America Movil SAB de CV (AMX) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2013 America Movil earnings conference call. My name is Jackie, and I will be your operator today. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Ms. Daniela Lecuona, Investor Relations Officer. Please, proceed.

Thank you, Jackie. Good morning, everyone. Thank you for joining us in this call to discuss fourth quarter results. We have this morning on the line Daniel Hajj, CEO; Carlos Garcia Moreno, CFO; Oscar Von Hauske, COO; and Carlos Robles, [CEO] of Telmex.

I'm going to turn the call to Daniel.

Gracias, Daniela. Good morning, everyone. Thank you for being in the fourth quarter financial and operating report results. Carlos is going to make a summary of the results.

Thank you. Hello, everyone. Good morning.

The fourth quarter saw signs of firming up of economic activity in the US and of what may be an [insistent] recovery of the domestic market in Mexico, with the Fed's decision in December to begin to taper its purchases of long-term securities, seen by the market as confirmation of the underlying strength of the US economy.

In the fourth quarter, we added 4.8 million wireless clients and 1.2 million revenue-generating units to finish December with 339 million accesses. That is 4.2% more than a year before. This figure includes 270 million wireless subscribers and 69 million RGUs. Year on year, accesses of our fixed-line division increased 8.2%, whereas our wireless subscriber base rose 3.2%.

We added 1.3 million new wireless subscribers in Brazil, 1 million in Mexico, 616,000 in the US and 614,000 in Colombia. In relative terms, our fastest growing operations were those in Central America. I think it's important to highlight that in most markets we continue to see stronger growth of our post-paid subscriber base than that of the prepaid. We continue to make inroads in the post-paid segment of the market, practically across the board.

As regards our financials, fourth quarter revenues rose 3.1% from the year-earlier quarter, to reach MXN204 billion. At constant exchange rates, total revenues were up 7.8%, and service revenues 5.4%. Leading the way were pay TV sales, that increased 21.8% from the year before, followed by mobile data revenues, at 18.9%. Those coming from fixed voice posted the smallest decline in more than a year, falling 3%, while the ones stemming from fixed data continue to hover close to a 10% growth rate.

This is important, because the drag that we had been facing for quite some time from the fixed line voice business has become smaller and smaller. It's diminished, and it's now something that is almost negligible.

At 7.8% year on year at constant exchange rates, service revenue growth in the South American block remained strong. We continue to see very strong service revenue growth in South America as a block, although it moderated somewhat from the prior quarter mostly on account of the deceleration that took place in Colombia.

But service revenue growth remains stable, at 4.1% in Central America and the Caribbean, and in Mexico it picked up from minus 2.1% in the third quarter, to minus 0.6% in the fourth, possible reflecting the beginning of an economic recovery in the country.

Fourth EBITDA came in at MXN63.5 billion. In peso terms, it was up 41.4%(sic-see press release "1.4%") from the prior year. But at constant exchange rates, it rose 5.7%. This was by the way the best result in terms of constant exchange rates for EBITDA growth in the last 12 quarters.

As for operating profits, with depreciation and amortization charges roughly flat year on year, they increased 2.3% in peso terms and 5.8% at constant exchange rates.

The strong EBITDA performance came about in spite of a significant increase in the cost of equipment compared to the prior year. At 15.4%, it outpaced by almost four times the rate of increase of total cost and expenses, reflecting mostly the increased participation of smartphones in the sale of devices.

Our comprehensive financing cost reached MXN17.8 billion, resulting from a net interest expense on our debt of MXN6.6 billion. Other financial expenses, including commissions and financial services, interest on unfunded pension obligations, and the net impact of financial derivatives in the amount of MRP1.0 billion, and a foreign exchange loss of MXN10.2 billion.

The latter amount arose from the impact on our net debt and payables position of the depreciation of various local currencies versus the dollar and the euro, but also a certain local currencies against each other, in particular the real versus the peso.

Our net profit for the quarter came in at MXN17.2 billion. It was 15.7% higher than the year-earlier quarter, and represented earnings per share of MXN0.24, or $0.37 per ADR. Earnings per share were up 23.7% from a year before, partly reflecting the impact of our share buybacks.

