrated products. And we're going to have a lot synergies in the network.

In my view, we have been investing a lot in the data networks, in the 3G networks, data networks. And we're going to still invest a lot. But I don't think that we're going to be investing more than what we have been investing in the past. The CapEx for America Movil this year is going to be around between $3 billion and $3.5 billion. Let's say Telmex International is going to be this year around $1.2 billion or $1.3 billion. So in Latin America, if you see that, I don't think we're going to increase the CapEx. But we're going to get lot more capacity with this amount of money that we're investing. So that's the rationale of this transaction.

So I think data, you're going to still see good growth in data. Still a small amount of postpaid subscribers have a data plan. A small amount of prepaid subscribers are using data. Still ADSL we're going to grow, still television. So there is a big -- and new products and a big market that we can attack in the future.

Just by reference, I mentioned that broadband penetration today in the seven largest countries in Latin America is 6% of population. The penetration in countries like the US and most of the European countries, [regarding] the European countries is at around 30%. That gives you sort of like a benchmark.

Okay. Thanks very much indeed, guys. Appreciate it.

Thank you. And next, we will go to the line of Peter Lyons from Oscar Gruss. Please go ahead.

Hi, guys. I had a question about the shareholder agreement mentioned in the 13-D filed by Telmex International on January 27th. It's talking about a proposed agreement between AT&T and Carso Global that would in effect allow Carso Global to -- if I'm reading it correctly -- basically double the amount of L shares they have in Telmex International through the conversion of their A and AA shares. Now if that's the case, then Carso Global would end up owning I believe 67% of Telmex International, not the 60% as it does currently. Is there any sort of precedence with this kind of shareholder agreement going into effect relatively soon? Do you know anything about it? And could it possibly affect the amount of shares you would have to swap or the amount of that cash you would have to pay out to get the remaining control of Telmex International?

I haven't read the file that Telmex do. I think that's more a question for Telmex International, not for us. But what Carlos said is that we are buying Carso Global Telecom that has the percentage that we already do. I think it's 60.7% of Telmex International and 59-something of --

59.4%.

-- 59.4% of Telmex. So I think that's what we are buying. And other things with Telmex International, I don't know it. We can review it and check it with you. But that's specifically what we are -- that's the proposed transaction that we are doing.

And when you say 60.7%, that's of the Telmex International L shares.

I don't know if they are only L shares or they are A shares or AA shares. I don't know exactly. But it's 60.7% of all shares of Telmex.

And the swap would be between AMX L shares and Telmex International L shares if, I'm not mistaken.

No, I think the swap would be from America Movil shares to change it for Carso Global Telecom shares.

But for the Telmex International part --

For the Telmex International are going to be America Movil shares to change it for cash or for America -- Telmex International shares. We're going to pay it in shares of America Movil or in cash.

But we're talking L share to L share, correct?

I'm not so sure if they are all L shares or we are going to pay with L shares. So I don't know exactly.

Next, we will go to the line of Rizwan Ali from Deutsche Bank. Please go ahead.

Two questions -- first is -- when do you expect to close this transaction? So how long will it take you to get all the permission you need? And second is -- you mentioned that COFECO's ruling now goes to CoFiTel. And they can decide what to do. Do you think there's a possibility of them implementing what is called asymmetric interconnection rates in Mexico because that was mentioned as one of the possibilities by one of the commissioners of CoFiTel recently?

Hi, Rizwan. Only to finalize the other question is we intend to pay with the shares that we held in the treasury of America Movil. And I think most of the shares that we have in the treasury of America Movil are L shares. So that's the way we're going to pay to Carso Global Telecom and to the Telint shares with our shares that we held in the treasury. Okay?

