America Movil SAB de CV (AMX) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the America Movil Second Quarter 2012 Earnings Conference Call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's presentation, Mr. Dan Kwiatkowski. Sir, you may begin.

Good morning. This is Dan Kwiatkowski of UBS, and I'd like to welcome all to America Movil's second quarter 2012 conference call.

On the line today, we have Daniel Hajj, CEO of AMX; Carlos Garcia Moreno, the CFO; Oscar Von Hauske, COO; and Daniela Lecuona, IR Manager.

So, without further ado, I'd like to pass the call over to them.

Good morning, everybody. Thank you, Dan. Carlos is going to make a summary of our -- Thank you, first, for being in the call, and Carlos is going to make a summary of the second quarter results.

Good morning, everyone. Again, thanks to UBS for hosting the call today.

The stabilization of financial markets that has come about at the beginning of the year has led to (technical difficulties) and provided economic activity in the region came to an end at the beginning of the second quarter and renewed concerns about global economic growth and the economic situation of some European countries. In some Latin American countries, like Brazil, the economies slowed down more, intensifying competitive pressures.

In spite of the volatility in financial markets, we managed to post solid gains in the quarter that topped all estimates, bar none, both in the wireless and the wireline platform, adding 5.9 million wireless subscribers, including 1.1 million that came with the acquisition of Simple Mobile in the US, and 1.7 million RGUs. It is important to note that, where we can provide triple play services, everywhere, all in Mexico and Argentina, over half of the RGU net additions was obtained through the sale of triple play bundles and nearly one-third through double play packages.

The net additions mentioned before allowed us to finish the quarter with 313 million accesses, including 252 million wireless subscribers, 30 million landlines, 16 million broadband accesses, and 15 million pay TV clients. The number of accesses increased 7.8% from the year-earlier quarter, with pay TV clients increasing 30.9% and broadband accesses 15%.

Our Brazilian operations added 1.3 million RGUs, accounting for approximately three-quarters of the overall RGU addition. At the end of June, we had 26.3 million RGUs in Brazil, 22.7 million in Mexico, and 3.9 million in Colombia.

On the wireless platform, Mexico led the way in net subscriber additions with 1.4 million, slightly ahead of Brazil, to finish the quarter with 68 million versus 63 million in Brazil. In Colombia, we had 29 million subscribers, in the US 21 million, and in Argentina 20 million, followed by Peru with 12 million, and Central America with 20 million.

During the quarter, we continued to grow well our postpaid base most everywhere, with the exception of Brazil. Postpaid net additions totaled 640,000 subs, even after 200,000 disconnections in that country.

Our consolidated [first] quarter revenues increased 9.3% in Mexican peso terms on wireless revenues that increased 14.1%, and fixed-line revenues had growth of 1.7%. The comparison of these figures, particularly the latter, with those observed in the first quarter becomes difficult because of the sharp relative movements in the value of various currencies versus the Mexican peso and, in particular, the 6.1% devaluation of the real versus the peso in the quarter. At constant exchange rate, revenue growth for the period was 6.3%, led by mobile data revenues that increased 30.7% and pay TV revenues that were up 23.4%. Fixed-line data growth came in at 8%.

Wireless ARPU growth practically everywhere on the back of mobile data. Brazil was the exception.

Wireless voice revenues reflected the impact of the reduction of mobile termination rates, particularly in Brazil.

On the fixed-line platform, we continued to see the declines of long-distance revenues, partly on account of heavy reductions mandated by the government.

In Mexico, Telmex continued to pass on to consumers, as agreed at the beginning of the year, the full benefit of the reduction in mobile termination rates enacted last year. But Telcel is rapidly getting back those revenues that it lost on interconnection.

EBITDA came in at MXN66 billion and was 3.1% higher than the year before.

Service costs generally rose faster than revenues on account of increased energy charges, rapid postpaid subscriber growth, higher content cost, and the spillover impact on operating expenditures of the major investment effort we are undertaking to expand and modernize our networks.

