America Movil SAB de CV (AMX) 2012 Q4 法說會逐字稿

Welcome to the America Movil fourth quarter 2012 conference call and webcast. Joining us this morning is Daniel Hajj, Chief Executive Officer; Carlos Garcia Moreno, Chief Financial Officer; Oscar Von Hauske, Chief Operating Officer; and Carlos Robles, Chief Financial Officer of Telmex.

My name is Shenata, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Daniel Hajj, Chief Executive Officer. Please proceed, sir.

I will be taking the call from the beginning. This is Carlos Garcia Moreno. Thank you all for participating in the call.

We ended the year with 325.7 million access lines. That was 8.7% more than a year before. Our fixed-line accesses increased 10.8% year on year on the back of PayTV and fixed broadband accesses, while our wireless subscriber base rose 8.2%.

We added 5.6 million wireless subscribers in the fourth quarter, after one-off disconnections of 1.5 million clients, taking our net adds for the year to 19.8 million, which is 18% more than in the prior year. On the quarter's net gains, 1.8 million came from Brazil, where we got approximately half of the net additions of the market; 1.2 million from Mexico, and this is after disconnecting in Mexico 1 million, so after disconnecting 1 million, we got 1.2 million net, so total in the market that we obtained was 2.2 million; 753,000 from the US; and 409,000 from Colombia; with net additions more than doubling in Chile and the Caribbean.

Our postpaid base increased by 1.4 million clients in the fourth quarter.

We added 1.3 million RGUs in the quarter, bringing to 6.3 million the net RGU adds for the year.

Whereas financial volatility became more subdued in the fourth quarter as the uncertainty around the euro continued to subside, economic activity faced significant headwinds throughout the world with the recessionary situation in much of Europe appearing set to continue throughout 2013 and with the US economy slowing down sharply. Some Latin American countries resented these trends.

America Movil's revenues reached MXN198 billion in the quarter, and MXN775 billion in the full year. They were down 1.1% from the year-earlier quarter in Mexican peso terms on account of the depreciation of various currencies versus the Mexican peso, particularly the dollar and the Brazilian real.

Mobile data revenues continued to gain share of revenue and have come to represent one-third of wireless revenues and 18% of total revenues.

At constant exchange rates, service revenues were up 5.2% year on year and total revenues, 5.8%, compared to 6.1% and 6.5% in the third quarter. Service revenue growth improved from the prior quarter, in all major regions except Mexico.

As regards our main business lines, mobile data and PayTV were the drivers of revenue growth, with 33.3% and 20.2%, respectively, while fixed-line voice posted a 7.2% revenue decline, continuing the trend seen over the last several quarters.

Mobile voice revenues were down 1.7%, partly on account of the marked economic slowdown observed in several countries in the region, particularly in Mexico, that took place hand in hand with that of the US.

The quarter's EBITDA totaled MXN61.5 billion(sic-see Quarterly Report "MXN61.7 billion"), and that of the full year, MXN260.7 billion(sic-see Quarterly Report "MXN260.9 billion"), with the quarter's margin declining to 31% from 33.5% a year before. The reduction of the margin partly arises from the growth of PayTV and TracFone, that are lower margin businesses, but also reflects the continued migration to smartphones that has entailed somewhat larger subsidies and, of course, the OpEx effect of having a large investment plan in place.

The reduction of the consolidated EBITDA margin (inaudible) in Mexico and Brazil, and there were even larger margin declines in the US, where it came down 4.6 points, and in Ecuador, 3.2 points. Since these countries together account for three-quarters of our revenues -- in Mexico, Brazil, Ecuador, and the US -- the lower EBITDA margin was the main factor driving the fall of the consolidated margin.

The (inaudible) of smartphones and accelerated subscriber growth were the factors in the US and Ecuador, where they account fully for the margin reduction. This is important basically to put in perspective that growth in the US has been very, very fast, and in the US the data services it's a relatively new part of the business, but it's already doubled its data revenues, year on year, and we are gaining a lot of share such that data is now accounting for approximately one-third of TracFone's own service revenues. And, this is in only one year. So, this is a new part of the business. Smartphone sales are becoming hugely important to continue to drive this data revenue growth.

