America Movil SAB de CV (AMX) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2012 America Movil earnings conference call. My name is Juscinia and I will be your operator for today. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

Joining us this morning is Daniel Hajj, Chief Executive Officer; Carlos Garcia Moreno, Chief Financial Officer; Oscar Von Hauske, Chief Operating Officer; Carlos Robles, Telmex Chief Financial Officer.

And now I would like to turn the conference over to your host for today Mr. Daniel Hajj. Please proceed, sir.

Good morning, everybody. Thank you for being at the third-quarter financial and operational results, and Carlos Garcia Moreno is going to make a summary of the results.

Hello, good morning everyone. The measures announced in the third quarter by the European Central Bank contributed to a relative stabilization of financial markets and laid the ground for the sustained appreciation of the Mexican peso from its lows in mid-June.

In South America economic growth appeared to recover somewhat in July, but probably drifted lower in the remainder of the quarter as a result of the slowdown in China. In spite of the relatively soft economic environment, we were able to increase by 5.6 million our accesses -- 4.1 million in mobile, 1.6 million in fixed -- to finish September with 319 million. Fixed line RGUs rose 11.3% from the prior year and mobile access 6%.

As of September we have 256 million wireless subscribers, 30 million land lines, 17 million broadband accesses and 16 million Pay-TV units. The latter are growing at a 26% annual pace, while broadband accesses are expanding at a rate of nearly 15%.

RGUs of our Brazilian operations climbed 24% to 26 million(sic-see press release "27.5 million") after adding 1.2 million RGUs in the quarter. Brazil is followed by Mexico and Colombia in terms of RGUs with 22.7 million and 3.9 million, respectively.

Mexico accounted for approximately one-fourth of our net subscriber additions with 1.1 million to finish the quarter with 69 million. In Central America we gained 658,000 subs, in Colombia 587,000 subs, and in Brazil 481,000.

Our postpaid base expanded rapidly in most countries, growing 41% in Peru, 30% in Guatemala and 17% in Mexico relative to a year-earlier quarter. Postpay net adds totaled 972,000 subs.

Our consolidated first-quarter revenue grows 4.5% in Mexican peso terms, approximately half the rate posted in the prior quarter because of the appreciation of the peso. At constant exchange rates our service revenues increased 6.1%, practically as fast as they did the prior quarter. They were led by mobile data revenues that increased at 35% -- they have accelerated in fact -- and by Pay-TV revenues that grows 21%.

Fixed line voice revenue were down 7.2%, less than the 7.7% decline of the previous quarter, while mobile voice revenues remained somewhat higher than the year before.

Voice revenues reflect the impact of the reduction of termination rates and long distance rates in Brazil and the transfer by Telmex to its clients the full benefit of a reduction in mobile communication rates enacted in Mexico last year.

EBITDA came in at MXN66 billion and was 0.6% higher than the year before in peso terms. The EBITDA margin improved slightly sequentially to 34.4%, reflecting an underlying improvement in EBITDA growth at constant exchange rates. At constant exchange rates EBITDA increased by 2%.

The appreciation of the Mexican peso vis-a-vis the dollar and other currencies we saw then a foreign exchange gain of MXN9 billion in the quarter in contrast to the MXN16 billion loss registered in the prior quarter. This gain translated into a comprehensive financing income of MXN2.4 billion(sic-see press release "MXN2.2 billion") in the quarter. Through September we had a net foreign exchange gain of MXN12 billion.

The change in the foreign exchange result explains most of the increase in our net profit, which rose to MXN31 billion, more than doubling those of the previous quarter and surpassing by 67% those of the year-earlier quarter.

Our net debt totaled MXN363 billion at the end of June, almost unchanged from the prior quarter, and was equivalent to 1.4 times EBITDA.

Our capital expenditures in the first nine months of the year totaled MXN82 billion. And our acquisitions of equity interest, including both in KPN and Telekom Austria, MXN79 billion, while share buybacks and dividend payments amounted to MXN22 billion.

These outlays added up to MXN183 billion and were for the most part covered by our funds from operations. We obtained MXN56 billion in the financial market to cover the difference. Again, this is in the year through September. In the third quarter we began to account for our investment in KPN under the equity method.

So with this I would like to pass it back to the operator so that we can begin the question-and-answer session. Thank you.

(Operator Instructions). Vera Rossi, Barclays.

