America Movil SAB de CV (AMX) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the America Movil second-quarter conference call and webcast. My name is Marie and I will be your operator for the day. At this time all participants are in listen-only mode and we will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to Daniela Lecuona, IR Officer. Please proceed, ma'am.

Good morning, everyone, thank you for joining us today. We have on the call Daniel Hajj, Chief Executive Officer; Carlos Garcia Moreno, Chief Financial Officer; Oscar Van Hauske, Chief Operating Officer; and Carlos Robles, Chief Financial Officer Telemex. I want to remind you that this morning our webcast is going to be supported by slides and you can access the presentation on our website.

Good morning, everybody. Thank you for the America Movil second quarter of 2013 financial and operating report and Carlos is going to give us a presentation of the results.

Thank you, good morning, everyone. With the US economy continuing to get better footing economic activity in Latin America appeared to pick up in the second quarter, underpinning stronger top-line growth throughout the region in spite of the financial volatility that resulted from the Fed's statement in May that it would likely start cutting back on its bond purchases before the end of the year given the resilience of the US economy.

This volatility led to major swings in exchange rates and for the most part resulted in a significant strengthening of the US dollar vis-a-vis other currencies with the Mexican peso depreciating 6.7%, the Brazilian real 10.1%, the Colombian peso 4.9%, the Peruvian sol 7.5% and the Chilean peso 6.6% versus the US dollar.

We ended the quarter with 329 million accesses, 5% more than a year before. Our fixed line RGUs increased 9.1% and our wireless subscriber base 4.1% after 2.5 million subscribers were disconnected in the quarter due to changes in our [exchange] policies. Most of these disconnections, 1.9 million, took place in Peru.

Paid TV and broadband accesses continued to grow rapidly by 18% and 13% respectively. Triple play bundles remain popular accounting for over half of the net RGU additions. On the wireless front we kept on making progress in developing our postpaid base, it was up 12% year on year, the subscribers -- postpaid subscribers increasing 12% year on year.

Consolidated revenues were up 1.6% from a year earlier quarter, to MXN194.8 billion, building to MXN387.8 billion total for the year. However, the increase in peso (inaudible) on our estimated real revenue growth given the noise generated by the currency movement. In constant peso terms, service revenue growth shot up to 7.8% year on year from 4.6% the prior quarter. And total revenues were up 10% compared to 6.1% the prior quarter.

The acceleration of service revenue growth was particularly strong in Mexico and the South American block rising from minus 1.6% to 1.0% in Mexico and from 5.0% to 8.5% in South America. In the latter block the pace of growth picked up very noticeably in Brazil, Chile and Ecuador, (inaudible) nearly 5 points in Brazil and almost 4 points in Ecuador related to the first quarter.

Data revenues in both platforms continued to gain share of revenues as these pay-TV revenues now accounted for 9% of the total. Mobile data services led the way in service revenues with 27% followed by pay-TV at 21%. Fixed data revenues are accelerating.

The acceleration of service revenue growth in the second quarter was mostly driven by the voice segment with mobile voice recovering sharply from the downturn it observed the prior two quarters of Mexico, Brazil, Chile, Colombia all posted significantly better growth figures than they had the prior quarter. Fixed line voice revenues continued their steady recovery in Brazil.

The US led the way in terms of service revenue growth with 35.6%. This pace of growth has risen each one of the last four quarters. But service revenue growth was also in the double digits in Argentina, Paraguay, (inaudible) and Peru.

Second quarter EBITDA of MXN65 billion was slightly lower than that of the year-earlier quarter in peso terms, minus 2%. As constant exchange rates however consolidated EBITDA strong from minus 2.4 in the first quarter to 5.0% in the second one supported by a strong top-line performance. The EBITDA margin stood at 33.4% compared to 34.6% a year before.

We obtained an operating profit of MXN40.6 billion in the quarter, but dropped to MXN79.2 billion (inaudible) for six months. At constant exchange rates it was up 7.3%.

So just to sum it up, you can see (inaudible) we have total revenue growth of 10% year on year; we have service revenue growth of 7.8% year on year; we have EBITDA growth of 5% and operating profit growth of 7.3% year on year -- all of these at constant exchange rates.