In Mexico, our wireless EBITDA margin was similar to that of the prior year. It came up less than 1%, and the difference is fully explained by subscriber acquisition costs. But, in wire lines, we experienced a 6.5-points reduction, most of it spread out throughout the year, due to Telmex's passing on to its clients the full benefits of the reduction in their connection rates, traditional benefits in existing plans, to an increase in the [provision for pension points], and to greater network maintenance costs.

In Brazil, half of the margin reduction is explained by the increasing content costs.

We registered a comprehensive financing charge of MXN10.5 billion that included a foreign exchange loss of MXN4.8 billion, mostly resulting from the appreciation of the euro vis-a-vis other currencies. Our investments in Europe are carried at cost and are thus considered non-monetary assets. Whereas there is no mismatch in the currency position -- assets in Europe are funded with euro-denominated obligations --a cost nonetheless results when the euro appreciates, given the non-monetary nature of the said assets and the monetary nature of the liabilities. For the full year, financing charges, MXN19.5 billion, were 35% lower than those observed in 2011, reflecting a swing in the foreign exchange position to a net gain of MXN7.4 billion.

A net profit of MXN15.6 billion(sic-see Quarterly Report "MXN15 billion") was obtained in the fourth quarter. That was equivalent to MXN0.20 per share and $0.30 per ADR. It brought the net income for the year to MXN92.1 billion,(sic-see Quarterly Report "MXN91.4 billion") a figure that surpassed by 11% that of 2011.

Our net debt ended the year at MXN372 billion, up from MXN332 billion at the close of 2011. Our net borrowings helped fund the acquisition of ownership interests in various entities, including KPN and Telekom Austria, that totaled MXN84.9 billion.

Our cash flow from operations allowed us to pay for capital expenditures of MXN131 billion, and to effect distributions to shareholders in the amount of MXN32.5 billion.

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

(Operator Instructions) Alex Garcia, Citibank.

Good morning, Carlos. Good morning, all. Carlos, could you share with us when do you expect margins to stabilize from these investments in the network and the expansion of smartphone base? I'm sure that you guys believe that all these efforts will be fruitful in the future, but is there a time where things may change the trend? This will be my first question. Thank you.

Thank you, Alex. I'd say that we have now three different factors that you have to consider. One of them is the smartphone migration is in part of its initial phase. Smartphone migration is going to continue for a long time, and the question here is how we're going to be dealing with that with subsidies. As you see today, data services are the big driver of revenue growth for America Movil. And, we have the costs that have been (inaudible) in terms of subsidies have been relatively minimal, because today data revenue growth has been driven only by that small fraction of the postpaid that already have (inaudible), a smartphone. Just to give you an idea of reference, today not much more than 50% -- 59%, or so -- of postpaids have a smartphone. That's where we are today. That's for America Movil as a whole, and this would be weighted by the population of the -- by the subscriber base of different countries.

So, what we have today is roughly 50%, 55%, 59% of postpaid clients today have already a smartphone. So, we have to continue to migrate the other postpaid clients and, at some point, we really are going to get to prepaid. But, in prepaid today, we're not providing any subsidy.

And, to add something of what Carlos is saying, on terms of the subsidies, it's very difficult to say where they are going to be, because all these subsidies are going to depend on how competitive is the market. So, it's going to depend a lot on the competitive of each market than which is going to be subsidy on those smartphones. In some markets, are more competitiveness. In other markets, are less competitiveness. And, that depends on the subsidy.

Other thing that it's very important is on the (inaudible), the networks that we're putting. We are investing a lot, and I think all those investments are going to end up giving us good profitability in the future. And, as Carlos was saying, wireless data has been very important, one of our big drivers, and we need to still invest in all these types of structures.

And, the third one, very important, is that all over all what is America Movil, the structure of America Movil. We are reducing a little bit our revenues on voice. Voice has a big margin. And, we're growing a lot our revenues in TV, in value-added services, in data. And, at this stage, they have a less margin that what we have on voice. And, as we are going to grow these types of services, I think the EBITDA can grow a little bit.

But, I think those are the main three drivers for EBITDA -- are the networks, are the structure of America Movil, and the subsidies.