For the first time since 2010 we saw the EBITDA margins improving on a sequential basis. And despite the fact this was a small improvement, do you think we will see a change in the trend that we saw in the previous quarters, and going forward we will see margins improving? Thank you.

One of the biggest accounts for EBITDA are subsidies and investments that we have been doing in our network. So in terms of subsidies, I think that still we are going to -- we're moving a lot of the 2G phones to smartphones to feature phones, so I still think that the next year and 2014 are going to be really important in terms of subsidies. And in the investments and in the CapEx we have been investing a lot in 2010, 2011 and this year we have been also investing a lot.

But I still think -- and then these big investments have been giving us the opportunity to grow a lot on data, and you could see that in the ARPUs. But I think for next year still we have some investments like LTE that we are planning to do in some countries in Latin America. So I think part of the investment we already do, but still we have some investment that we need to do next year.

So that means that still there is a little bit of expenses that we are going to have in the network and there are going to come the revenues in the future. You could see that all these big investments that we have been doing in 2011, 2010, 2012, have been very profitable. The revenues has been there. Data has been growing a lot, so we feel that the next step on LTE will be also very profitable.

Okay, thank you, Daniel. And one question about ARPUs, do you expect your ARPUs in wireless to continue to increase across all countries, and should we continue to see an acceleration in this improvement as we saw in Mexico this quarter?

I think ARPUs are voice and data. I think in some countries voice has been stabilizing. They have been decreasing a little bit but we can see that they are stabilizing a little bit right now, and on data we have been growing like around [34 cents] and still a small part of our subscribers have data and smartphone, so I think we still have a lot of work to do on that. So still 2013, 2014 you're going to see it changing from 2G phones to smartphones, moving to LTE and having all our customers using a lot more data, and that means that we are going to have more revenue.

Depending also on what you're going to see on the market, then competition and stuff in a lot of markets. You could see that in Brazil. It is big competition -- Mexico, Colombia -- all around you could see there is a lot of competition. So that also depend on house competition and what would be the -- in the next year.

Okay, thank you.

Alejandro Gallostra, BBVA.

Could you please explain your strategy in Mexico to compete with Televisa and [Usis], especially once they launch quadruple-play bundles?

Well, what we have been doing in Mexico, you could see that prices have been going down in mobile 18%. Prices have been down 18% year-over-year, and minutes has been growing a lot. Telmex has been launching new plans. We have been launched also naked DSL. [Then you] saw what we are doing is competing, and I think it is what you're going to see all next year.

You need to do investments; we are doing in the investments in the market. This sector you need to invest a lot, so we are doing investments. We are doing fiber-to-the-node. We are doing nice, good networks, being very careful on quality. We have been especially good on quality. We are trying to manage quality.

In number portability in mobile we have been gaining. So you have to do a lot of things to compete and it is what we are doing in Mexico. Something special to do for next year we don't have, we're going to do exactly what we have been doing the last years.

All right, and perhaps you could give us an update about the negotiations you are having with regulators regarding Pay-TV utilization in Mexico?

Well, in Mexico it is one of the only countries in the world that doesn't have convergence, and I hope that next year we can have the authorization to do TV. So we have been showing the regulators, we have been talking with them. We have been showing data. So Mexico it is I think the only, or one of the only countries in the world --

The only one in the whole city.

The only one in the whole city that doesn't have convergence. So I hope that the government could understand and accelerate the authorization for Telmex.

All right, excellent, thank you.

Michel Morin, Morgan Stanley.

I just wanted to follow up on the earlier question on ARPU growth. Could you confirm that you are actually seeing growth in both prepaid and postpaid? And can you help us quantify how much of the ARPU growth is really mix related given that you have been growing faster in postpaid subscribers?

And then, secondly, I just wanted to touch on your mobile data business in Brazil, in particular. I think your release said that you grew 15% year-on-year, but on our estimates it looks like maybe you are down sequentially. So I just wanted to see if that is correct, and if you could perhaps provide some additional disclosure in terms of how significant data is now for you in Brazil? Thank you.

Well, on the ARPUs -- the first question on the ARPUs, the ARPUs are -- in data we are growing more on postpaid. We have been adding a lot more smartphones on postpaid. We have plans -- bundle plans -- voice, data. And all our customers that used to have a postpaid plan and are adding new data plans in there. So we have been very successful on that.

In prepaid we are starting -- people are starting to add -- also starting to use data. They are starting to move from phone to a feature phone, and all of those things are giving us. But we have been doing a lot more better in the postpaid segment. There is a lot of prepaids that are moving to postpaid with a plan, with a data plan. And it is what the trend in all Latin America we are having.