Our comprehensive financing cost totaled MXN20.8 billion and was 13% higher than that of the year-earlier quarter. As they had the prior year, foreign-exchange losses made up most of the cost reflecting the depreciation of the peso versus the US dollar and the euro. Depreciation of the various exchanges versus the dollar took place at a time when 27% of the Company's net debt was exposed to hard currencies with the rest ultimately denominated in local currencies, mostly in Mexican peso.

Second-quarter net income of MXN13.6 billion was 3.7% and higher than that of a year before. It was equivalent to MXN0.19 per share or [$0.30] per ADR. Net income per share was up 12% -- 12% from the year-earlier quarter while earnings per ADR rose 21.7%. It is important, you can take a look at the slide, you will see that in the year from June 2012 to June 2013 we have retired 4 billion shares; we have bought back that in the market 4 billion shares, which is roughly 5.2% of the total that was outstanding a year ago.

Our net debt ended June of MXN426.9 billion was up MXN54.7 billion in the first six months of the year contributing to the financing of capital expenditures in the amount of MXN49 billion, share buybacks of MXN46.2 billion and the acquisition of ownership interests in various companies totaling MXN16.7 billion.

As you can see, total capital outlays in the second quarter -- total capital outlays, I mean this is in the first half of the year, stood at MXN112 billion and approximately half of that was financed through the issuance of debt.

We are very much on track to end the year -- to complete our 10-year investment program for the year. So we can see on the slides the amount of CapEx that we have through the first six months of the year. We seen that (inaudible) last year. So as I said, we are very much on track to completing our third investment plan of 10 years (inaudible) of 10 years in the last three years. This is the third in three year's investment plan of 10 years -- $10 billion per year.

So one last thing (inaudible), we continue to deploy 4G regularly. We have now 11 cities in Mexico covered with 4G. We are now in Brazil at [1850]. We have the service already in Puerto Rico and in Chile and we have recently acquired the spectrum to start providing the service also in Colombia.

So just as we very successfully built 3G common platform in Latin America in 2008-2009, I think that we are going to be building a common 3G platform also in Latin America very soon; this is a very ambitious and very comprehensive investment plan.

I want to remind you that this investment plan is not only about the electronics that have to go with 4G, but it is about building the underlying platform, fiber platform that is required to be able to transport all of the data that will be consumed through different types of devices with 4G. So it is a very ambitious, very comprehensive plan and it's mostly (inaudible) in the larger countries, Mexico and Brazil. So with that I would like to open the floor for questions and here's Daniel and I will be (inaudible) your questions (inaudible). Thank you very much.

(Operator Instructions). Andrew Campbell, Credit Suisse.

I was wondering if you could just give us a little more color on the strong increase in equipment revenues in the quarter. I know that you mentioned the very strong growth in service revenue in constant peso terms, but the handset revenue looks like also increased even stronger and also on a sequential basis. So I was wondering if that reflects kind of a mix issue or is it because of exchange rates passing through higher prices or is this -- weather actually a higher unit sales in the quarter? Any additional color. Thank you.

I saw your note in the morning so I knew that was the question. No, as I mentioned here, we are seeing steady revenue growth of 7.8% on top of revenue growth of 10%. So you are right, our handsets sales were strong. You have to remember two things. One is May is typically a very strong month from the point of view of sales because that is Mother's Day most everywhere. So an exceptionally strong growth quarter because of Mother's Day.

And as you know we are now much more active in distributing smartphones, I mean that is the new thing. So the type of handset that is being sold now, it is a little bit higher cost handsets then what we used to have before. But as we are saying here, all of the calculations have been drawn as constant exchange rates, so we are not picking up the effect of the higher -- of the depreciated currencies in this calculation (inaudible) part of the question.

I think, Andy, also that in prepaid people are also starting to use more data, so they are starting to buy better smartphones, better handsets and using the data. So I think in postpaid 90% of the new customers getting into postpaid are contracts that have that data plan. So that is really the reason Carlos explained to you that May is a very important month. And also prepaid is starting to use more and more data and the phones are higher prices, better phones that people are choosing.

Great. Thank you very much.

Mauricio Fernandes, Merrill Lynch.

So I have a question on KPN and more specifically on Telemex. You announced on Telemex I think a couple weeks ago the spin-off of some assets. And I would like to know which are these assets? How relevant they are? And what is the strategy?