Our net debt ended the year at MXN442 billion, having risen MXN70 billion in the year. Our net borrowings helped cover capital outlays and shareholder distributions in the amount of MSP244 billion, including MXN129.6 billion in CapEx, MXN15.4 billion in investments and interest of our various companies, MXN12.9 billion in the funding of pension liabilities, and MXN86.5 billion in distributions to our shareholders of which MXN70.7 billion corresponded to share buybacks,.

I think with this, I would like to finish this presentation, and I would like to open the floor for questions. Thank you very much.

(Operator Instructions) Michel Morin.

Good morning. Carlos, I was hoping that you might clarify one thing regarding your margin in Brazil? Specifically in the press release that Net Servicios published, there's a mention of a legal settlement of some sort that was substantial. So, I was wondering if you could quantify the benefit that you received from that? And just confirm that that also translated in better EBITDA at the consolidated AMX level?

And then, secondly, if you can talk a little bit about your CapEx plans for 2014, including also at NET Servicios, because there also we saw recently some disclosure that you were looking to invest something of the order of about BRL5 billion this year?

Thank you.

What you could see in NET Servicios is we have some disputes in copyrights that we settled and we reverse a provision that we have of BRL180 million, exactly the amount of money that you could see in NET Servicios. So, that's a dispute. We have a provision, and when we settle the dispute, we reverse BRL180 million on that provision.

And in terms of the CapEx --.

I think this provision was not a significant in terms of the impact on the total EBITDA. I think what was more important, and we mentioned that in our report, is that in the prior year we had had some extraordinary expenditures associated with advertising, and that was when we were introducing the Claro brand there altogether.

So, the base of comparison already was higher, and that helped the increase of EBITDA that we overtake this year.

So, yes, the settlement that you mentioned, Michel, is a factor, but I think it was a more important factor, the other one that we have already mentioned. And altogether, we can tell you there is an increase, I think, of 29% of EBITDA in Brazil posted for the quarter. I can assure you that at least 15% f that would have taken place without any one of the extraordinary charges, of the extraordinary issues.

But you can work out with Daniela if you want to go to more specific numbers.

That's very helpful. Thank you. And then, on the CapEx plans?

On the CapEx, I think what we have for this year is more or less the same amount of last year. It's going to be around $9.5 billion to $10 billion, is what we have. And if you want the disclose per country, maybe you can talk with Daniela. But all over all, we're having around $9.5 billion to $10 billion of CapEx.

Which will make it the fourth year in a row that we are spending approximately $10 billion per year.

That's terrific. Thank you very much.

Thank you.

Alejandro Gallostra, BBVA.

Good morning. Could you please provide us with an update of the regulatory front in Mexico, whether you're happy or not with the draft of the secondary laws that you're seeing at the moment?

Well, the only thing that I can tell you at this moment is that on December 5, we announced that we received a notice from the federal telecommunications institute and we have provided IFETEL with our response, technical, economically, and legally.

Still today, we are waiting for that resolution. We don't have anything else on that. So, I think that the date would be before March 9, is what the due date that they have. But still, we don't have anything at this moment, nothing (multiple speakers).

OK. Thank you. And a second question, if you may, perhaps you could give us more color about your strategy in Europe, because I would say you are seeing mixed signals here. On one hand, you are consolidating in Telekom Austria under the umbrella of America Movil. On the other hand, you are reducing your stake in KPN.

So, how should we read this?

Well, we reduced it 2% in the stake on KPN. What we want is to be financially very good in America Movil. And that's really the reason why we reduced this 2% there.

We don't lose any rights that we have if we have more than 20%-plus-one, something like that. So, we're still very active. We're very interested in KPN, and we have people working with them. And that's really what 2% only to make more strength the financial situation of America Movil.

OK. Good. But would you pursue your strategy in Europe? Would you still consider increasing your stakes in Europe and at the same time you would feel you still have the ability to eventually consolidate the Brazilian market if the opportunity comes up?

Well, we talked about that last quarter. I think we are also interested in what is going on on Brazil. Still, we don't have nothing else in Brazil. Only rumors. But we are not doing anything.

Maybe there's going to be a consolidation in Brazil. Still, we don't know. But we are interested in participating in that consolidation.