I think as Daniel pointed out, there are countries where ARPU -- where data has been growing more rapidly, and obviously they are having a great impact on ARPUs. And data today still really mostly on the postpaid level. But, then again, there are countries where prepaid is also going well and so forth.

And a case in point is coming from Mexico. As Daniel pointed out, the price per minutes in Mexico declined 18% year-on-year. And they were a major catalyst for MOUs to go up. MOUs rose 22%.

So in Mexico you clearly [have points] this quarter and increasing ARPU that came solely from voice on the prepaid side. So I think that -- again, I think structurally data is going to continue to be important. Today it is about postpaid, and increasingly it is going to be also about prepaid. But voice still has a lot to deliver on the back of private clients and improvements in capacity that we are investing on.

And also data growth quarter-on-quarter and year-on-year, so we have been growing quarter-on-quarter and year-on-year, and today data represents around 25% of our revenue. So there is very good growth. And still I think this, as I told you a few minutes ago, there is still a small segment of our subscribers that are using data. We have a lot of room to work with there.

Thanks for that. And, Daniel, just to clarify, that 25% number that you just gave, that is --?

It is in Brazil; it is in Brazil.

Okay, so --.

Your question was in Brazil, no?

Correct, so you are saying in Brazil it is 25% of -- what is that? -- of mobile service revenues is mobile data?

That is exactly. 25% of mobile service revenue is data.

And that was up also sequentially?

Yes, yes.

Okay, great. Thank you very much.

Walter Piecyk, BTIG.

Just two questions. First, on Mexico, can you just give us your updated view on where you think the MTR cuts will be going forward relative to where they have been historically?

And then just on Brazil, it looks like your churn did pretty well in the quarter, definitely obviously some improvement. The margins look good. Things look like they have stabilized a bit for you here. However, it sounds like there might be some incremental pricing in the market, so I wonder if you can give an update on Brazil specifically in the wireless business, not the other businesses, but what you think is going to happen going forward in Brazil, and since it seems like you are in a pretty good spot right now? Thanks.

Well, first, MTRs in Mexico, I think those interconnections are one of the lowest in [OCDM] in the world. So last year we have a cut of 70%, so I don't know if the regulators are still thinking to cut more those interconnections.

I think these big, big cuts hurts a little bit the investments in rural areas, because in the rural areas the only revenue that you get -- there is a lot of people who doesn't have money to put, so the only revenue that you have is the interconnection, the incoming call. So if they think or they are planning to cut more interconnection than what is that to happen is going to be less investment in those rural areas. Mexico today it is only at less than 90% penetration and it is behind all the other countries, so I hope they don't cut more the interconnection.

And the interconnection today is one of the lowest in -- I think it is the lowest in Latin America, one of the lowest in the world. So it is around $0.023 of $1, so it is really, really cheap.

In Brazil I think we have been improving. This quarter we have positive cost base. We used to have bad -- not very good promotions, so that is why our trend that is up in the last quarters.

But I think everything is getting stabilized. We work a lot on the investments, on the CapEx. We are giving much better quality to our customers. And what we are doing in Brazil is not only one thing. We are growing in our distribution. We are making better our brand awareness. We are working a lot on data plans. We are working a lot on the quality of the network and customer care centers.

In these investments we are putting fiber-to-the-node. We are integrating our companies there. You are only talking about mobile, but in Embratel and in NET and we are integrating also a lot of things in the network. So we are doing a big, big work there.

And it is not going to take us only three months. So we have been working for around 1.5 years and I think it is going to take us another year to integrate everything. But I think we are in a good moment. And wealth in Brazil also there too important issues that you could see there first there. We are having an economic slowdown there, so people are consuming a little bit less. So that is what you see.

The other -- the MTR cuts is hitting us also in the -- they're hitting us on the revenues. The long distance has been really, really tough. In mobile we don't have the long distance, we have it in Embratel, so maybe comparisons are not exactly the same comparisons against our --.

But, Daniel, your usage is up very nicely, so it looks like it is a pricing issue. Can we expect any type of stabilization in the pricing so that we won't see these 15% declines in ARPU?

I don't know, because it depends a lot on competition. So I hope that the market will be more rational. We can see the last quarter more rational things in the market. And I hope that for next year -- but well, I don't control my competition.