Secondly, on KPN, specifically the transaction between Telefonica and E-Plus, I am not sure if you can comment or will comment on how you think about it and what are the next steps there, please?

First, on -- Mauricio, thanks for the question. First on Telemex, this is a corporate decision in order to spin-off some assets that are not directly related to the telecommunication services. These are businesses that are focused more on real estate and leasing. So the spin-off that we are going to do is to consolidate all the real estate and leasing companies inside America Movil and not to have a lot of real estate companies inside America Movil.

It's not -- this proposal is not connected with the telecom business of Telemex, okay. So that is on Telemex. The second on KPN. I think the only thing that I can say is that we will evaluate the terms and conditions of the transaction announced by KPN regarding its subsidiary in Germany, E-Plus. And when those are presented to KPN's shareholders and will make a determination at that point of time. I think that the only thing to that we are doing at this moment.

Okay, and on Telemex, if I may, Daniel, what is the size of it so that we have an idea of what kind of value are we talking about in this spin-off?

If you want I can answer you that. At this moment we are not certain given that the (technical difficulty) has not happened, it's going to happen on the next Tuesday, the exact size (technical difficulty) transferred to the new Company. What I can tell you is, in terms of revenue, it is less than 15% of the revenues of [Telemex]. So that gives you a little bit of the size of business of (inaudible).

Okay. And sorry, another follow-up on KPN. So, strategically speaking there is a potential for the deal to happen/not to happen obviously. And if it does happen, basically KPN becomes the Netherlands and Belgium, but obviously mostly the Netherlands. What's -- how does that change if the deal happens, it is approved, how does that change the strategy or the rationale or the strategic rationale behind being in Europe? Thank you.

That is exactly -- it is what we are in evaluating. We are evaluating the terms and conditions for the transaction and we are going to take the decision on that time. I think it is difficult to answer other questions at this moment.

Andres Medina Mora, GBM.

Thank you, good morning. What is your perspective on Brazil going forward in terms of economic terms and particularly profitability and the integration of America Movil there? And also in terms of Mexico, how you are looking at the competition for particularly 2014 and going forward?

Well, talking about competition, I think we have a very strong competition in Brazil, we have some competition in Mexico, in Brazil particularly where still we see a little bit of slowdown in the economy, hope that is starting to get better. I think the last two years we have been making good investments, big investments in the TV company Net Servicios, Embratel and Claro of course and that is making us to grow and to develop the companies as they are -- we are having good results on everything that we do in the last three years, two years. And we hope that will continue. That is mainly what I can tell you in Brazil. And it Mexico the strong competition, the reform is working, the reform is coming, we need to be more flexible to understand what is coming and to do what we need to do in Mexico.

Thank you, Daniel. And just one more question if I could. We've seen AMX being much more active in terms of acquisitions of digital media companies and the stake in HSM. What should we expect on this side going forward?

Well, we bought the Company, the CMI, but it's an advertising company. I think we have a lot of [OpEx] and Mexico and in all Latin America that would be very good for selling advertising. And I think that's part of the strategy that we have. We are also doing some acquisitions on content and in these types of companies like Shazam, but we are starting to do with these type of things in America Movil.

I think they are going to be more relevant and more important like you know that maybe two years ago, one year and a half ago we bought a company called DLA in Miami. We are starting to do services like Claro (inaudible), it is a streaming company, Oscar can talk to you a little bit about these types of services that we are doing all around and with a good success in Latin America I'd say.

Yes, you mentioned we are causing (technical difficulty). This Company has a streaming platform to sell video over the Internet. (Technical difficulty) the top platform, we recently started in Mexico, we already have 7,000 (inaudible) at 40 (inaudible) Internet. We are selling this product at 69 pesos in Mexico. We have a rollover plan to go to the (technical difficulty) with this streaming platform (technical difficulty).

All overall we are now selling integrated communications solutions that are going to be -- that are going to include voice, data, video and all other products. So that is the main strategy of America Movil, to go to our end customer and give all the solutions that we have now.

Walter Piecykt, BTIG.

Carlos, just a first question on the leverage. You are up above 1.5 times, but the share repurchase activity I think was pretty steady even after the quarter closed. Can you just kind of talk through what your thoughts are on where you want leverage and how that may impact if at all your share repurchase activity?