And in Europe, the two things that we have been talking are Telekom Austria and KPN, and we're still very active and interesting, helping and developing the operations there. That's the only thing that we're doing at this moment in Europe.

[But to look] a little bit strategy, you pursue all these opportunities within the short period of time. Do you think?

Well, as we always said, we're going to maintain our financial strength. So, all depending on the way we do things are going to be the debt or the financial situation that this take.

I think just to add to what Daniel is saying, we've been very clear and very consistent all throughout that we intend to hold to our current ratings. Our ratings are today the highest in the telecom sector, at least in the western hemisphere.

And we value those ratings very much. So, we will be abiding by the constraints that they impose on us in terms of leverage.

We have discussed this in the past. We know that leverage is something that you can play a little bit with over a certain period of time. But certainly, it's not something --. we are not considering anything that would get us beyond where we feel comfortable and for the ratings agencies feel comfortable in terms of our leverage.

(Operator Instructions) Mauricio Fernandes, Merrill Lynch.

Good morning, everyone. Daniel, speaking of KPN, it seems that the stake that America Movil owns on KPN has been reduced to 27%, at least at the end of the year. I was wondering if that is still the case? And, if yes, what's the rationale for it? I know it's a small reduction from nearly 29%, 30%. But what's the rationale and the outlook for holding the minority stake in KPN?

I'll answer this, Mauricio. Hello.

This is basically trimming the position at the margin. We had 29%, and we went down to 27%, rough numbers. And that's basically something that allowed us to reduce somewhat our net debt at the end of the year.

So, it's a little bit of trimming the position, just fine tuning as Daniel pointed out before, fine tuning our financials.

In terms of overall importance, it's to have 29%.

And just to add one more ting, if we have more than 20%, we have the same rights that we have. So, we are not losing any rights. We are not reducing the people that it's helping there. We are not reducing the synergies that we're having with them.

So, nothing in terms of operation is changing.

OK. That's very clear. Well, in Europe, Telekom Austria, you were in a relatively similar stake there, and I know this is just press speculation, but about eventually increasing the position there. Obviously, I don't expect you to comment on this, but what's the rationale with Telekom Austria? At some point last year, you tried to buy the rest of KPN. Is the idea to continue to consolidate in Europe? So, if you could provide an update on that, that would be great, please.

What I can tell you is that we have very good relations with the government, with the companies, with IOG, that is the other controlling shareholder. We have been working very good.

And what we want is to develop Austria and to develop the eastern countries there. We're helping there. I think we have very good relation with the management. We have very good relation with the people who is managing the company. And we are nothing has been changing since the last year with Austria. We have been trying to integrate and making the synergies between the companies, and that's really what you could see all this year.

OK. That's clear. Thank you, Daniel. Thank you, Carlos.

Vera Rossi, Goldman Sachs.

Thank you. Good morning. I have a couple of questions on Brazil. Is the acceleration in your wireless service revenue we saw this quarter sustainable in the next quarter? And what are the reasons behind the improvement in ARPU? Is this the pick up in wireless data from contract users?

Thank you.

Well, as we have been saying, we have been investing a lot in the wireless market in Brazil. I think it's starting to pick up for us.

I think the trends are good. Every quarter we have been increasing this quarter looks better. And we're doing good in voice, but also in data. So, the promotions and the things that we have been doing the third quarter and the second quarter has been good.

We have been increasing in our post-paid base 10% a year over year, and 20% on data.

One of the things that you could see is that the interconnection rates have coming down. So, that is hurting us a little bit in the revenues. But the prepaid, post-paid, and the data has been improving very well.

Thank you. And I have a follow-up question on NET Servicios. What is the number of homes passed that you ended 2013? and what is the goal to reach at the end of 2014?

Thank you.

By the end of 2013, 19.8 million home passes. We intend to build this year 1.2 million additional for 2014.

OK.

So, we're going to end this more with more than 21.5 million, around, home passes.

And are you --? What are the cities or states that are you focused in this expansion of homes passed?

Well, we are to add another seven cities. And as you know, we only focus on the A-B market of the segment of market. So, we are going to add seven additional cities, not even states, where we see opportunity in the marketplace.