Other thing on the structure on America Movil is TracFone. TracFone, even that we have a quarter that doesn't look very good in terms of EBITDA, the year, as Carlos was saying, was better. The EBITDA was better than last year. So, accumulated, the EBITDA was, I think, around 10%, and this type of [companies] are more or less what we think we can have on margins.

OK. OK. Very clear. And, a second question, if possible, the topic that has been circulating a lot is, has AMX decided what it plans to do with the KPN capital increase in Europe? Is there anything you could share with us? A timetable? Whatever you could share with us would be welcomed. And, thank you for the answers.

Yes, as you point out, this is something that has been put on the table recently by the company that it is intending to go ahead with (inaudible) recapitalization effort. We are at present starting the (inaudible) company has said its intentions to investment, and so on. And, we will be coming out with a public statement in terms of how we view the position. We haven't yet today a final solution, but we can tell you that we are going to have something at the latest by the beginning of next week.

OK. Great. Great. Thanks for the answers.

Thank you.

Dan Kwiatkowski, UBS.

Hi. I've got two questions. One is on what you expect to spend on CapEx in 2013? And, more fully, what you expect to do with your free cash flow, aside from the KPN issue, whether you'll reduce debt, whether you'll distribute more to shareholders than you did in 2012? That's the first question.

Well, in terms of CapEx, I think we're going to [invest] more or less what we invested last year. It's going to be around $10 billion. It's our budget. It could be a little bit more, a little bit less. But, it's more or less what we're thinking to invest.

And, in terms of the free cash flow, as Carlos is saying, on the KPN issue, we're going to decide what we're going to do. We're still studying what we're going to do, and our position, we're going to give our position in a few days. So, that's more or less --. The rest in the free cash flow, well, we're going to use it as share buybacks and dividends the way we were using last year and years before, depending on the cash flows, depending on our position, acquisitions that maybe we can do this year. So, it's going to depend a lot.

Do you see any potential acquisitions on the horizon?

No. We haven't had any possible acquisition at this time.

OK. The second question is on Brazilian mobile. Over the last two to three years, you've consistently lost share of revenues in the mobile business and, obviously, that's impacted your margins, as well. Can you give us a sense of what the operating plan is for Brazilian mobile, in particular, and where you see margins leveling out?

Well, let me explain to you how I see Brazil and what we're doing in Brazil. It was not for the last three years, maybe for the last two years, we have been decreasing a little bit our EBITDA and some, a little bit, our market share. What was happening? We decide on -- the market was very, very competitive. It's a very competitive market. And, at the beginning of last year and the year before, we don't want to get in a very tough competition. But, we decide on August that we are going to reduce our prices, that we're going to be much more competitive in the mobile side. And, it's what we do on August. What happened on August.

We can see that net adds are growing, that postpaid net adds are starting to grow. But, that hit us a little bit on our base. We give much better prices to all our base, and that means that we have a reduction on revenues. It's more or less what has happening last year. So, at the beginning, we decide not to reduce, not to be so competitive. But, we decide in August to do and to be competitive. Our revenue per minute reduced 28% last year.

So, we think we are at this stage competitive. I feel that our gross adds are starting to come. We are gaining market share in prepaid, and we're starting to grow much better in postpaid. So, I think we can see a much better year in 2013 in Brazil in terms of in the mobile side. And, well, I don't know how is going to be the competition this year, but at this stage we feel much more comfortable with the operations. There's still a lot to do, but I feel that we're making the right decisions in Brazil.

OK. Thanks very much.

Richard Dineen, HSBC.

Good morning. Hi. This is actually Sean Glickenhaus. Speaking of a lot to do in Brazil, could you provide an update on what Anatel's thoughts are on mobile network quality? We keep reading a lot of differing viewpoints on that. And, furthermore, perhaps an update on the integration between fixed and mobile? I know it's been in the works for a long time, but my understanding was that it had taken longer than expected. Thank you.

Well, I think what worries a lot on the fourth quarter of last year on Anatel was the quality of the networks. As I have said, the growth on minutes and the competitiveness of the market makes that a lot on some of the networks get congested. And worries that a lot to Anatel. So, Anatel decide to review that.