The EBITDA margin declined 2 points to 34.1%. In addition to the reasons mentioned before, we have reiterated in the past the reductions in the margin also reflect the new confirmation of our business lines Tracfone now and our pay TV operations, which are lower-margin businesses, becoming increasingly relevant.

The depreciation of the Mexican peso and other currencies relative to the US dollar resulted in a foreign exchange loss of MXN16.1 billion that resulted in our posting a comprehensive financing cost of MXN17.2 billion. The foreign exchange loss was smaller than the gain posted the prior quarter, so the balance for the first semester was a net gain of MXN3.2 billion.

We registered a net profit of MXN13.3 billion and operating profit of MXN39.1 billion that were practically flat from the year-earlier quarter.

Our net debt stood at MXN361 billion at the end of June, having increased by MXN29.7 billion since December and was equivalent to 1.4 times EBITDA.

Our capital expenditures in the first half of the year totaled MXN53.2 billion, and our acquisitions of equity interest, including both KPN and Telekom Austria, MXN67 billion, while we bought back MXN12.7 billion of America Movil shares. These outlays added up to MXN133 billion.

We will begin to consolidate our investments in KPN and Telekom Austria under the equity method beginning on the third quarter of the year.

With that, I would like to pass it back to Dan and open the floor for questions. Thank you.

Howard, can you, please, put together a roster of questions, please?

(Operator Instructions). Ric Prentiss.

With 3G and mobile data continuing to increase, I was wondering if you could update us, first, on what you're seeing as far as the cost of smartphones. Have they gotten down to the $100 level to you yet for good smartphones?

And the second question is on your 3G networks. Can you update us as far as how much usage you're seeing per customer? Have you seen a significant increase in the megabytes used per month yet? Thank you.

On the 3G handsets, of course, we have been seeing a lot of reductions in prices. But, as you see reductions on prices in some handsets, you saw also new handsets at a high-level price. So what we have been seeing is that, with those new prices, there's new people who are getting in, but there are still a lot of people who want the high-end handsets. So, still, it's more costly. The SAC for us -- the growth in postpaid has been more costly because there is a little bit more on subsidy because the handsets are much better handsets than they used to be. So that's one question. In other places, we have been seeing intensifying competition also, so the SAC has been growing a little bit.

And the second question -- which was it? The usage. Of course, people are using more and more data through bundles and data through the smartphones. We are being -- maybe more than 30% year on year they have been using more the data.

Daniel, if you don't mind, I'll jump in with a couple of questions myself. In Brazil, we saw sort of continued pressure on both ARPU and margins. Could you give us an idea of where you think ARPU and margins might eventually end up in Brazil and give us some kind of timeframe? That's the first question.

Okay. Well, what's happening in Brazil? In Brazil, as Carlos was saying, the economy has been slowing down a little bit. And the competition has been very tough. Competition has been intensifying. And that's really the reason why ARPU and margins have been going down. Let's say, in long-distance calls, maybe year over year the reduction on prices has been maybe 50%. So there's a lot of competition there. And we hope that the competitors will be more intelligent and the market will be more rational, but that's something that I cannot tell you. In Brazil, we have been investing a lot, so we're prepared for competition. And that's really what is happening with ARPUs and margins there.

Great. And my second question is on CapEx. Could you give us an update on your expectations for CapEx post the 4G auctions and post your recent conversations with Anatel?

In Brazil? You are talking about -- ?

No. In general.

Well, let me tell you about Brazil. In Brazil, we have been investing a lot, and our budget is also a good budget for investment. We don't think we need to invest more. We don't agree with the measure of Anatel, how they do their measures, because the measures, let's say, in Sao Paulo -- we have the second-best network there in Sao Paulo. But they don't measure the quality of the network. They measure the quantity of calls through the call center. So we don't agree on that. We have one of the best-quality -- we have been improving a lot on quality. It's what we have been working a lot last year and this year.