But just to complement what Oscar is saying is, I think NET has been very successful. In any city that we are getting in, we are having very good reception of the customers. We have a very good service, quality of service.

In the TV but also in the broadband and

Triple play.

We are growing a lot on the triple play. We are not selling TV. We are selling also broadband and fixed. So, that's something that Net has been doing very good, Vera.

OK. Thank you.

Richard Dineen, HSBC.

Thanks very much for taking the question. You comment on the economic improvement in Mexico in Q4, which is a pretty decent rebound from a weak third quarter where I think you commented on the impact of lower prepaid recharges and so forth.

Now, the prospects of 2014 look a lot better than they were in 2013. so, I'm just wondering how you see the sensitivity to a better Mexican economy in terms of your fixed and mobile businesses, prepaid versus post-paid, usage spend? That kind of thing would be really helpful.

And if I may just squeeze in my follow-up, which would be to a previous question on the regulation? Again, you mention in your release that you have 55% post-paid share in Mexican mobile. And you've also highlighted your presence, for example, in fixed line in areas with no competition. In your dialogue with IFETEL, is that kind of segmentation argument getting any traction at all? Are they at all receptive to that? Anything on that would be really useful, as well.

Thanks, guys.

Well, we have providing IFETEL all these data. I think not only in fixed where we don't have any competition. We also have a lot of small towns in Mexico. I can tell you a lot of small towns in Mexico where the only service is Telcel. So, I think IFETEL already have all these data.

And as I said to you, we respond technically, economically, and legally all the notice that we received from the IFETEL. So, that's more or less what we have on that.

By our estimates, Richard, we have a presence in approximately 200,000 communities. And in more than half of those, there's no competition.

But in any event, just to go back to your question on the Mexican economic outlook, a year ago when we were having the call for the fourth quarter 2012, I think the surprise that we all were facing was the issue of Mexico, because Mexico had had a very steep decline in economic activity toward the end of 2012. And that ended up having the lower effect on our revenues.

What we are seeing now is just a very slight improvement in Mexico, that may or may not reflect an improvement in the economy. If you talk to different people in different sectors, not everybody is seeing this rebound.

So, it's difficult to say that this is what's happening all throughout.

Now, having said that, I do believe that as you point out the expectation for economic growth in Mexico over the year is 3.5% to 4%. and if that materializes, we do believe that it will have a very positive impact on our revenues.

Our operations have always been very resilient to the state of economic activity, and we believe that we have seen probably the worst and that there is some upside to be had by better economic growth.

Thanks, Carlos. Thanks, Daniel.

Andrei Sabah, Credit Suisse.

Good morning. Thank you for taking my question. I wanted to ask you about the growth of the wireless data segment. You have reported 19%. it has been cooling down a bit and now it's even --. Pay TV is now your highest growing segment, I believe.

But you didn't cite growth for wireless data in Mexico. I was wondering what kind of growth are you getting there? What are you seeing? And if this is pulling down the overall growth for AMX?

Thank you.

I think --. Let me explain the wireless data. Wireless data is growing all over all, but there are some services in data that are going down. SMS is going down. Specifically in Mexico, we have been having a reduction of 17% of SMS revenues year by year in Mexico.

But as we have been growing in the other browsing Facebook, Twitter, all of those services, the growth of data has been good. We have in Mexico around -- I think it's around 10% to 15%, the growth of all data. Yes, 9.5% the growth in data in Mexico in the fourth quarter.

So, this came with the big raise of SMS that we're having.

Also, the Blackberry has been going down and we are reducing a little bit of revenue in this segment. But the real data, that is browsing, Facebook, Twitter, WhatsUp, this is growing very fast.

And the other good news is that in prepaid we are growing very fast data. So, prepaid is starting to use data, and you could see this year good growths on prepaid in the data segment.

Thank you.

Andres Medina Mora, GBM.

Thank you. I was wondering, we have seen the growth in the post-paid sector all across the region, have you seen any modification to the amount of subsidy that you have to do? Or, should we expect any increase in this area going forward?

And also, what do you see as your strategy for the US in the year to come?

Thank you.

I think we have been having a strategy on growing our post-paid business the last two years. It's not a new strategy. We have been growing in 2012 and in 2013. We have been growing more post-paid than prepaid in terms of percentages.