I think I can talk a little for America Movil and Claro. I think we're making good improvements on quality, and I think that even with that amount of minutes that are coming more, we feel that we have a much better network than what we have last year. And, I think Anatel is going to be really looking at the quality of the networks. They are not going to let everybody do what they want to do, if they are going to give bad quality to the subscribers. So, I think it's where Anatel is, and I think it's reasonable that they be very careful on the quality and the service for the customers.

On the fixed and mobile, I think we're starting to see some promotions between fixed and mobile. We are doing some promotions between the [net] Embattle and Claro. But, still, you need to do a lot on IT. It's very important to have in very good shape all your IT systems. But, we're working to do all those kinds of promotions, starting to see those promotions.

OK. Thank you very much.

Mauricio Fernandes, Bank of America.

Thank you. Good morning, Carlos and Daniel. Good morning, everyone. I've got a question on the --. I think the strategy for increasing smartphone penetration makes a lot of sense, the benefit of wireless data at some point. We've been seeing margins for different reasons, partially from PayTV, partially from track phones -- so, businesses that are growing faster with lower margins -- contributing to drag down the consolidated margin for America Movil. So, I was wondering, Carlos and Daniel, if you could share with us some key metrics you would look at to how long you -- not just how long, but how deep -- you want to take this strategy into? How low the margins can go? What kind of payback you're looking for on those smartphone subsidies? What kind of key metrics are you looking at to balance the right profitability with looking at the long-term strategy? Thank you.

Let me take a first crack at this. I think, we were talking a little while ago about key factors that are playing on the margins. Part of this has been the smartphone migrations which is postpaid. Part of it is what we have said is the spillover effect onto OpEx, of the [detailed] CapEx that we have currently in place. Part of it is at the consolidated America Movil obviously certain business lines that have structurally lower margins and that means that the weighted margin from America Movil consolidated margins should be trending down as the other businesses get (inaudible).

But, if you look at how much we have had in revenues, in additional revenues coming from data services, say, over the last year, couple of years, compared to the actual subsidies that have been provided on devices, those subsidies are really minimal and are really not meaningful. And, as Daniel was pointing out, these subsidies, the end, down the road, will be a function partly of the competitive situation in different markets, partly a [protection] of the competitive situation will be market for smartphone (inaudible).

And, if you think of it, the prices of smartphones have already fallen significantly over the last couple of years, and they are likely going to continue to fall significantly over the next several years. So, we don't believe that you can extrapolate from the margins that were paid two years ago to the ones that are going to be paid two years down the road, or next year, from a unit perspective.

So, you're going to have a lot of people migrating, but we are seeing the expansion of data [revenues]. And, you can run the numbers yourself, but we'll be glad to help you in that exercise if you want. The amount of additional revenues made possible by [both] our investments and the ones (inaudible) the subsidies that we have channeled, (inaudible).

So, we think that is -- and, we have said it for a long time -- that is the medium-, long-term story of America Movil. We believe in wireless data. We went to the extreme of going to [the rate of transformation of transactions] by buying fixed line assets in Mexico and South America. We believe that having this fixed line platform was of the essence for us to provide good mobile data down the road, broadband data. And, we think that's the future of this business.

And, what little effect we have had so far in terms of migration of a few customers, because we only have half of our postpaid base, which means roughly probably not even 7% or so of the total clients of America Movil today using smartphones. Only with that, we have been able to drive a very significant increase in revenues.

So, this is the story, Mauricio. And, we can share with you our numbers but, basically, we really think it's very clear, the investment efforts.

OK. I understand.

And, another point that I want to add, Mauricio, also is that in some countries we're having some slowdown on the economy. So, that also is not going to be forever. Let's say we have been seeing that some parts of our revenues are reducing, and they are going to come when things get better. So, we cannot stop doing our strategy on data, mobile data, TV, because all of these products at the end of the day are going to have very good margins, and we're going to have very good customers, if we do that on time and in the right moment.

And, I think this is important, to note two things. In Brazil, obviously, there was a very sharp slowdown in the economy in the first half of last year. We can see that both on the fixed line side and on the mobile side, revenues have improved. And, in fixed line, the bottom was in the second quarter and, now, year on year, we have positive revenue growth on the fixed line platform, on voice. I'm talking about voice. And, on mobile, I think the bottom was a quarter later. It was in the third quarter. And, we can see clear evidence of things trending up.