And your question, Rizwan, about the asymmetric rate, well, the resolution of COFECO was in the final price, not in intermediate price as interconnections. There is another resolution in process that they are checking about the -- and we don't know what's going to be the decision on COFECO. But this one could not be on the interconnection rate. It's only on the final price. And as I told you, I don't think there's going to be major changes on what those CoFiTel is going to say. But we're going to see. But before that, we are going to see if we're going to appeal this decision. So we're in the middle of the defining what we're going to do with that.

And what's your best guess as to when you'll be able to close this TII and Telmex transactions?

I think in the second quarter, we're going to be able to close this transaction.

Thank you very much.

Thank you. And our next question comes from the line of [Alejandro Lesiano] from Credit Suisse. Please go ahead.

Hi. Good morning. Thanks for taking my calls. I just have two quick questions. First of all, is there a limit related to the cash portion of the tender offer for TII minority shares? And how would you finance the transaction if a large portion of TII minority shareholders choose the cash portion? Would you prefer low market, capital markets, and also preference between peso- and dollar-denominated debt? Thanks.

Just to understand, are you offering some financing?

Just wondering how it's going to affect basically the leverage once the transaction is completed.

No, I'd say that the total shares outstanding in the market is a little bit less than 40% of Telmex International shares, so that we'd have a market value of about 6.5 billion roughly. I think that we can deal with that. We have cash. We have some committed lines of credit. And very likely to the extent that we have to use this money, we will probably be taking out some of the funding with transactions on the longer -- longer-term transaction in the markets. There is no limit in terms of how much we can pay in cash for that 40%. So conceivably at the limit, all of that will be paid in cash.

All right. Thank you very much.

Thank you. Our next question will come from the line of Will Milner from Arete Research. Please go ahead.

Thanks a lot. Couple of questions, first basically on Mexico -- but firstly, after the COFECO decision, do you see a risk that in Mexico there will be a restriction on the pricing differential between on-net pricing and off-net pricing? I think I'm right in saying that's already happened in Colombia. Is that, I guess, a reasonable outcome from this process?

And secondly, on Mexico, just looking at the acceleration of revenue growth, I mean, I wonder if you could talk qualitatively about what's driven that. Is it faster data growth this quarter than last quarter? Is it slower voice pricing declines? Or is it a pickup in corporate usage? If you could just give some color around that, that'd be helpful.

The second question, can you repeat it because I don't get it?

Yes, I'm just trying to understand that there's been an acceleration in revenue growth in Mexico. And I'm try -- I'm looking at whether -- how much of that's come from a faster data growth rate this quarter? How much of it is due to slower voice pricing declines and whether there's just been a sort of pickup in corporate usage as the economy's recovered?

I think we're growing in not only Mexico. We're growing in all the countries the revenue. And it's not only on data. It's also on voice. It's also on prepaid. It's in everything. In Mexico, the most growth 15.8% from 172 to 199. So I think we have a very strong quarter as we're getting very good customers. You could see that the customers that we're getting in, in America Movil, not only in Mexico, are good customers. And we have been taking care of that, not that all the money that we spend in acquisition cost would be for good subscribers.

In the on-net restriction, well, what happens in Colombia, I think Colombia is really reviewing that because what happens is if they are going to -- if the resolution said that I need to reduce my off-net rate, then again, it's going to be better. The offer is going to be better for Mexico. And then I'm going to grow more. So I don't know exactly what was the idea of this resolution because if you make -- if you tell [Telso] to reduce prices, then you're going to be bigger. If you stop prices, then there's not going to be no competition. So it's very difficult to understand why was this decision.

The only thing that I told you is that COFECO said that we are not making -- that they said that they are not recommending to CoFiTel to do any measures on terms of pricing. So -- and what CoFiTel is saying that we're not making any bad practice. Okay? They are saying that we're big but that we are not making a bad practice in the market. So I don't really understand why they do this decision.

Really, what is happening in Mexico is that people -- because we have good coverage, good quality, good pricing, a good network, good data, good handsets, good -- it's very important we have a very good data network. The quality of the data that we're giving is very good. We have the preference of the customer. And I think it's really why we are growing.