And I don't think we need more CapEx. We showed them what we're going to do on the CapEx for this year, and I think they are happy with the numbers that we showed them. But that's not something that we're going to increase. It's something that we have been doing for this year and what we're going to do until the end of next year. So that's mainly what is happening.

And, in the CapEx through America Movil, what we said is that we're going to invest around $30 billion in three years. That was last year, this year, and the next one. And I think we are more or less on that range. We don't think there's going to be a big difference on what we think for the rest of this year and the next one.

Thank you very much.

Michel Morin, Morgan Stanley.

Carlos, I was hoping to drill down a little bit more on Brazil and, in particular, the mobile service revenue growth, which was -- decelerated significantly. We know that there was the MTR cut. And I was hoping you might be able to help us sort out how much was kind of the MTR cut and how much was everything else, including the macro slowdown that you alluded to.

I think there are three things, as you are saying, the slowdown on the economy -- people are consuming a little bit less -- the cut of the MTR. I don't know if Carlos knows exactly what is the percentage of the cut on the MTR. And then the competition is intensifying. So that's really what you are seeing in Brazil and what is happening in that market.

All overall, you have to see also one important issue, that, in Claro, in the wireless side, we are not accounting on the long-distance. So, besides the other ones, all the long-distance through the wireless is through Embratel because it's where we have the license. And that's something where you need to compare apples to apples. So, being the long-distance is out of Claro and all the other steps --

But I don't know, Carlos, if you know exactly what --

I know incoming revenues, revenues from incoming traffic, came down by 16% year on year.

Only on the MTR?

[Mostly] on account of MTR, incoming revenues came down by 16%.

Okay. That's very helpful. And, then, if I may, in terms of margins, you alluded in the press release to the impact of subsidies on smartphones. Can you clarify, then, that you're completely expensing? You're not capitalizing any portion of the subsidy on your subsidies?

We have had the (inaudible) policy from day one. We always expense the subsidies on phones. We do not amortize subsidies all the time.

That's different than some competitors. And we don't only do that in Brazil. We do it all through Latin America. So the subsidies in smartphones are totally -- it's an expense. We don't capitalize anything.

And it's been a longstanding policy of America Movil, as I said, from day one of America Movil.

And, Carlos, if you had to -- help us out a little bit in Mexico to understand the main drivers of the margin there, because you had good growth, so it's a little bit surprising to see the sequential decline in margin. Would you say that it's all because of the subsidy to smartphones?

(technical difficulties)

Hi. This is Dan Kwiatkowski. I'd like to apologize very sincerely for the call dropping like that. Let's try to get on with the call (inaudible). Operator, more questions.

(Operator Instructions).

I think, Michel, we owe you the answer in Mexico.

Well, before going on with the answer, we're ready to make a proposal to UBS for some very good communication solutions.

Anyway, the question that Michel had was on Mexico. I think, in Mexico, we are seeing the following. On the one hand, we're seeing very strong recovery on the wireless side. We are seeing MOUs continuing to rise. They got to 267 minutes. They were the highest ever here in Mexico. And we continue to do very well in postpaid. We've had -- 20% of our net additions were postpaid. And these increasing -- the net additions of this year were almost 25% higher than what we had last year.

So Mexico continues to do very, very, very well increasing traffic, MOUs, and in gaining better share of the postpaid market. The latter part has a lot to do with our data capabilities, and, obviously, the increase of data services in Mexico has continued to be very strong. It's 30% right now. And data represents now approximately one-third of service revenues in Mexico already.

So Mexico, on the mobile front, is doing very well. And Telcel is recovering from the loss of interconnection revenue that it had last year.

On the fixed-line side, what we are saying is Telmex has continued to pass on to the public the benefits of the reduction in the termination rates that were enacted last year. And that explains a part of the reduction of revenues of Telmex. Essentially, it's something the company agreed to by its own will at the beginning of this year, and it's passing on the full benefit, which is, by the way, it's something that we haven't seen in any other country [except] in Europe and so on.