And that could be it's very difficult to say if we're going to have more subsidies or less, because the markets are different, the competition is different, and we have different marketing plans in each of the countries.

But we are really focused on the post-paid plans, and we have been having a lot of new smartphones, new prices of the smartphones. So, there's a lot to add to all of this segment of the market.

In US, our strategy is the same strategy. We're still growing, profitable growth. We have two or three good plans. We have our SafeLink plan. We have the StraightTalk that we have been growing. We have very good ARPU. So, we are really happy the way TracFone is evolving in US.

One thing, Andres, just to add for Daniel, is it's important to take a look at the numbers. This improvement that we had in EBITDA took place even in spite of the fact that, and I mentioned it in my presentation -- in spite of the fact that the cost of equipment rose significantly this year. And this is again because of the introduction of smartphones and tablets that we are increasingly selling.

If you look at it country by country, you will see that in places like Mexico, Brazil, Colombia, Chile, you are going to see a very significant increase in equipment costs. And by that, I mean a multiple of the average of cost and expense that we have in each country. We are growing three times, four times more rapidly cost of equipment than total cost and expenses.

So, the EBITDA that we have is already after factoring in these increases in the cost of smartphones.

That's very helpful. Thank you.

Marcelo Santos, J.P. Morgan.

Good morning to all. Thanks for taking the question. I just wanted to understand a little bit better the FX loss that happened in the quarter. So, when we see the Mexican peso versus the US dollar and the euro, it was a small change versus the end of the third quarter. And we saw the real devaluing against the peso. I would like to understand a little bit better how this created this loss?

You have debt in different countries. And for the purpose of completing the FX valuations, you have to factor in the impact on the local currency of each country at the depreciation that the dollar vis-a-vis the euro depending on how you have your original liabilities.

And to the extent that there may be intercompany transactions, that also has to be factored in. So, sometimes if it's in transactions between countries, you may end up having the local currencies be the ones that are determining the FX impact of the FX.

In the case of the real versus peso, which we are highlighting in the report, I think the depreciation end to end from September to December is something, it's close to 7%. And if you look at the depreciation year on year, it's about 10%.

So, there has been a very significant depreciation of the real vis-a-vis the peso, and that affects the liabilities that may be in Brazil of transactions either in pesos or in dollars.

OK. Thank you.

Jonathan Dann, Barclays.

One question on Mexican fixed line. Could you just give us an update on how many homes passed with fiber? And also, in the very strong fixed line growth, could you just split that between residential revenues, perhaps business, and wholesale, so we can get a better feel for the trends?

Speaking about home passed with fiber, what we fiber including fiber to the home and fiber to the node. We are basically deploying these technologies in the A&B segments in the country, in the main cities in the country, so that we can sustain better products and services for our market.

And in terms of the division between residential, commercial, I don't have these numbers at this moment, but I can tell you that the fixed amount in the corporate side, the main drivers the data, about half between the internet and corporate revenues.

All over all, what we are doing is we're expanding the bandwidth in the residential market and in the corporate market. And I think that has been very good news for all of our customers. They are having better bandwidth and better service all around Mexico.

Can I be very European and ask a follow-on question about Brazil wireless trends? Did anything unusual happen in the way you reported or recorded the MTR drag between the third and fourth quarter?

No. nothing different has been the way we are reporting. I think it's a good trend. So, I hope we can sustain that trend for all this year, for it's a very good trend for us. We have been doing much better.

I think in terms of revenues on data and voice, has been good. The only thing that is going down and is still this year, in 2014, is going down again is the interconnection rates. That is hurting us in Brazil but the rest has been having a very good trend.

Thank you.

Soomit Datta, New Street Research.

Could I ask a question on Colombia, please? The growth there I think on the wireless business service revenues was close to zero. One of your competitors, Millicom, reported greater than 20% growth yesterday. So, they seem to be picking up a bit. You seem to be losing a little bit.

You referenced the 70% interconnection cut I think as one of the factors in that slowdown. But could you maybe break down a little bit how much was interconnect and maybe talk a little about the competitive landscape?

And moving into this year, do you think you can return that business to growth again?

Thanks.