So things have been very, very aggressive in the market. Maybe so aggressive that is why we have been having problems on the quality. We have been going -- they have been having problems in the quality and they had been more aggressive on pricing than on investments. So, well, it is what is happening in Brazil. We are investing a lot of money there. I think we are preparing for the future. And I hope that everything gets more rational, but I cannot tell you exactly what they're going to do now.

Thank you, Daniel.

Alex Garcia, Citibank.

Daniel, can you just say a little bit more of what is behind the weak postpaid net additions in Brazil? Is it the market getting irrational with subsidies? Last year I was doublechecking and it was about 1.8 million net additions in the first nine months and the first nine months of this year has been very, very weak. So I was wondering if you could detail a little bit more, and if and when you guys think you can go back and start capturing more postdated net additions? That would be my first question. Thank you.

Yes, well, in Brazil -- let's divide prepaid and postpaid. I think -- first of all as I told you, the slowdown in Brazil has been -- since last year has been passed. So in Brazil we need to divide prepaid and postpaid.

In prepaid I think we have been doing good. We have been growing. I think we have been -- or even in market share or gaining a little bit in market share -- I don't remember exactly -- we have been growing 11%, almost 12% in prepaid.

In postpaid we have been having some promotions at the beginning of the year. That doesn't work very well and that is what we just correct, where we corrected a few months ago. But still we have been having some churn about that. But you could see that this quarter we have positive in postpaid, so we have been adding good customers. We have been very careful on adding good customers on the postpaid side.

So, yes, you're right, in postpaid we have been losing a little bit on market share; in prepaid we have been gaining market share. And I think what we are correcting in postpaid you're going to see much better growth in the postpaid in the next quarter and in the next year.

I don't know exactly where does the slowdown in Brazil is going to take, because they are saying that the next year they're going to start to grow a little bit. So I hope that the economy do well and we start to grow, but what we are going to really be checking is the market share. So we need to be growing in market share in the postpaid business.

Okay, great. And then a second question, if I may. Can you share your view on the potential impacts for MX? From all the changes that have been discussed about Anatel in terms of the competition plan with minimum broadband speeds, and also the discussions that have been -- that Anatel wants to implement the partial bill and keep -- if you could comment your view on this it would be very good.

On partial bill and keep, I think I am against bill and keep, because the only thing that makes you bill and keep is to have like bypassers and all of these things. So I don't agree on the bill and keep.

We have been telling them what would happen if they kept bill and keep. Then some calls from mobile to mobile are going to move from mobile to fixed and then to mobile. So it is going to be -- it is not good to have those type of regulations because they are going to allowed to do bypasses and all those things.

We already -- I think in Brazil a few years ago we have it and then they change it because of that. So I hope they don't put it again. So I think the minister is hearing a lot, and I hope they don't take that decision.

On the -- what was the other question? (multiple speakers).

It was regarding the minimum speeds for broadband and if that will require more CapEx. How do you see that? I guess that is 60% maybe.

I think we have been having a much better quality in our networks than our competitors. And Anatel -- what Anatel is doing is saying -- well, you cannot sell at the speed of 3 gigs and then give 1. So it is what they don't want. So maybe what we are going to do if they do those type of things then nobody is going to advertise the speeds that they are going to do.

So I don't think that is the way to solve these type of issues. What they need to do and what they are saying is that you need to have a minimum quality requirement. And it is what everybody -- you cannot do lowering and lowering the prices, do a limited of everything and don't invest on the networks, because then you're going to saturate your networks. And it is some of our competitors are doing those type of things. So that is what makes Anatel start to think of those type of regulations.

But at the end of the day we have been investing. We have been increasing our quality. We have been setting up the better speed in Brazil, I think, in almost all the places we have in data. So I don't worry a lot about the quality -- focus on quality, because we are giving much better quality than the other ones.

Okay, thank you.

Andrew Campbell, Credit Suisse.

I have two separate questions, actually. The first question is just an update on the CapEx budget for this year. Any change in what you think you will spend and any outlook for next year?

And the second question is on a point in the press release where you mentioned the Company investing in a couple of soccer teams in Mexico. And if you could just explain how those fit into the overall strategy. Thank you.

On the CapEx we -- I think we are in our budget this year. We are going to invest what we just said. We always said plus 5% or less 5%, but we are there so we don't have big changes. The budget for next year, it is there -- it is going to be MXN10 billion, around MXN10 billion is what we have been saying. The budget for next year we still doesn't have it. We are working on that, maybe we can talk a little bit about in the next conference. But I think it is going to be around the same as this year. So those are more or less the numbers that we have on CapEx.