One thing that is important. (Inaudible) may have had an impact on EBITDA. There are things that we have mentioned before, which is, as we continue to invest, there's a lot of spillover into operating expenses of the efforts of the investment program. So that is something that is going to be an important factor and will continue for some time.

There's obviously the effect of the currency depreciation. That was important, the peso vis-a-vis the dollar. And that obviously has an impact in subsidies because we cannot always adjust our prices as rapidly as the movements in the exchange rate. The movements were very, very quick. So they typically have an impact on EBITDA as well.

And then we have -- given market conditions, we have decided to increase our contributions to the pension funds of Telmex, so that also was an additional cost that is bearing on the EBITDA of the quarter against last year.

So, all in all, the mobile side is recovering data very well. Postpaid has continued to gain share. Smartphones -- we continue to sell more smartphones. And part of the subsidies of smartphones, given [current situation] and the fast pace of growth of postpaid, was one of the things impacting EBITDA on the wireless side.

And, on the wireline side, it's basically the continued reduction of the revenues as we (inaudible) clients the benefits of the termination rates. And we have now the spillover of the investments, which is huge at the level of Telmex. The investment that Telmex is doing today to expand (inaudible) data is really important. And, finally, we have the effect of the labor provisions that we have increased, given the current conditions in the market.

Rizwan Ali, Deutsche Bank.

I have two questions. One is about recovery in Brazil. We still see overall revenues and EBITDA decreasing in Brazil on the wireless side of the business. And so I'm just wondering whether we should expect any price (inaudible) kicking in in the second half of the year which may allow you to start increasing your EBITDA and wireless revenues in Brazil.

And the second question is -- you are now well above your net debt to EBITDA target of one. Do you plan to slowly bring down the leverage to closer to one at some point?

In Brazil, as Rizwan has really just said, it was on the termination rate. It's part of the reason on the revenues and on the margins. It's on the termination rates, plus the slowdown on the economy, plus the intensifying of some promotions, and in the commercial side. So I think that, until the end of the year, it's going to still be a lot of competition and, well, hope that it would be more rational, the market. But that's something that I cannot tell you right now.

But I think the bases that we're doing in Brazil are good. We're investing. We're doing very good on the quality. We are going to invest in LTE. Our data revenues are growing also in wireless. So I think, in the long term, it looks like we're going to be in good shape in Brazil.

And, in the other side, the phone companies adding TV and adding -- and, remember, also, Rizwan, what I tell a few minutes ago. In wireless, we don't account for the long-distance, and it's important to compare that against our competitors. And, plus, what we're doing in TV and broadband, I think, all overall in Brazil, we are doing fine. Of course, we need to do big efforts in the wireless side, but, all over all, I think we're doing fine.

And Carlos can talk a little bit about the debt.

As you recall, we had a conference call a few weeks ago, basically, to discuss the acquisitions that we have had in Europe, and we provided some guidance there. We basically said that we intended to remain within the limits that the rating agencies have imposed on us in terms of leverage. But we also said that we expected distributions to the shareholders to remain roughly about the same average that we for the last three or four years.

So I think that's basically what we are looking at. We have an eye on leverage, and we have an eye on distributions as well. And it's important just to -- you can come up with your own numbers. We are not expecting any major deviation from this any time soon.

Thank you very much.

Kevin Smithen, Macquarie.

It looks like you've accelerated the pace of postpaid sub growth in Mexico and Colombia, and that's partially hitting the margins there. Can you give us a little more color as to what the total number of smartphones shipped in Q2 was versus Q2 of last year? And maybe, if you could, give us the difference in ARPU and churn between some of these postpaid smartphone subscribers and your prepaid voice subscribers in Mexico.

The second question again? I don't understand the second question.