You make a very good question. As you say, the interconnection rates are hurting us in Colombia. But I think it's not the only thing that is hurting us. I think we need to be a little bit more -- the market is being very aggressive, and we need to return to be aggressive in the market. And that's what we're planning to do this year.

We're not going to do crazy things. We want to be very intelligent, to see what are the things that we are interested in the marketing side. But we are working on that, and I think that we can put Colombia again on moving to the right trend, to the good direction.

So, yes, interconnection is hurting us a lot, but we need to do lot more in the commercial side, and that's what we are doing. We are starting to put LTE network. And I think that's also something that is going to help us to gain better subscribers in Colombia.

But still, a lot of work to do this year.

And if I might ask a quick follow-up on Colombia then, there has been some speculation of regulatory intervention that sounds quite severe in terms of splitting up the business or limiting market share to relatively low levels. Have you got any insights on where we are on that process?

No, we don't have any insights there. I don't think that's the right thing to do as a government move for the country. And we haven't hear anything on that.

OK. Thank you.

Maria Azevedo, UBS.

Hi, Daniel and Carlos. Could you please share with us your views on the Chilean market? The competitive environment there, the 4G rollout and your expectations on the proposed regulatory reform? Thank you.

Again? We don't hear you very well. Can you repeat your question, please?

Sure. Could you please share with us your views on the Chilean market, the competitive environment there, the 4G rollout, and your expectations on the proposed regulatory reform, please?

Well, on the Chilean market, we just have 20% market share. So, we still need to grow a little bit our share of market in fixed, in wireless, in TV.

So, we're working there. So, I think we can improve our EBITDA this year. We need to improve the EBITDA this year. But we're more focused on gaining a little bit more of volume of economy of scale, of market share there.

So, that's what we want to do and that's the strategy in Chile. And we have been doing that for the last two, three years, and it has been good. We have been growing the business. We have very good competitors there. Telefonica and Entel are top competitors. So, we need to do a very good job to increase our share in profitable ways.

So, that's more or less the strategy that we have in Chile.

OK. Thank you very much. And also, as a follow-up question, could you please expand a little further on your views of a possible in-market consolidation in Brazil? The timing of a potential bid or any indication if the government is supportive of such a move? Thanks.

Well, I think the only thing that we have today are rumors. So, nothing more to comment than that. We don't have any talks with the government at this moment. And the only thing that we have been hearing is what everybody is hearing, that maybe there is a company that would be for sale and that the alternatives would be that Brazil will be consolidated or that a new entrant will go to Brazil.

So, those are the two alternatives, and we're waiting and looking closely what are the developments on that side. So, that's the only thing that I can tell you. Nothing else to say.

All right. Thank you very much.

Ric Prentiss, Raymond James.

Thank you. Good morning. A couple of high-level questions. First, you mentioned how your CapEx has been around $10 billion for the last several years. Can you break that down into buckets, as far as what you think the spending in 2014 will be focused on? Is it fiber, Pay TV, data centers, 4G? Just give us a thought of where you're emphasizing the capital spending?

Well, there is a lot we're --. First, capacity. We're growing a lot on data in wireless. So, we need a lot more capacity on data.

Fiber to the node, of course. We have been improving a lot, but we have to make more fiber to the node.

We have already -- Oscar can talk a little bit about our data centers and the Cloud computing that we are having. So, we have been well advanced on that.

I think this year we're also going to inaugurate our submarine cable. That is, we're putting another satellite this year.

Also home passes, there is home passes that we're going to do.

And a lot of this CapEx is CapEx that if you sell, you are going to put CapEx putting the boxes and everything in the customer. So, if we are having the revenues and the customers that we think we could have, then the CapEx would go to $10 billion. But if we don't have the subscribers or the economies are not developing the way we think they are going to develop, then we are going to put less CapEx, because we don't have to buy the boxes to put it in the house of every customer that we have.

But, all over all, there's not something in the CapEx that we have. Specifically, it's all around. What we want to be very, very cautious is to have enough capacity and the best quality of the networks all around Latin America. It's what we're investing more -- capacity.

So, Oscar can talk a little bit more about the Cloud and the data center that we just finished. We're finishing some of them.