In Mexico, however, as Daniel pointed out, we are facing an unexpected slowdown of the economy, as unexpected now in Mexico as it was then in Brazil a few quarters ago. This has now become a bit more evident by, [caught up in the US]. As you know, GDP in the last quarter in the US actually declined, and that had to do with their contraction of military spending and some corrections of inventory. But, that had an impact on Mexico. And, if you look at what has been happening in Mexico, the government, the central bank has actually been more [dovish]. They have been accelerating the reduction of interest rates, and they are basically trying to manage this downturn in the US.

But, it was evident, at least to them, to the authorities that follow the economy more closely, that the economy was already experiencing a downturn toward the end of last year, and that is already something that in the short term has an impact on margins.

And, just only to finish that, this type of strategy that America Movil is taking, when this slowdown on economy hit us a little bit more than all the other ones, but when things are better I think help you more when things that all the other companies. So, we decide to do that, and I think it's the right decision, Mauricio.

OK. Appreciate that response, Carlos and Daniel.

Thank you.

Thank you, Mauricio.

Andrew Campbell, Credit Suisse.

Yes, thank you. I have two questions. The first question is regarding asymmetric regulations and, in particular, in Colombia, where you've seen the leveling of the off-net and on-net costs. Can you explain to us a little bit what impact that's had on your business, and how you've dealt with that commercially?

And, then, the second question that I have is regarding the acquisition made in Mexico of the CIE asset. And, this is the media and advertising business. If you could explain how that fits into the overall strategy of the Company? Thank you.

Yes, in Colombia, the asymmetric regulation was -- it came into --. We are not agreed on that, because we think that we are not making anything in the market that allow us to do asymmetric regulation. But, well, at the end of the day, the regulator decides to do it. I think two things. First, that we have to pay for two years more interconnection to our competitors than what they pay us. So, that's the first thing that they came. So, for two years, we're going to pay more interconnection that what they are going to pay us. They decide to reduce it for us and not for them. So, we paid them more than what they pay us for two years.

The second is that we are not allowed to differentiate on-net, off-net calls, the price on on-net, off-net calls. And, sorry, the first -- I forgot to tell you -- in the first asymmetric thing, that is the interconnections. They said that the competition has to pass it to the market, that they shouldn't stay with that amount of money. So, they have to pass it through the market or make some investment in the rural area. So, it's what the regulation says.

And, the second is that we are not allowed to do off-net, on-net calls at a different price. It's more or less what is the asymmetric regulation in Colombia. And, we are deciding which are going to be our plans and how we're going to deal with that. But, it's more or less what we have there. So, that's the first question.

The second question -- other thing important is that the MTRs in Colombia are the lowest in Latin America. So, in Mexico and Colombia are one of the lowest interconnection rates in Latin America. So, it's only something that you should note.

And, on what we do with the company that we was buy from CIE, I think it's a lot on the strategy on America Movil, because this company has a lot of assets where you can advertise your products. And, in America Movil, we have a lot of assets that we need go out and sell in the market. We have TV channels in Colombia. Well, we have a lot of assets there. And, this company I think is going to help us to organize and sell all our assets that we have in America Movil. So, I think that's more or less the strategy that we have there.

This company has a very good structure and advertising in Mexico, and we want to do all this type of advertising also in all Latin America. So, that's the reason why. We can sell a lot of advertising in mobile. We can sell in channels of TV. We can sell a lot of things, and this company and these people is going to help us to do that. So, that's really the reason and the strategy on buying that company.

OK. Thank you.

Alejandro Gallostra, BBVA.

Hi. Good morning, Daniel and Carlos. Let me ask you something. Would you basically be willing to significantly increase the amount of handset subsidies as a measure to increase penetration of smartphones in order to increase data consumption?

The question here is how -- of course we don't want to put any subsidy on the smartphones but, as I told you, the subsidies they're going to be really related to the competition in the market. So, as we can subsidize less, of course, we're going to do it. And, we're working a lot on that and, in some places, we have a much better quality of network. We have more coverage. So, that will allow us to decide what's going to be our subsidy.