Well, I'm trying to understand -- obviously, you're incurring a subsidy for adding these postpaid smartphone subscribers, but, in the future, you should get an ARPU and a churn benefit from them. So can you tell us a little bit -- what has the ARPU of a smartphone subscriber been over the last year or so that you've had the service? And, then, what would the churn -- ? What is the churn likely to be on those subscribers? In the US, we've seen, obviously, a big, 80% increase in ARPU and about a 30% churn reduction. I want to see kind of what that's looking like in Mexico thus far.

Well, let me explain what's happening. What's happening is that, in terms of postpaid, we are growing on the smartphones a lot. And we are selling new plans with bundle included. So that's helping us on the -- data has been growing. I think, right now in Mexico 30% of our revenues are data. So those are -- we are growing very well, where, every time people are moving to a smartphone, almost always, the subscribers, all the customers, are getting data plans. So I think that has been very good.

And, on postpaid, what we are doing today in postpaid -- I think postpaid is going to grow a lot, and data is just starting to grow at this time. And what is happening is that these $100 or $150 handsets is where we are moving in the postpaid side. So, as they are getting better phones, smartphones or good-feature phones, let's say, I'm sure that the prepaid customers are going to start to use data. And, mostly in data, they are going to use the main social networks and those type of things. So I'm sure that, in the next two or three years, the prepaid side is going to increase a lot on data. So that's the way we're seeing.

Of course, your question is on if we are selling a $500 phone on prepaid and then it's not using data and it's churning. That's not happening. In the prepaid side, we are not -- our subsidy has been very low. So we have been very careful on the subsidies on the prepaid side. And I think, if we put the smartphones in the prepaid side, and in the future, they are going to use a lot of data. That's where we're seeing things, and it's exactly the same in Mexico and in Colombia.

The question is really on the postpaid side. If you're selling a phone for $150, how much additional ARPU are you going to get over the lifetime value of that subscriber? You're going to have an initial hit as you add the subscriber to margins, but, over time, you should see ARPU go up and churn come down, at least that's what we've seen in the US and Europe. What can you say about this?

Well, ARPU is growing all around Latin America. So you'll see that ARPUs are growing. And it's because of the postpaid. So, in one side, we're growing in the data, but, in the other side, well, in some places, we're stable in the voice. So that's what you have. And we are selling -- it's going to be very difficult because, today, we are selling bundled plans, so we don't know exactly how much is on data and how much is on voice. But, at the end of the day, everybody -- I think 95% of the customers are getting plans with voice and with data included. But you could see that ARPUs are growing and growing all around Latin America. Exactly? I don't have the numbers here.

All right. Thank you.

Walter Piecyk, BTIG.

Daniel, can you give us an update on LTE? Are you still planning on launching in Mexico City in September? And, if you have any other kind of rollout timeline for when you'd be throughout most of Mexico with LTE -- thank you.

I think it's been delayed a little bit. But I think, in the fourth quarter, we can see some LTE products in Mexico. The rollout has been good. We want to train well. We want to have good quality. And that's why we are delaying a little bit the launch. But it's -- I think, end of October or beginning of November we could start to see some advertising in the market.

(multiple speakers) phones or internet or Wi-Fi devices (multiple speakers)?

We're going to start with bundles. Really, at the end of the year, then we're going to be also (technical difficulties).

Okay. And, Daniel, you also talked a lot about --

Phones, not voice.

Got it. You talked about the postpaid success in Mexico. I know we don't have a breakout of gross adds. But, obviously, prepaid is still the vast majority of the net adds in Mexico and most of these markets. Can you just talk about smartphones for that market? You talked about people -- subsidizing these expensive phones. But what type of smartphones are those prepaid customers buying? If you're only offering a small subsidy, do these customers buy an iPhone 4S? Is a 3GS selling to prepaid customers, because, at MXN4,000, it's still, I think, fairly expensive for a lot of those customers.