Thanks for the question. We are not really different from approximately 1.6 times net debt to EBITDA. I think that's fairly consistent with the ratings that we have -- with the three ratings that we have today. So I think that we are likely going to continue to do share buybacks as we continue to generate cash flow for the year.

I think the cash flow has sometime certain seasonality particularly because of the component that has to do with CapEx. But there is (inaudible) seasonality, the part of the matter that we have a significant cash flow that we can rely on to be able to continue our problem of distribution to the shareholders including the share buybacks.

I'd just like to mention, if you correct a little bit for this volatility in FX, we very much ended the quarter if we just eliminate these notes out of our 1.55 times EBITDA. So that is very good. So the fact that I think we are not -- we are going to base our continued distributions in the cash that the Company generates and maybe moving it in the short term by short-term financing. But that's -- but we basically want to stick to the expected cash flow that we will have for the remainder of the year as a means of our buying back stock.

Okay, thank you. And then, Daniel, just a question on your AT&T relationship. I mean they had sold some shares to keep their ownership under 10%. When I talked to Randall Stephenson about it he mentioned that you guys are always in communication prior to actions and there was some reports in the press about them showing an interest in purchasing Telefonica.

I'm just trying to understand, if you knew about the Telefonica how exactly does that work? I mean would they be coming in as a competitor? Or since I guess historically you have had a close relationship, how do think regulators would even act? I guess I am just looking for a general kind of update on your relationship with AT&T and why we're seeing a lot of recent activity that suggests that maybe you guys are going to be more competitive in each other's markets? Thank you.

What I can tell you about AT&T I think we had very good relations with Randall, we have very good relations with Jon with all of the group of AT&T and they tell us about that they are going to sell the shares of America Movil (inaudible) 10%. When they take the decision to solve that we don't know exactly what percentage they want to do and what they want to do.

But we are in communication with them. We don't know nothing about the Telefonica deal. It was -- I saw that in the news, we don't talk about those type of things but we have a very good relation, they are very good partners. They help in terms of the issues here and America Movil and that's what we appreciate and that is what we do with them. So that is mainly what we have.

And we have around 20 years of relations with AT&T, they have been very good partners and I hope that they stay for the next 20 years with us. So that is what I can tell you about AT&T, no.

Ric Prentiss, Raymond James.

I want to go back to the equipment revenue being quite strong. Can you update us as far as what percent of your base of postpaid customers have smartphones now? And also what do you see as far as the ARPU difference when someone is on a 3G plan versus a 2G plan?

Please bear with me, ladies and gentlemen, we seem to have lost our presenters. They will be back shortly. Ladies and gentlemen, I do apologize for this technical hitch. Our presenters will be back with you to answer your questions shortly. I believe our presenters are back.

Yes, hi, it's Ric, can you hear me?

Yes. Ric, can you pass us to Marie please; she was our operator.

I believe our presenters are back. Please go ahead.

Great, thanks, Ric Prentiss.

We still have Ric Prentiss on line. Please go ahead.

Sorry. New phones, new technology. So we are back again.

Great. Ric Prentiss, thanks for taking the questions. I have two questions related to the equipment revenue been quite strong. One, can you update us as far as what percent of your postpaid base now have smartphones? And also on the ARPU side, what are you seeing as far as ARPU with a 3G service versus a 2G service?

Well, I don't know exactly if you can talk with Daniela and tell you more or less what are the percentage of smartphones that we have. I think a lot of them are having data plans and people are starting to use. And the ARPU between 2G and 3G, I don't know of a GAAP, but everybody I think -- everybody, as we saw the last year that in postpaid everybody is choosing a smartphone and a data plan. We are starting to see that in the prepaid business. So also in prepaid people is starting to use a lot social networks and all those type of services. So I think it's becoming strong and strong in prepaid also.

And you mentioned fiber being needed for 4G deployment. Where are you at as far as getting fiber to all the cell sites?

I think very good. We have been starting for the last three years as to putting fiber to the node. And I can tell you that I don't know exactly, but we have more than maybe 50% of our nodes or radio bases have already fiber, no. So it is easy to deploy 4G because we are deploying 4G within -- more or less in the cities and in the cell sites that have fiber. So we have -- and in the metropolitan regions also.