If you look at a true America Movil, you have 16 data centers in different countries. We started providing hosting facilities, enterprise customers. But now we move to the Cloud. We already developed Cloud in Mexico, Colombia, Argentina, and Brazil. And we are selling in the market two kind of products. One is a software as a services. So, we include solutions, mainly for small business. And this is small in size of revenue, but it is growing pretty well and it has been very well received in the marketplace.

And the second product that we sell in infrastructure as a services. We sell [this to on] service. That is on pace growing pretty well. And it's tied to our telecommunication business.

And secondly, we are making virtual data centers offering in the marketplace.

So, we want to move from just connectivity to a value-added company through these data centers. So, we already have those four countries and we are going to connect in the second half of the year the rest of the countries to this host, to these Clouds.

Great. And in Brazil, there's been a lot of talk about tower sales by TIM. Any thoughts about if Brazil does move towards consolidation how strategic or not the towers might be in Brazil?

Well, there's a lot of towers in Brazil. So, if TIM are going to sell their towers, I think there are going to be more available towers for everybody. So, I don't think the towers are going to be an issue in Brazil, for a good or for a bad thing. I don't think the towers are something that will help or will not help in Brazil.

So, there's no --. There's enough towers in Brazil that you could put your service.

Great. Thanks so much.

Bruno Mendonca, Santander.

Good morning. It's actually Valder. Congratulations on the numbers out of Brazil.

Reading the report, it seems that the integration of the assets down here is beginning to make a difference and it's beginning to move the needle. My question to you is, where do you believe that this integration is bearing the largest fruit? Is it on the cost side? Is it on the finance, on the fiscal side? Is it on the dynamics of how you play the top line game? That's my first question.

And how far are you from reaping the benefits that you believe that this integration can give to you? How much homework still needs to be done? That's my first question.

Well, there's a lot of questions. (laughter)

What we have been doing, we're integrating all the companies in Brazil. The first move that we do is integrating the infrastructure in Brazil. And in the infrastructure, you could get more capacity, less cost, less CapEx. And that's where you could see the integration in terms of all the infrastructure in Brazil.

Also, we are doing the integration in the commercial side. In the commercial side, you are seeing that we are selling almost double, triple, combos. Is starting to sell wireless, and the wireless side is starting to sell the satellite business. So, you could see a lot more integration on the commercial side.

And the last thing is on the integration of the IP, all the stuff, call centers, data centers, customer care centers. All of those things also will create a benefit in terms of cost and expenses, and also will give us a much better service to all of our customers.

So, that's mainly what we have been doing. It's not easy. We have been advancing a lot, but I can tell you that still long way to go in Brazil.

So, we starting to have the benefits of all the integration, and still I think you could see benefits in the next two years.

OK. And my second question comes about the 4G auction. What are your views on that? Is it feasible to have this auction in August? Do you believe there is going to be demand? Or, is the demand pretty much dependent on what could be the potential outcome of a potential consolidation in the country? What's your view on this 700-megahertz auction?

It's very interesting. It's difficult to say anything. I think everybody needs the 700-megahertz. It's going to depend a lot on what are going to be the conditions for the auction, to see if there is going to be a lot of participants or not.

Well, everybody is being very careful about the financial situation of all the company. So, of course, the 700-megahertz are very important, but we need to see what will be the conditions to get there and if in the conditions what the amount of CapEx and the new towns that we need to serve, or if there is not going to be any condition on coverage for this auction.

We still don't know. We don't have clear. I think the government hasn't released any clear definition on those frequencies.

So, let's wait to see what is going to happen.

OK. Thanks, Daniel.

Juan Lopez, BTG Pactual.

Good morning. Thank you for the conference call. My first question is regarding tax rate during the fourth quarter. It seems you had a 12.6% tax rate. Could you please comment on that, what helped you to have this low tax payment?

we have had some tax benefits for the year on account of various things. It's not only one thing. We basically taking advantage of the opportunity toward the end of the year to take advantage of those. So, we don't think there's anything more to report there.

Are those not likely to repeat into 2014, right?

Say again?

Are those likely to repeat, any kind of benefit?

No, they were one-off adjustments. Yes.

OK. And a second one would be with your talks with rating agencies, how much time do you feel they are willing to wait until you start to bring the gross debt to EBITDA ratio down? And how much time do you feel you could be bringing that down?