Yes, but, as I said, in the prepaid side, we have been very careful. We're really looking on the subsidies. We are checking every month what's the subsidy on the prepaid side. And this business is profitable. So I am not subsidizing a 3GS in the prepaid and they are not using or they are not consuming. And I think that we are [selling] these types of phones because, in the future, I'm sure, like in voice, data is going to be very important in the prepaid side. But I'm not subsidizing a lot -- or a very small amount of the handsets in the prepaid side. The handsets are -- we have handsets at $100. We have handsets -- feature phones at $60, where you can use your mail, you can do social network. So there is a lot that we could more in the prepaid side.

So, when I see in your stores for those prepaid customers those MXN4,000 3GS. You're saying that customers are basically not opting for that but opting for the MXN60 or the MXN100 or whatever it is, the cheaper, other smartphones at this point? Or are they still buying the MXN4,000 3GS?

They are buying both. They are buying -- there's different -- we have a very good --customers in prepaid are good ARPU customers in prepaid, maybe MXN300 to MXN350 per month. So it's not bad, $30, $25, $20. And there's other ones that still do not have a big consumption. But we are selling both. And what I'm saying is, if you want a high-end or a high-priced handset, then you have to pay for that. I'm not going to subsidize that handset for you in the prepaid side.

Yes. Thank you.

Alex Garcia, Citi.

Just very quickly, can you update us on the restructuring of your -- consolidation of your three assets in Brazil? I wondered if you could share your opinion if the suspension of the Net Servicos delisting -- if that delays your plans for Brazil and if the competition that you just mentioned that is getting tougher forces you to accelerate that consolidation. That would be my question. Thank you.

Well, I think what we're doing in Brazil is we're doing the integration of the three companies. Of course, still, the three companies are separate. But we are doing as much as possible on the integration, as much as we can on the integration. Net Servicos in purchasing in the commercial side, in the technological side also -- we are doing one network. We have convergence in the commercial side. So we are doing well. And you can see that we're doing well because the TV and the broadband is doing excellent. And I think and I'm sure that the wireless I guess going to be very -- wireless data is doing also very good. And, at the end of some time, I think, all overall, in Brazil we are going to be very, very strong.

So I think we have the companies. We have the base. We have a very good TV company. We have a very good long-distance company, brand. We have a satellite company. We have cable. We have broadband. And then we have wireless.

So I think, in Brazil, we have been doing a very good job integrating this company. And I'm happy in the stage where we are today.

Thank you. And just to follow up, if I may, regarding the discussion that, since day one, America Movil does not amortization the handset subsidies. Does that work also for the handset subsidies for corporate clients or just individuals?

Yes. In the handsets, we do expense on everything, everything.

Great. Thank you.

In the handsets, we do as an expense. All the countries, all the markets, it's (inaudible). It's every place.

Thank you. Very clear.

Vera Rossi, Barclays.

Can you talk about Brazil again and follow up on the wireline business? Your revenues are growing 7.6% in wireline, and we are seeing other companies with big declines, between 12% to 13%. So, first, are your customers taking more triple play services?

And who do you think -- ? In what regions do you think you are being more successful gaining market share, in Sao Paulo or outside Sao Paulo? Thank you.

Vera, as Carlos said, we have been doing a lot of triple play and double play. NET has been very successful in their markets where is NET. In the other side, we have been also doing satellite plus wireless, data, and wireless voice. So we have been really successful on the fixed line, also with broadband.

But Oscar can tell you a little bit more about the market share and how we are doing in the fixed side.

As we mentioned, NET is really successful in the triple play side. Around 51% of the customers of NET already have triple play. 22% have double play. Single play is different. So the packages and the bundle is important in the marketplace. So we are launching all the triple play products in all the regions, in all the cities that NET has a presence and, as well, in pay TV. DTH is growing pretty fast. So we already 2.6 million pay TV customers on the DTH satellite product.