Kevin Smithen, Macquarie.

You had a very strong 110 basis point sequential increase in service gross margins. I wanted to know what is driving this. In the US we saw when LT was turned up a fall in cost of service. Is this LT-related or have you been able to reduce roaming or other transport costs?

The question again, please?

Yes, your services gross margins increased by our calculations 110 basis points sequentially. And we're curious what is driving that?

I think the growth and revenue is mainly in -- we have good growth on the voice, also voice has been growing, we had been decreasing in the first quarter, second is starting to be better. So voice has been going in much better shape. Voice in wireless and voice in fixed also and the data in wireless has been also very strong. Also TV and broadband has been good engines for our growth in service revenue.

I think, as we saw in the presentation, mobile voice recovered very significantly and this is all very evident in Mexico. But generally all of South America. As we mentioned, there are several countries that had a significant improvement and we saw in the slide the swing in terms of voice revenue growth, mobile growth, revenue growth between the first quarter and the second quarter was 4 points, it was a very, very big swing in revenue growth and was the single most important I think factor.

But obviously we're also seeing fixed broadband data continue to accelerate. And the swing in fixed broadband from quarter to quarter was 2.5 points. So that's I think the main increment in terms of service revenue growth and margin growth already from -- on a sequential basis.

My next question is related to Tracfone. You have by our estimates about $3 billion per year in network traffic you are spreading out among the four US wireless carriers. There has been a lot of capacity being added particularly at Sprint and T-Mo. Would you consider consolidating your traffic if you got a good network deal with one of those two operators with one vendor to try to improve EBITDA margins at Tracfone?

Well, I think we are happy to do what is the best for Tracfone, I don't know if it is only a matter of price, it is also a matter of coverage, it is a matter of all the things that we have. But of course we are reviewing all of the alternatives with all the carriers in the US and we are taking the best decisions for Tracfone. So that is what we can tell you at this point.

Michel Morin, Morgan Stanley.

I was wondering if you can comment a little bit on your handset subsidies? It does look like you have reduced the amount of subsidies that you have been giving on handsets. And I was wondering if that's generalized or if it is specific or concentrated in just a few key markets? Thank you.

I think what we are trying to do to try to rationalize all the subsidies all around Latin America. So you could see that we are doing that all around the region and as higher prices of handsets, we are trying to reduce the subsidy on those. So that is more or less the strategy that we have and we don't do it in specific countries, we do it all around Latin America.

Something that I could -- on the handset question earlier on, one thing that was important about the strong handset sales is also the part that we are gaining so much ground in terms of postpaid. And that is where we are deploying more smartphones today. So if you looked at the numbers, we had a 12% increase in the postpaid base and that means that on a gross add basis we are really increasing significantly our unit sales of smartphones and, as Daniel said, in a way that is very sensible because we are not really subsidizing that.

But Carlos, on that point, if I look at your postpaid net adds this quarter, they were actually softer than recent quarters, just the absolute -- not the year-on-year growth rates, but just the absolute number of postpaid net adds, I think they were soft in Colombia and Mexico in particular. So is that somehow -- are we seeing a little bit of deceleration in postpaid growth because of a less aggressive subsidy policy?

No, I don't think so. What we need to see is what is happening in the market. When we know the market then we are going to see we are decelerating. Or the market is a little bit decelerating also. So let's wait for the numbers and see what is happening.

Okay. And if I may ask another quick one on Mexico, in the fixed line you had much better revenue growth there, I mean it is still not positive but it is a significant improvement from recent trends. Was there anything unique this quarter?

No, I think it's maybe the economy that is getting better. I think that is what you could see in the fixed -- (inaudible) in the fixed line. Nothing new.

Will Millner, Arete Research.

Thanks very much and apologies; I joined the call late so these may have been asked. But my first question is on Mexican mobile. I think I just heard you mention the driver for the faster mobile growth was the recovery in voice. But the level of network volumes, network minute volumes obviously slowed the growth there.

So it looks as though the improvement is much more to do with improved pricing trends. And I just wondered if you could talk to those in the context of the background of a regulator looking over time to reduce your market share and you clearly taking more share this quarter? So that is the first question.