But, we really are being -- but, in the other side, as we just talked, is we think that moving to smartphones and bringing more revenues on data and everything, it's very important. So, we're dealing on how we can subsidize less. Price of the smartphones are coming down fast. So, maybe the subsidies coming less and less every day. But, in the other side, what we cannot stop is to bring customers and good customers to use all our data platforms. So, that's where we are dealing, and that's our job that we need to do day by day and country by country.

But, basically, correct me if I'm wrong, but according to my numbers, the amount of subsidies increased approximately 13% compared to the amount of subsidies that you used to subsidize in the past 6 to 8 quarters. Is this the new amount of subsidy that we should be seeing going forward? Is this what we're seeing, according to competition?

Remember that it's Christmas, and in Christmas it's seasonality. So, people decide to buy more handsets and to change more handsets. Other things that are important are new handsets that are coming in the markets. So, new handsets, also decide and make people change. And, the pricing and the subsidy. So, there's a lot. So, the question is, we're willing to have this type of subsidies? No, we are not willing to have, but the decision is that we are willing to move our subscribers onto smartphones and to use more data. That's where we are, and we're going to do it at the best way for America Movil, trying to subsidize the less.

I think one thing that is interesting, if you look at the numbers for Mexico, (inaudible) some portability was implemented, and this is 5.5 years ago. Telcel has gained 2 million clients. Of these 2 million clients over 5.5 years, roughly 900,000 came last year. And, they are all coming basically because of our ability to provide good coverage and [very good] data services.

And, not only in Mexico, if you could see -- I think, all over all, I cannot tell in all the countries; I don't have the numbers here -- but almost in every country, we have been gaining market share in number portability. In almost, they are (inaudible) all the countries, we're gaining in number portability. That means only one thing, that we have the best networks, that we have the best coverage, and we have the best services, and also having a very good offer. So, that's really what is happening when you do good investments and good networks.

All right. Thank you very much. And, my second question is regarding the accounting policy for impairment tests. Is this -- ? How is the policy to review the current investments in KPN and Telekom Austria?

I think they are under the equity method, and their accountability we can review with you more closely, but I don't think we need to make any impairment.

All right. Thank you very much.

Thank you.

Soomit Datta, New Street Research.

Hi, there. Yes. I've got a question firstly on Mexican wireless, please. You've talked a little bit about the macro slowdown which impacted numbers in Q4 but, in terms of the overall slowdown we saw in the revenue growth at Telcel, how much perhaps is coming from macro? And, how much is incremental competitive pressure in the Mexican market? Maybe, you could talk a little bit more about some of the specific competitive dynamics we've seen in Q4 in that market, please?

Let me answer you this question. I don't think we saw any difference in the fourth quarter than what we have been seeing all the year. I think we have a very competitive market in Mexico. We have been competing very strong, and we don't see any difference. I think, and Carlos explained that, we are seeing a slowdown on the economy. We're seeing slowdowns in the revenues, in the mobile voice revenues. And, we have the numbers on January, and still we think that the slowing down is coming. So, we're still thinking and still seeing some reductions there. So, I think it's nothing changed on the dynamics in the competition, but I think what is changing is the economic situation in Mexico.

OK. Thank you. It's very clear. And, as a follow-up, please, you talked a bit about regulatory changes in Colombia. What is your sense for the year ahead in Mexico, as to potential changes to either the termination rate regime, the prospect of asymmetric regulation there? Have you got any outlook you can provide us with, please? Thank you.

I really don't know. There's still a lot of people talking about a lot of things. There's going to be a new telecommunications law. We don't know a lot on what is coming. And, I hope that all this new law on telecommunications and all the things that regulators do would make and will create more investments and to grow the telecommunication businesses. I think it's what we really need in Mexico, and what we really need is to have more investments, and Mexico needs to have much more investments than what they have today. So, I hope that all these decisions that they are going to take will be close related to make more investments and to develop more the telecommunication sector.

Still, specifically, I don't have anything on that.

And, the timing on the telecoms law, do we have any sense as to when that might happen?