That's really helpful. Thanks a lot.

Thank you. And our next question comes from the line of Mauricio Fernandes from Merrill Lynch. Please go ahead.

Good morning, everyone. Two questions actually -- first just want to clarify -- you mentioned that it hasn't been determined or decided yet whether AMX will just issue L shares or A and AA to exchange with Carso and Telmex International. Do you meant that for both companies that it could be just L shares? Or you mean just the tender offer for Telmex International? That's question one.

And question two might be a bit early for the detail. But so far, what's -- it seems that you've been saying that there shouldn't be tax synergies in this transaction. But for example, as you plan the integration of Embratel and Claro in Brazil, goodwill is tax deductible. So I would expect that to generate significant tax synergies. Plus, as you consolidate all the subsidiaries into a single one, you will be canceling out cost and revenue so that that could generate tax synergies as well. I'm not sure if you could share with us any thoughts on that.

No, what you're saying is totally correct. We don't have the number still today. But we're going to have tax synergies. And we're going to have other synergies. And we're planning to do that. What we are really working and we're going to know in the next weeks is how we're going to integrate the companies because it's very important the way to integrate the companies so we have a very good savings on taxes and everything else.

In the first question is we intend -- we're preparing the offer. But we intend to pay with the shares that we have in the treasury, that we held on our treasury. So almost -- a lot of those shares, almost 99.9% of the shares that we have are L shares. So that's why we think that we're going to pay with the L shares. That's the reason because we intend to pay with the shares that we have. So that's what we're planning to do. We are not finalizing the offer. But we think we're going to do that.

I think all the details should be contained in the filing that we will be making of the offering in the next several weeks.

Understood. Thank you very much.

Thank you.

Our next question comes from the line of James Ratzer from New Street Research. Please go ahead.

Yes, good morning, everyone. I have two questions, please. The first one's if I look across your businesses in Latin America, it looks the rate at which voice pricing is coming down has improved. I was wondering. Has this been a conscious business decision to now be less competitive on voice yourself? Or I mean, are you seeing less competitive intensity that's causing you to drive pricing down? It'd be interesting just to understand whether this is now a kind of start of a trend where voice pricing might be able to stabilize.

And the second question I had was just regarding the telecoms tax and VAT increase in Mexico, wondering if you could share with us how you have changed your pricing to adjust for that and during the month of January what changes you've seen in consumer behavior in terms of how people are dealing with the new tax. Thank you.

Hello. The first question is I don't think -- well, in all Latin America are different rates and different competitors. I think we have been very aggressive in terms of pricing. One example, let's say Mexico. Mexico, in terms of the OCDE, we are one of the lowest in terms of price. It's $0.05 of a dollar. So we have very good price in prepaid and in postpaid. We are going to still reduce the price. We really don't know. It's going to depend on the competitor. And in all the rest of the countries, it's going to depend also on the competition.

But if we need to reduce prices to be more competitive, we're going to do it. And if we need to invest, we're investing to do that. So still we have a lot of capacity in all our GSM networks. So if we need to reduce more the price and have more minutes in the network, we don't have any problem on doing that. And the second question on taxes, can you repeat it, please?

In one moment.

It's taxes in Mexico, no, I --

Yes, in Mexico.

Yes, I haven't been any -- it's very early to see how it's going to -- how the taxes are going to impact the products. But maybe in the second quarter, we need three months to review what's happening still with the customers.

But if you try to --

It's not only these taxes. No, what is happening is that we have other taxes. And these are going to take money from the people. And we don't know how the people is going to behave in our sector. So we need a little bit of time to see what's happening.

Have you increased your retail pricing, though, to match the price increase -- sorry, the tax increase?

Yes, we increased -- in some cases, we increased exactly the amount of tax that they put us, yes.

Our next question will come from the line of [Irena Watchnitz] from T. Rowe Price. Please go ahead.