The second question I have is -- we touched on it already, just on the -- from the comments you've made on the desire that you have to sort of continue share buybacks at a higher level, which has resulted in your leverage being quite a bit higher than it has been historically. I guess it leaves you with very little certainly debt capacity to acquire large assets in the way that you have recently done with the diversification into Europe with KPN.

And I just wonder if you could just comment about that? Are you overall happy now with what you have it Europe? Is that the end of a diversification into Europe or would you potentially consider alternative mechanisms of financing investments into Europe if you are not happy with what you have now?

Before we get into this (inaudible) only one comment (inaudible) your question. The rate of growth of the postpaid base March to March was 11.6%, the rate of growth of the postpaid base June to June is 12.2%. So we are seeing effectively an acceleration in the growth of postpaid. So we are seeing greater, more rapid expansion of the postpaid base in the second quarter than what we have seen for the prior quarter pretty. But having said that (multiple speakers).

Talking about Mexico a little bit I can tell you that still this year on year the prices are 14% lower than what prices reduced 14% year on year. So we have good plans, most are going up. So in Mexico we have been working on that and people are starting to -- I think people is choosing our network, the network -- the quality of the network, the coverage of the network, everything that we have in Mexico makes that people is choosing to be with Telcel because of the quality of the network.

You could see number portability what is happening, so number portability we are still gaining that. And that's really what people is deciding because that is where you can see that -- what is the decision of the people where they want to be. So in the other I think Carlos gave already an explanation of the leverage but you can tell them again.

I think -- in Europe I think -- let me just repeat because we don't really have anything new to say. What we have said is that, number one, the most (inaudible) was something that we thought helped or diversify (technical difficulty).

Hello?

We seem to be having problems with our speakers once more. Bear with me. My apologies again, ladies and gentlemen, our presenters seem to be having issues with their telephone. Go ahead now, sir, we can hear you.

Hello?

Hello, sir, we can hear you. Please answer (multiple speakers).

So on that question we are seeing that the move into Europe was on the one hand to allow us to diversify somewhat risk revenues as we had done when we expanded throughout Latin America. We had noted that there was really not more M&A to be done of any significance in Latin America and that M&A in the past had been extremely important for us and our shareholders because it was a very significant part of the value creation that was done to America Movil.

So I think that when we looked at this we said we need to go in a different fashion to Europe than we have done in Latin America. We took some minority interest in a couple of companies. The intent was to learn from that market. We didn't know the competitive dynamics, we didn't know anything about the regulatory environment, we didn't know anything about the types of marketing that is done in the market.

And we wanted to get a good vantage point from which we could learn about the market without having all of the operational and financial responsibility on us. To be able to do this we were very pleased that we wanted to abide by the limitations that the rating agencies had put on us. And for us this move was predicated on the basis that we would not risk the credit ratings that we had from the rating agencies and that obviously has not changed.

So all I can do is right now is say that we have really not had any change in terms of the policies that we defined to you on the market a year ago and in terms of the limitations that we impart on ourselves in terms of the move to other markets.

Fabio Levy, BTG Pactual.

Just a question going back to Brazil. When we see that we see a strong competitor of you, Telefonica, reducing the loss of its fixed net adds in order to provide a better competitive edge against the players. And we thought that Net Servicios last year got a lot of share from Telefonica. Now we are seeing that company is [protecting] with improving in the broadband side and also the pay-TV. And since you have a very good performance in the second quarter from that growing more close to 20% year over year. So I was wondering if you are seeing any risk of reduction of your competitive position readily with this improvement coming from Telefonica?

And the second question -- it is related to Colombia in terms of your improvement in the margins. I just wanted to touch base if it is going to be a regular pattern of having more close to 80% -- 48% of EBITDA margin in the quarter. So I just wondered if it could be a consistent one going forward?

Well, first in Brazil what we can tell you is that we have been investing for a long time in Net, and Net is doing good CapEx, it's more households passed and more cities passed, so and that is what we are doing on that. We have a very good image in the market, we have a very good product, we have very good quality and I think that is really what you could see and what is doing that in Brazil.

So we have the best customer care, very good distribution, so I think we are starting to see what we have been talking in the other calls that the consolidation and the convergence, it is taking place in Brazil and I think it is working in our side. So that is mainly what I can tell you. I don't know exactly they are (inaudible) Telefonica subscribers or they are new subscribers or they are other subscribers. What we can see is that everything that we are doing in Brazil is working at this moment. So I hope that the economy would get better and I think we are going to see good results.