And another threat for us is that, as Carlos and Daniel mentioned, the long-distance market is decreasing a lot due to the changing rates. So we need to (inaudible) revenues and pay TV and broadband to compensate the decline in long-distance. We've been doing this in a successful way in the past. But the long-distance market is accelerating the decrease. On the last quarter, we see that the minutes are growing in long-distance, but the prices are declining in a very (inaudible), as Daniel mentioned, it's due to competition more in mobile traffic. So we are working on all the fronts to -- in corporate, it's a lot of price pressure on entry price. (Inaudible) very successful data networks. We've been facing a lot of price pressures on any new contract.

So, while we are doing this -- how we can bring more value-added to the connectivity. So we are moving on to cloud computing, to datacenters. We are going to open a new datacenter in Sao Paulo, (inaudible) next month. So we will have more minutes to sell with the value-added services.

So I think the combination of the decline in long-distance and the increasing local pay TV and broadband, we will have a good position in the marketplace.

And adding something to Oscar's comments is that, really, in the TV side, we have the best product and the best quality in Brazil. So that's really the reason why we're growing, because we have the best product, the best content, the best quality. And, in broadband, I think we are exactly the same. So that is why we are growing in that market.

Okay. Thank you.

Stanley Martinez.

Just a couple on Tracfone, if I could. Could you say what proportion of service revenue data comprises within Tracfone now? You always disclose the minutes of use, and that continues to grow. But, as data becomes more important and, particularly, as you do your data wholesale deals with some of the other major carriers, do you think something like the data-sharing tariffs that we see from the postpaid carriers here in the US might be applicable to Tracfone and maybe help you drive usage and revenue, market share versus prepaid carriers in 3G and 4G environments similar to what you did successful in 2G and voice?

I think Tracfone has been a very successful company. Data is still small. But we are selling very good plans in the Straight Talk brand, and that includes a lot of data. So I think, in the future, we're going to grow a lot more on data. And that's exactly what is going to happen.

We have different segments. We have the Safelink. We have the Simple Mobile brand. And then we have the Tracfone. In the Tracfone and Net10, we don't have a lot of data. But, in the Straight Talk brand, we are including data in our packages. And this is the brand that is growing. I think we're going to grow a lot in the next months. I think it's going to be very important data for us.

Daniel, could you just dimension that slightly? Is it less than 10% of service revenue growth? And, again, if you think about maybe what you can do to try to spur adoption and to drive differentiation even further against some of the prepaid carriers that own their own networks, how does something like a shared-data tariff package similar to what we've seen from AT&T and Verizon in postpaid fit into that equation potentially?

In our Straight Talk -- I don't have the number here with me. But you could see that the new plan in the Straight Talk plan includes data, SMS, and voice. It's a very, very successful plan. So we have been growing a lot, but, still -- more than 60% but still very, very small the number. So I'm sure that, in the next months, we're going to have a good growth there. What I'm telling you in our Straight Talk plan. We include voice, we include SMS, and we include data in the package.

All right. Thanks, Daniel.

Valder Nogueira.

Just to get it clear, you mentioned that your mobile service revenues in Brazil -- they do not reflect the long-distance revenues. I want to double check that information.

And I also want to ask you whether your ARPU numbers for Claro Brazil do reflect long-distance revenues generated by those customers as to be able to better compare apples to apples to what the other operators are seeing.

When you look at the aggregate number of revenues, we obviously are including everything. I think that's the right number to look at, the total revenues, because that's the only one that I think is really comparable to what everybody else is showing or might be showing. But remember that Claro did not have a long-distance license, so the scheme that we have had in place for a long time is one whereby Claro does the core billing of long-distance services on behalf of Embratel. So, whereas the clients pay -- Claro's clients receive the service and get an invoice, the actual allocation of these revenues is different because that part that corresponds to long-distance services is posted as an Embratel revenue, not as a Claro revenue.