No, I don't know. They said that it's going to be in the first six months of the year. So, it's what I'm hearing, but I really don't know more from that.

OK. Thank you very much.

Thank you.

Andres Medina Mora, GBM.

Thank you. I would just like to follow up on a few things. First, where do you see your margin stabilizing in Mexico? You mentioned there was some special events for this quarter. So, where do you see them normalizing for the rest of the year? And, what percentage do you expect that [to represent] by the end of the following year? Thank you.

We don't talk normally about specific margins, Andres. So, I think margin will be partly a function of where the economy will be. But, we're not seeing any extraordinary things. One of the things that was a drag last year was the transfer of revenues from the --or the benefit from the (inaudible) connection rates by Telmex to its clients. That was a factor that was affecting Telmex all of last year. That's not going to be any part any more.

I think we have had an increase in OpEx at Telmex that had to do with the investment plan. A lot of that had to do with converting copper lines into fiber optic lines, and that's treated as OpEx. And, that was an important new element last year. I think it's going to continue more even in terms of this year. So, we're not going to (inaudible). So, I think we're not really looking at any major structural things, even in [handset] subsidies. It's basically going to be the economy.

So far, I can tell you that the first few days of this year, the Mexican economy has seemed to be weak, at least to us.

OK?

Hello?

Andre Baggio, J.P. Morgan.

Hi, Carlos. So, I have two questions. One relates to data and CapEx. With the ongoing investment on data, do you think that it is possible to have CapEx as a percentage of revenue going down, going forward? Or, do you think it will reach a level that should be more or less sustainable, going forward?

The CapEx to sales, (inaudible), in 2011 is coming down, and continue to come down. It should be probably this year around 15%, 13%, of revenues. And, it should continue to trend lower, Andre.

OK. Sorry. And, the second question is that, with regards to the Mexican proposed change, or what is about to change, I understand very well the idea that Mexicans should have more investment, but what do you have heard so far in the news, maybe coming from Cofetel, that the regulators want more competition. Do you think that's --? Is there a space to have more competition and have more investment at the same time?

Of course, depending what you mean about more competition. We have enough competitors in Mexico. If there's other one who's coming, I don't think it's bad. But, what we need is that the competition makes the investments, because what they want is that you have more competition but they use your networks. It's what they want on the Telmex side.

So, what we really want is really more competition. More competition not only on the market, more competition on investments, on networks, on coverage, on everything. So, it's what we really, I think, would be good in Mexico, not more competition where nobody invest and you have to give your network at some price and, then, you don't gain anything. The only thing that you gain is you move some customers to other networks, but you don't do nothing. It's not investments.

What this sector needs in Mexico and in all the world, it's investments. Look how much does Brazil have in investments and look how much does Mexico have in investments. In Brazil, is really having big investments in all the companies there, and Mexico not a lot of investments for the other companies.

And, in this sense, Andre, we have discussed this in the past. You see the changes in Europe, by the European Union, the European Commission. They are very important, because finally what they have come to realize is that if you want to get to your objectives [and] your goals in terms of growth in coverage and growth in speeds and so on, that requires investment. And, that's where you need to support a system and environment that is conducive to this investment taking place. The change in Europe that took place, I think in July or August of last year, is hugely important, because it basically goes to show that regulators even in Europe have become now aware of the importance of investments to be able to put in the infrastructure that the country needs.

OK. Muchas gracias.

Everybody needs more broadband. Everybody is looking for more broadband. All the governments are looking for to everybody has broadband in the world. So, what you need to do that is investments, even if it's in [pips], or in wireless, on your LTE, or in --. It's investments.

OK. Thanks a lot, Carlos.

Thank you.

Ric Prentiss, Raymond James.

Thanks. Good morning. Two questions. Speaking of investment, several of the operators in Latin America have started selling their towers -- Telefonica, Nextel has discussions, Millicom. What do you think about selling your towers? And, is it different in Mexico versus some of your other markets?

I think our strategy is not selling the towers. I think to sell the towers is to get expensive loan because, at the end of the day, you sell and then they rent it to you. So, I think companies are selling the towers because they need money for investments. America Movil is not in that way. So, I don't think as a use of, as a good investment, you are not seeing a good investment on selling the towers. It's moving -- they give you money but, then, you pay a rent on that, and it doesn't make any sense for us.