Now it's going to depend a lot on the economy. I think we have the basis to grow and to improve in Brazil. In Columbia, well, we are always looking to have better margins. We had 48% this quarter and we are looking to have -- we have to do a lot of investment. We are going to do LTE; we just won the license of the 4G. So we are going to develop the LTE network and that is going to be a little bit more costly because we are going to have a new network, also we are going to try to have the best EBITDA and the best profit possible.

And just to -- a note on Brazil. Now that the numbers of our largest competitor there are out, I think it is important just to note that not all of the growth of America Movil is activated to Net Servicios. It is obviously a very dynamic part of pay-TV, but it is not the only part. What I can tell you without going into all the detail is that even if we were to exclude the pay-TV services from our numbers we would be growing faster our service revenue growth than our competitor.

And it's (multiple speakers) probably about a point faster than the competitor. So, yes, we do have the benefit of pay-TV that is going very fast, 20-something-percent. But then again, even excluding pay-TV, looking at the regular telecom part to begin with, we are growing faster our service revenue growth in the aggregate than the competitor.

Ken Berlin, Legal & General Investments.

Just go back to the balance sheet one more time. I guess from what I take from the last couple of questions you are publicly confirming the 1.5 times net balance sheet leverage target. And just so it is clear, and that includes sustaining the credit ratings at their current level. And expectations would be that you would manage the share buybacks within the context of cash flow, but just wanted to confirm those points, please?

I can confirm those points. That is exactly what I said. We abide by the limitations imposed by the credit rating agencies and we intend to stay within those limitations.

Great, thank you very much.

Alejandra Gallostra, BBVA.

Going back to Colombia, you had good quarter there despite the (inaudible) being implemented there. And I was wondering if you are doing something specific to offset this regulation in Colombia?

The what? The regulation? Well, the regulation in Colombia I think started in February and -- well we implement our new plans, we do what we need to do in the commercial side and still people is preferring our network. So we are happy how we are developing there. We are putting a lot of money. We have the best coverage. We have the best quality in Colombia and we are investing a lot. So we are doing well in Colombia at this stage.

So basically you haven't changed -- you started (inaudible) because of the -- since the regulator started applying this symmetry, right?

Well, we changed some things. We are more flexible in the commercial side, we need to do what the new rules apply to us and we do some changes to be inside these new rules and these new changes are being -- we have been doing good with all these new changes that we are having in the regulation.

All right and also -- also about the (inaudible) in Colombia which were pretty good, I was wondering if the deal is just being driven by lower handset subsidies so if there is something else such as the recovery of these corporate tax payments that you had in the first quarter and that you expect it to recover and the next several months?

I think it is subsidies and also we are taking care about the cost, the fixed company is doing good. We are doing more convergence there, we are doing the first -- the one play, two play and third play there. And we are doing the conversion in the networks that are reducing the cost. So it is not only subsidies, we are working a lot on the infrastructure or the engineering that we have and that has been working.

(Operator Instructions). [Jonathan Dan], Barclays.

There seem to have been a couple of spectrum auctions that you guys didn't win spectrum in. Can you just -- where are the next auctions coming? I think Telefonica were flagging three or four. I mean -- and is there any reason to think you would be sort of blocked in any of those auctions?

No, I think we weren't blocked in any auctions. I think the only one that we'll lose was in Peru and we don't win it because it was a difficult auction. It is not because of money, it is a closed envelope and then you have to put a price and, well, we don't get that spectrum. We are looking for alternatives to do what we need to do in Peru, but we are aware of all of the new licenses that are going to be auctioned and we are ready to be there and I don't think nobody wants to block the auctions in Latin America.

Everybody wants investment. I think all the governments around Latin America need investments and want investments. And America Movil is doing that. So I don't know why they don't want to let us participate in the new auctions.

Thank you very much.

Thank you, ladies and gentlemen. That concludes our conference call for today and now I would like to turn the call over to Daniel Hajj for closing remarks. Please go ahead.

I think I just want to thank everybody for being in the call. Thank you.

Thank you. Ladies and gentlemen, that concludes your conference call for today. Thank you for joining us and you may now all disconnect.