The net debt to EBITDA today? Well, if you take into account that we placed some debt in the market that rating agencies consider to be only half debt, you factor that it. We are at approximately 1.55. So, that's very much in line with what the rating agencies seek, at least the one that has us on the very tightest constraint.

So, we were perfectly comfortable with that. As we have pointed out throughout this call, we have been very careful doing things to fine tune our financial position, including trimming some of our investments. And we are very happy to say that we are exactly where we wanted to be.

We have just a little bit more than 1.5 times net debt to EBITDA.

That's net debt, right?

Yes, but the gross and net debt should converge most of the time. There's a portion of cash that is considered to be necessary by the rating agencies. So, that's already factored into that. They don't have an issue.

OK. Does it KPN sale is something that maybe the rating agency may have suggested to you?

No. no, as we've said, we have always been very careful with our financial management, and we make sure that we have a credible position with the market and with the rating agencies.

And we do the things that are needed. At some point, we placed hybrids in the September, I think it was. That's the first time that any Latin American issue had placed hybrid debt, and the reason was [we decided] because we wanted to make sure that we were protecting our ratings.

Now, at the end of the year, we decided to trim a little bit some investments and did a whole bunch of forward things. And that's how we have ended up with the position that we have today.

So, you want to be very clear, because I know that some people have voiced some concerns as to whether we are going to be able to hit our leverage targets. I can tell you all whether we are where we wanted to be.

Thank you.

OK. Thank you very much.

Lucio Aldworth, Citi.

Thanks, Daniela, Daniel, and Carlos. Thanks for the call. I've got a couple of follow-ups on a few questions that have already been asked.

First of all, I would like to know -- and I do apologize if I missed this -- whether AMX has sold more of the KPN stake in 2014? and if I'm not mistaken, the next regulatory requirement would be for you guys to report again if your stake falls below 20%. Is that correct?

What I answered is that we sold I think 2% from 29% to 27% is what we have been sold. And what we said is we are flexible because we to maintain the rights that we have with KPN and to sustain what we have been doing with the company we need to have more than 20% -- 20.1%.

So, we can be flexible. Still we don't know if we're going to sell more or not. Depends a lot on what is happening on the markets. But we want to be flexible and that's --. we are really interested in still develop the relation with the KPN management and with the KPN board.

I think this year we haven't been selling anything. The sales that we have was last year, is what you could see. But I want to be open that we could do and we can be flexible to do whatever we want on that.

As I told you, again, more than 20% -- 20.1% -- we have exactly the same rights in the company to still develop what we have been doing there.

OK. And has there been any sales in 2014 thus far?

No. As I told you, I don't think so. I don't think so. I think we sold everything last year. I'm not so sure, but I don't think so.

OK. Just a quick follow-up on Michel Morin's question on Net, if you don't mind. Just wanted to make sure that I've got the numbers right. In adjusted EBITDA in Brazil then, would have been somewhere close to 22% rather than 24% in the first quarter? If this is correct, where do you think margins would settle for the Brazilian consolidated business considering tougher competition with GBT now coming to Sao Paulo and pretty much everyone else building fiber and launching IPTV and fiber-based broadband products in Brazil as well?

Lucio, you know that we never provide guidance on EBITDA margins.

But what I can tell you, Lucio, on Brazil, is that I think, as I told you, we have a very good company. NET is developing very well. The perception of our brand there is excellent.

I'm a subscriber. I know that.

The trends on the wireless side are also looking good. We are developing very good. We are growing in data. We are growing in voice. We are reducing the revenues on the interconnection. That's I think for everyone in Brazil.

But, all over all, the business looks very good. So, I cannot tell you, as Carlos is saying, we don't provide EBITDA margin. But I think depending a lot on the economy of Brazil, the way that the economy is going to evolve this year, I think also on the integration of the companies, it's going to depend a lot what you could see in 2014 in Brazil.

All right. Perfect. Thank you so much, gentlemen.

At this time, ladies and gentlemen, I would like to hand the call over to Mr. Daniel Hajj for closing remarks.

Just to say thank you for the call, and thank you everyone for being here. Bye, bye.

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