In terms of the football team, well, it is really a minor investment. We only buy 30% of that, and give us the -- we don't control it. We don't control. And what gives us -- to give us the right to do by the Internet and by other distribution of the content, it is more or less what we get with that. So it is a minor investment and give us those rights, and it is really why we are doing that.

Okay, I see. You think that it makes sense to continue to make investments in content-related businesses like that -- I mean, in other areas of sports or perhaps outside of sports as well?

Well, we have been doing that for -- we have a lot of subscribers in TV, and we have some channels -- Oscar can talk a little bit about our channels that we have in Colombia and some content that we are producing. We have DLA also that we are buying and distribute to all. So it is more or less in the same strategy that we have. Oscar, why don't you talk a little bit about the content that we have in Colombia.

Yes, in Colombia we produce three channels that came with some of the cable companies that we acquired in the past. Mainly our focus on entertainment. And as well we haven't DLA. That is a streaming media platform to offer to our customers over the top streaming video. So content -- we have some business on content related to complement the content that we distribute from the vendors. So that complements our offering on the Pay-TV business.

We have been growing very good on Pay-TV all around, mostly in Brazil, excellent. And in Brazil we have a lot of competition there. So I hope we can do that exactly in Mexico, the same in Mexico.

Thank you.

Marty Fernandes, Merrill Lynch.

I just want to touch base on the regulatory environment in Colombia. I am sorry if this is already discussed, but it seems the government is analyzing the imposition of marketshare caps, and it could also limit America Movil's participation in the upcoming spectrum auctions. I just wanted to see if you could -- Daniel or Carlos -- if you could share some thoughts about what you would expect from these two potential events? Thank you.

I think -- we get in in Colombia since the year 2000 with, let's say, 5%, 6% market penetration. Today we are above 100% penetration. We have been doing a lot of investments in the technologies. We have been doing investments in coverage. We have been covering a lot. So we have been investing and we have been executing very well.

So today what you are saying is that -- I don't think the government -- the first point that you have about putting caps on the marketshare, I don't think it is what the government -- it is what some people in the Congress that they are saying that, not the government. I think the minister says that it was not a good idea to do some type of -- these type of things.

So what is happening is what you need is investments. In this sector, in these industry, what you need is investment. And to have those investments the country needs to have certainty, to have legal security on those. And if you have those things in the country than the investments are going to come. And it is what I think the government needs to look at. So I am sure that they are not going to put -- I am sure that they're not going to put caps.

And in terms of the license, I hope that in Colombia they don't do a tailor-made regulation for companies that don't invest or that they want to win market share because of the regulation and not because of the investment.

So I think if they -- in my view what the government should do is that they need to let everybody invest. The government is really excited and they want a lot more broadband in the rural areas, in the main cities. So if they really want that what they're going to -- what they should do is to give the opportunity to everybody to invest and to have all those investments in Colombia.

So that is my point of view. And I think that in Colombia we have legal security and certainty. And I am sure that they're going to let us participate in the auctions for the frequencies. Carlos want to say something.

I think when we arrived in Colombia in 2000 we have a 10% -- less than 10% penetration. Today we have more than 100% penetration -- 105% penetration in Colombia. So that means investments, nothing more than investments. And it is what the governments in all Latin America should look for [non-investments], because data is huge, data is coming very strong and you need to do a lot of investments to grow data.

And, Daniel, while we still touch on Colombia, the margin has come down by about 200 basis points relative to what it did in the second quarter. Was there anything specific about that, because net additions in wireless weren't so high or was there anything specific to the second quarter that drove the margin up too high?

No, I don't have something special. If you want I can make -- you can talk to Daniel and review -- I don't know, Carlos.

I think the revenue is still very positive in postpaid in Colombia. And that is -- as Daniel was saying, they're moving more to smartphones and that means that subsidies are going a little bit higher. If you look at Colombia year-on-year the postpaid base increased 13.5%, so it is doing well.

We are happy you could see just don't see only subscribers -- look for the revenues but revenues are growing very well in Colombia. There is a lot of people adopting data plans, moving, as Carlos is saying, to a smartphone. So we are happy how things are going in the market in Colombia.