But the ARPU number for Claro does include whatever they consume in terms of long-distance, even though a lot of this revenue is passed on to Embratel? Right?

It would include the interconnection fee associated with that.

Okay. Thanks a lot. Thank you, Carlos.

Alex Garcia.

Just still on Brazil, we are seeing the (inaudible) fiber in your networks and planning to launch IPTV product on there, let's say, where their high-end customers are in Q4. So I was wondering if you have any plans to upgrade Net Servicos' network to the DOCSIS 3.0. And, if you do, if you could, give us an estimate on how much that would cost to upgrade a client to DOCSIS 3.0. Thank you.

(Inaudible) upgrade enabled to DOCSIS 3.0 on the high-end of the cities. So that's why we could -- we had the ability to deliver 100 megabits per second in broadband. We've been selling that product. Around only 3% or 4% has 100 megabits on all the base of Net Servicos. So we are doing that. We are doing in the high-end of the network.

The cost of that is a mix. We don't have an estimated cost at unit. But I think it's economically better than fiber to the home. So I think we have an advantage to upgrade to DOCSIS 3.0 using copper cables.

Michel Morin.

I just wanted to see if you could talk to us a little bit about Argentina. We haven't really talked about that market yet. Obviously, there are some macro challenges there. So, if you can, give us a bit of an update on what you're seeing; in particular, as it pertains to how that's affecting your margins. Thank you.

What's happening in Argentina is that we have a little bit of an increase in our costs. And the challenge is to grow the revenue also at the higher pace. We're seeing a real slowdown in Argentina. But we have the company under big control costs. And in the market we are doing well. We are growing, and we are upgrading some of our customers to a better plan. And it's more or less what is happening in Argentina. So Argentina is a tough market today because there is a lot of pressure on costs. But the slowdown has been also -- in the last three or four months, you could see that there's a slowdown in the economy, and that would make us to grow a little bit less. So that's what you are seeing there. We have been good in the corporate side, in the fixed corporate side. And in the wireless we have a very good cost control in Argentina. We're growing in the postpaid side. We're growing in the prepaid side. We're being very careful on the subsidy. And we are not increasing prices at this moment.

Okay. And, then, just if I can come back to Mexico quickly, the revenue performance has been very solid, and you've made some positive comments earlier. Do you feel that you're gaining share, or is this really the economy that's kind of lifting all boats?

It's difficult to say. We don't have the numbers of the other customers. I don't know. I don't have the number. But I think that, in the postpaid side, we are gaining market share.

Great. Thank you very much.

[Christopher Buck], Barclays.

I'm wondering if you can give us a little bit of color around your funding plans. I noticed that, on this quarter, your bank lines grew considerably, and I assume that was to fund some of the acquisitions. And I'm just wondering. In July, you issued several bonds, and I'm wondering if you plan to use some of that capital to repay revolvers or if you can make any other comments about what we should expect for the balance sheet in the third quarter. Thank you.

Chris, only to add something to the question of Michel Morin, what is important in Mexico, and you see that, is the number portability. And we have been gaining every month consistently in number portability. And it has been accelerating that in prepaid and in postpaid. So that's where you could see where the market is going and what the preference of the customers are.

So Carlos can tell you about --.

Can you repeat the question, please?

The funding.

Absolutely.

We raised roughly $3 billion last month. And all of that is going to be utilized to pay down the liquid facility that we had drawn to finance the acquisitions of KPN and Telekom Austria. So, by the end of next month, I think all (inaudible) will have been fully repaid. To the extent that we see opportunities in the market, we may want to -- we may be able to do that if we want to advance some funding for the amortization (inaudible). The fact of the matter is, today, we don't really have any more maturities of any significance. But, if there is something that makes sense on the front of debt management, we may be able to do something. But we don't really require any more capital at this point.

Perfect. Thanks very much.

Thank you, all, for being in the call. And thank you, Dan, for arranging this.

Thanks a lot. Goodbye, everyone.

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