Hi. Thanks. Good morning, everyone. Just two quick questions -- one is on your tax rate going forward. With this change in Mexico and now the merger with TII and Telmex, what should we expect in terms of the effective tax rates going forward, income tax rate?

And then I wanted to ask about Brazil. We saw a clear improvement in the margin. But what should we expect for this year? And also, what do you think could happen if there's some consolidation in Brazil to your margin, even if you don't actively participate? What do you think would happen if there was one less player in Brazil? Thank you.

On the tax rate, the effective tax rate should increase somewhat to extent that the major tax rate in Mexico is going up from 28% to 30%. But then you'd really have to look at what the combined operation would look like because, as what Daniel mentioned a little while ago, there will be some important tax changes in the transaction. And so we would need to come up with those numbers to see what would be the net effect the next year -- this year and the next following several years. There are some tax laws in some operations that may be utilized. And that may be having an impact on our effective tax rate.

And as regards Brazil, well, this whole issue of the market consolidating and losing one player has been there at least for the last five years, as far as I can remember. And what we have said is that to the extent that something like this happens, it's not something that is driven by the market but is driven by the quite peculiar situation in which some shareholders are. If there is a reduction of a player, that will have an impact on margins all things considered. I would take this -- what I have said in the past is that if the steady state EBITDA margin in Brazil is in the high 30s but are going to (inaudible) with one less player should probably put us in the low 40s situation in my view. That's I think what you could have in terms of (inaudible).

But again, this something that we have been talking about for the last five years at least. And we haven't really seen anything. It's not something that would be driven by the market. And we're really not counting on that. Thank you very much.

Our next question --

Okay. This will be the final question for the call. Thank you.

And that will be from the line of Henry Cobbe from Nevsky. Please go ahead.

Hi there. Thanks very much indeed for the call. Just a couple of questions -- the 3 billion to 3.5 billion CapEx budget, does that include any allowances for the spectrum in Mexico? That's the first question.

Second question, you mentioned that you changed the debt policy in Brazil. If you adjusted for that policy, what would be the EBITDA if you adjusted -- if you did it based on the like-for-like basis for fourth quarter '08?

And lastly, just looking at your gross fixed assets in the third quarter, year to date, you added about 60 billion to your gross fixed assets in fourth quarter. And the numbers aren't out yet. But we would expect probably more like 70 billion, and this compared to your stated CapEx of 45 billion. So what's the discrepancy between the CapEx you disclosed and the increase in gross fixed assets? Is the CapEx used for those cash CapEx or accruals?

First, I'll take the first question -- no, answer to the second question. What was the second question?

Brazilian bad debt.

No, that's -- we basically moved to increase provisions on tax losses. I think that we have excess provisions today. But I cannot give you an immediate estimate of how much it affects EBITDA. But I think it suffices to say that we have been provisioning as a percent of revenues higher numbers than what we actually needed. And that's because we wanted to be more conservative. We knew that we were going to be facing tough times ahead. This year seemed to be a little bit uncertain. And we wanted to play it safe.

And as regards your third question, maybe we can follow up later with Daniela. I don't know exactly what's the issue.

Okay. Just on the spectrum then, what --

But a clear answer is -- CapEx -- what we show with CapEx is the accrued CapEx.

Okay. And just on the spectrum, what would be a kind of ballpark budget that you'd satisfy for the --

It's going to be an auction. So we don't know. I think on the spectrum there are some rights that you have to pay per year. And there's going to be a price that you pay upfront. So I don't know exactly how much it's going to be, the price that you pay upfront and depending on how much -- what -- how many megahertz you win, that's going to be the rights that you have to pay to the government each year. I think for the first two years, there's not going to be rights. And then the next years, there's going to be the rights. Now that's more or less what the rule said.

With that, speakers, I'd like to turn it back over to you for any closing comments.

Okay. Thank you, Carlos, Daniela, and Daniel, for the call. And thanks, everyone, for participating.

And, ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.