Okay. If I may, one more question. Then on consolidated EBITDA margin we saw a slight increase sequentially, you know, it showed some stability, and relative to the last few quarters, when due to smartphone penetration, Pay-TV and all MTR cuts in Mexico we saw margins declining. Is this 34% and change the margin that you would expect America Movil to continue to have in the foreseeable future or more or less?

It is really a difficult question, because you see, as we have been doing a lot of investments we still need to do more investments next year. The LTE networks are -- even that we have been doing a lot of the backbone on the LTE networks we still need to do a lot of investments to do that.

And what I am saying another big amount of that -- of the expenses are subsidies and I think that still next year and the next one are going to be the move from feature phones to smartphones or for normal funds to feature phones are still coming next year.

But I think we are going to be around those numbers. Remember, it is a little bit of seasonal -- the same next quarter is December and December is very active on selling handsets, so you cannot compare sequentially, but if you compare year-on-year I think we could do very good.

Okay, thank you. Sorry for the multiple questions.

(Operator Instructions). Fernando Ramos, GBM Global.

In Mexico we saw saw an important contraction in the EBITDA year-over-year, despite a significant improvement in mobile ARPUs. I would like to know whether this is more a result of higher handset subsidies or a result of the margin contraction in fixed-line? If you could share with us what the margin for fixed-line was during the quarter that would be great. Thanks so much.

First, I'm going to talk about the margin in the mobile. The margin in the mobile what you could see this year hit us -- all the interconnection rates that we have -- that the government reduced at the last year, so it was a strong reduction. In the subsidies, well, people in Mexico are adopting very fast the data plans. And on the fixed, Carlos can talk a little bit about that.

For sure. In the fixed there were two main reasons. The first one was the reduction for our clients for the calling party pays and, therefore, that affected the EBITDA margin. And the second turn was the provision that we're making for the pension fund that increased this year by nearly 30%. And that was basically because last year the markets were not performed as well as we expected, and therefore we had to increase the provision for the pension fund. Those were the two main factors affecting the EBITDA margin.

And could you share with us what the margin was on fixed-line, including this impact on the pension fund?

Yes, the margin was around 34% -- 33.6% in the (inaudible).

Very well. Thank you so much.

In Mexico we are doing well. I think in the market in mobile we are doing good. And with these new plans that Telmex is launching I think it looks very good also.

Great, thank you very much, Daniel.

Stanley Martinez, Legal & General Investment Management.

I would just like to follow up on the LTE questions by asking how we should think about mentioning some of the LTE effect as you look to launch commercially in Mexico this quarter and possibly in some other markets in 2013 along a couple of different lines?

First, in terms of the network investment, can you say how much you have invested already in Mexico in network and in CapEx for LTE? And do you think the peak will be more in the first half or the second half of 2013 on a group level for LTE network investments?

And then in terms of subsidies, do you expect that you're going to increase your handset subsidies across the base as you try to drive that migration from feature phone to smartphone?

And then, lastly, I would imagine that the LTE effect is going to continue to increase your positive porting ratio. Do you expect that to be more in enterprise or consumer? And are the ports that are coming in more profitable than your base of subscribers that are on the network now?

It is a really, really a difficult question, but you could see we have LTE is not only the electronics. It is a lot on the backbone and on the backbone we have been investing for a long time, so the investments that we have been doing also for 3G helps a lot on the LTE. And so it is very difficult to say how much is this quarter or this month. So we have been investing for, let's say, more than one year in fiber-to-the-node, in more data capacity. So when you bring LTE it is a lot of the investments on LTE we have been already doing. It is more on the electronic side on LTE.

And I think it is going to be more or less like 3G. It is nothing that moves from one month to the other or from one quarter to the other one. I think that handsets on the LTE are a little bit more expensive, so the people are -- you're not going to see a big move from 3G to LTE, but you could see a lot more on tablets, on PC cards and all of those things, I think, you could see more people going to LTE.

In the other side we're not going to have the same coverage in LTE than on 3G, so the coverage has been increasing -- is going to be increasing year by year. The handsets in LTE are going to decline also year by year, so it is going to be more or less the same path that when we move from 2G to 3G then it is going to move from 3G to LTE and --.

For instance, when we launched 3G in -- I think it was February of 2008, and it was something like only 20 cities. And now in four years, 4.5 years, we now have a coverage of 3G of approximately 90% of the POPs in Mexico. So it is basically expanding the footprint gradually. And as Daniel says, the difficult thing has really been less on the electronics and much more on building the infrastructure to transfer the data.