As CFO, I can tell you, at least our view, is that this is not something you do unless either you do not have access to market or somehow you need to reduce the operating leverage that you are presenting to the market. Those are the -- very strong feel that we have in America Movil. So, we do not entertain. To the extent that we do have access to market and to the extent that we do not have anything that we need to -- that we would not want to show to the extent of our leverage, to that extent, we would not even consider (inaudible).

Sure. A company as strong as you doesn't need to. What about co-locating on other towers as you try and increase your broadband, increase your footprint? Does it make sense to rent space instead of building new towers?

No. No. No. We are open to co-locate. We are co-locating in a lot of towers. So, it's not new. We have been doing that for a long time. So, we have our own towers but, in the other side where it's difficult or it doesn't make sense for us to, or very expensive, then we co-locate, or with other ones or with companies that do that. So, of course, we're open to do that.

Makes sense. And, the second question is in the United States, T-Mobile USA has been talking a lot about changing the subsidy model to either, call it, installment or renting the phone, to reduce the amount of upfront costs, particularly for postpaid customers. What are your thoughts about that model, first in the US? And, does it make sense to consider it in your markets in Latin America?

Yes, I think we need to be open to see all the new ways to (inaudible) smartphone and try to subsidize less to our customers. So, I don't know exactly the model of T-Mobile, but in some places we're trying to do those things, instead of subsidy. We subsidize but then they pay installments. So, there's a lot of study that we are doing there.

So, watching it for now, but maybe react to it in the future.

Yes. Yes, of course. Of course.

Great. Thank you.

All right. Thank you.

Ladies and gentlemen, due to time constraints, we have time for one more question. And, your last question comes from the line of [Diego Orava], with Morgan Stanley. Please proceed.

Hi. Good morning, all. So, my first question is with regarding Brazil. Your margins fell to new lows, and you've been saying that margins are being hitted by the growth of PayTV and off-network investments. But, what we want to know is, are you prepared to put, like, a stick in the ground and tell us when you think we should expect margins may start expanding on a year-on-year basis, in Brazil? Thanks.

We're not saying only that the PayTV and the networks are there. What I explained also is that we decide to take -- that we will be take a decision on August that we're going to reduce the prices to be more competitive in Brazil, and that help us on reducing the churn and being more on track on our net adds there in the fourth quarter. You could see that in fourth quarter we growth on postpaid. We growth on prepaid. And, it's where we are. So, PayTV represents 24% of our revenues in Brazil and, today -- last year, the year before, represents 20%. So, PayTV is growing. We have a less margin.

Other thing also is smartphones. Smartphones also are doing that. But, I'm still feeling comfortable on our strategy in Brazil. I have been saying that, and I think we're on the right direction. It's not going to move from one side to the other one in one month, but I think we are on track. We are growing. We have very good postpaid customers. We're growing in prepaid. And, that's going to give us better revenue in the future.

OK. Thanks. And, if you don't mind, a second question.

And, remember one more thing. It's interconnection rates every year are coming down. So, also, are hitting us also the interconnection rates. So, well, you need to do that, but in our view I think the fourth quarter you could see much more better customers in Claro Brasil.

OK.

And, in PayTV, we're gaining a lot on -- we're gaining maybe 50% of the adds in the market. So, we're doing very well. And, in Embratel, well, in Embratel, the long distance are reducing a lot, the long distance, and moving to local voice. But, all the corporate customers, we're growing very good, and we're doing in net and in Embratel.

OK. Thanks. And, just a second question, regarding a follow-up actually on the CapEx, specifically for Brazil and Mexico. Should we expect CapEx increase on those countries?

No. No, I think it's going to be more or less what we have last year. I don't see a big difference in any country, that we're investing more in some and less in the other ones. So, I think the $10 billion is going to be more or less divided like last year.

OK. Thanks.

Thank you very much. Thank you, everybody, for being.

Ladies and gentlemen, this concludes the Q&A session for today. I would now like to turn the call back over to Mr. Daniel Hajj for any closing remarks.

I just want to thank for the call, and thanks everybody for the questions. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.