And still a lot of people are moving from 2G to 3G. They're going to stay. They have some contracts that they buy and then they're going to move to LTE. So it is gradually. Everything that we are doing going to do in Latin America I think is going to be gradual.

Is your expectation that the uplift as you migrate from 3G to LTE could be a 10% to 20% premium in terms of ARPU just in terms of the additional consumption of data on tablets and dongles?

And, again, I think this might reflect in terms of the porting ratios. So to my question, do you expect to index better imports and better in a certain subsector of the market, maybe in enterprise, as opposed to consumer ports?

We don't know, because we still doesn't have LTE, but what happened in other parts of the world in other countries it looks like people is using 20% or 30% more data with the LTE than if you compare with 3G. So we hope that in Latin America and in Mexico and in Latin America we could have that -- we could have that increase on usage.

But still we don't know exactly how much there. But what we can tell you is that we are not going to increase prices on LTE. It is going to be exactly the same pricing plan. And if you have more speed, then you're going to use more and then you're going to consume more. It is the idea that we have in our pricing.

Okay, great. Thanks, Daniel. Thanks, Carlos.

Dan Kwiatkowski, UBS.

I just had a question on Argentina. We saw quite a sharp deterioration in margins, both sequentially and year-over-year. Was there something particular that happened in the quarter or is there something that is more sustainable?

In Argentina what we have -- what you could see is that other than subsidies that we are moving and cost of the networks also we have been -- the cost for us has been increasing a little bit more faster than what our revenue is increasing, and it is more or less what you are seeing there.

We have been growing also in the market, but what we need is to grow more faster our revenue than what the cost. We still -- the revenues has been growing 13%, 14%, and the cost may be higher, 20%, 22%, so we need to work a lot on cost control and we need to work a lot on gaining more revenue. It is more or less what we are focusing and what we want to do in Argentina. Nothing is different, nothing is special.

Thank you.

Gregorio Tomassi, Itau.

I have a question about Mexico. Basically, one of the competitors of you in Mexico is claiming that the market needs additional regulatory actions, specifically on intervening of (inaudible) and prices basically. What are your thoughts about that and what likelihood do you give to that measure?

As I told you in our review there is that -- there should not be tailor-made regulations for some companies. It has to be a regulation that it will be more or less all around the world. It is more or less the same regulation. And that regulation would give certainty for investment. So I don't think the government would do or should do tailor-made regulations so a company would benefit from the investments of the other one. So it is -- that is my point of view.

Given the fact that you have already been declared dominant by COFETEL it opens a window for COFETEL to make -- let's not call it tailor-made, but what they call it an asymmetric regulation, as it is often a way tailor-made. I think that the windows open as far as I understand.

But the asymmetric regulation tell me where in which part of the world you could see an asymmetric regulation. Maybe the asymmetric would be 3% in one country or 2% in the other one. But the asymmetric regulation does not exist in other countries. Of course, they are going to claim a lot, but I don't think that the regulators would do it different, no?

In fact, I will send you (inaudible) and maybe we can even import it in our own site. There is an EU policy paper. There was a recommendation, I think it is dated May 2009, this whole document that the EU published on termination rates. And thus they are basically asking the regulators within the European Union to base termination rates on the basis of long-term costs.

If you look at that, it says that -- and this is meant to be the best practices standard -- and this document says that there should not be asymmetric regulations anywhere, except to the extent that there is a new entrant and then only for a period of time. And in this case the competitor you may be mentioning -- because we are not aware of there is a new competitor -- we don't believe that any of this would apply.

So I will send it to you directly. Again, this is EU policy paper on termination rates that is a recommendation and it is the standard for policy decision-making.

The thing to consider as well is that this paper clearly says that asymmetric rates would in the end lead to the public subsidizing the inefficiency of the competitor that would be the beneficiary of the [asymmetry].

And only -- and we in 18 countries that we operate, in some we have higher market shares, in other words we have lower market shares, and in no one we are asking for asymmetric rates, because we don't think that is the solution. The solution is to have good networks, good investments, good quality and that the consumers would choose you. So I think that is really where you need to be to gain marketshare, not on asymmetrical or tailor-made regulations.

Thank you very much.

If you want one more question.

Ladies and gentlemen, I will now turn the call over to Mr. Daniel Hajj for closing remarks.

Okay, well, thank you everybody for being on the call, and thank you. Bye-bye.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.