America Movil SAB de CV (AMX) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the America Movil fourth quarter 2014 earnings conference call and webcast. My name is Denise, and I'll be the Operator for today. (Operator Instructions)

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

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

Good morning, everyone. Thank you for joining us to discuss our fourth quarter results. We have today on the line Mr. Daniel Hajj, our Chief Executive Officer; Mr. Carlos Garcia Moreno, Chief Financial Officer; Mr. Oscar Von Hauske, Chief Operating Officer; and also with us, Carlos Robles, Chief Financial Officer of Telmex.

Good morning. Thank you for being in the call, and Carlos is going to make a summary of the fourth quarter results of America Movil.

Thank you, Daniel. Good morning, everyone.

Well, the fourth quarter of 2014 was characterized by significant foreign exchange volatility throughout the world, alongside increased expectations of interest rate hikes this year by the Fed, as US economic activity appeared to gain momentum.

Emerging market currencies suffered vis-a-vis the US dollar, as did the euro, the latter on expectations of quantitative easing by the European Central Bank. The US dollar rose 12.6% in the quarter against the Mexican peso, 13.4% against the Brazilian real, 24.2% versus the Colombian peso, and 13.6% vis-a-vis the euro.

We ended 2014 with 368 million access lines, 8.4% more than a year before, reflecting the consolidation of Telekom Austria. Altogether, we had 289.4 million wireless subscribers, 34.3 million landlines, 22.6 million broadband accesses, and 21.5 million PayTV units.

On a pro forma basis, the organic growth rate of our access base was 1.2% relative to 2013, with our fixed RGUs expanding 6.5% and our wireless subscribers contracting 0.2%, after net disconnections of wireless subscribers throughout the year, as we move to standardize churn policies in the region.

Our postpaid subscriber base actually rose 5.1% year on year, with fixed broadband accesses increasing 8.6% and PayTV accesses rising 10.1%.

Brazil was our largest and fastest-growing operation in the quarter, up 5.7% from the year before, to 107.2 million accesses. As you can see in the chart, it's the largest operation we have in terms of total accesses.

Our fourth quarter revenues totaled MXN229.3 billion, 2.7% more than a year before in Mexican peso terms, bringing to MXN883.8 billion the total for the year -- proforma, assuming the consolidation of Telekom Austria had taken place at the end of last year.

At constant exchange rates -- and this is very important -- at constant exchange rates, service revenues were up 3.2% in the quarter, with growth rates decelerating in some markets, partly as a result of the introduction of [new] regulatory measures including lower interconnection rates. In the Americas, the rate of growth of service revenues ended up being 3.9% in the fourth quarter. In Europe, it ended up being slightly negative, minus 3.9%, in the same period, but partly has to do with the booking of extraordinary items a year before in that case and the phasing of new accounting policies on revenue recognition.

At 14.6%, mobile data revenues continued to be the more important driver of growth, followed by PayTV at 12.7%. Fixed broadband revenues grew 12.0%, while voice revenues continued to deteriorate in both platforms, partly on account of the regulatory measures mentioned above.

The South American block continued to lead in terms of service revenue growth, with 5.6% in the fourth quarter, followed by Central America-The Caribbean, at 4.5%. Central America-The Caribbean block has been improving all throughout the year, and they ended up having a very, very good quarter.

In Europe, service revenues were down. Belarus had a positive contribution for the group, albeit at a lower rate than it used to because of the crisis in Russia.

Consolidated EBITDA totaled MXN67.7 billion in the quarter and MXN279.2 billion for the full year. At constant exchange rates, it was up 1.9%, with that of the Americas expanding at a 4.4% pace. The EBITDA margin for the period stood at 29.5% of revenues, reflecting the fact that in most operations there were margin improvements relative to the prior year. Again, this is important. In most operations, we saw margin improvements in local currency terms throughout the year.

EBITDA was affected by a one-time, non-cash charge associated with the valuation of pension obligations of civil servants in Austria, which amounted to MXN1.2 billion in all, and one-time cash costs associated with the fulfillment of certain obligations under our concession in Colombian, including the distribution of tablets. Those charges amounted to approximately MXN600 million.

Our operating profits were down 11.2% in Mexican peso terms, as depreciation and amortization charges rose 12.5%. Relative to revenues, these charges went up nearly by one percentage point, to 14.8%.

Depreciation and amortization charges include MXN2.3 billion for amortization and depreciation of intangible assets, brands, and plant and equipment associated with our European investments. This is important. Since we consolidated Telekom Austria and with the booking of the investments in Europe based on the fair market value of assets, we need to depreciate the assets and amortize the brands and goodwill, et cetera. So, those are things that need to be considered.

We registered a net profit of MXN3.6 billion in the quarter. It was down 77.8% from the prior year, reflecting partly the above-mentioned decline in operating profits, but also our comprehensive financing costs. At MXN27.8 billion, they were 42% higher than a year before, on account of foreign exchange losses. Such losses are unrealized losses that accrue on the currency exposure of our debt, which has a 12-year average life, with most of our currency exposure centered in euros.

Our net profit was equivalent to MXN0.05 per share, or $0.08 per ADR.

We finished the year with a net debt of MXN533 billion, up from MXN518 billion a year before -- assuming we had consolidated Telekom Austria then. It was equivalent to 1.7 times last-12-months' EBITDA, adjusting for our currency exposure. This is important.

Throughout the year, we funded capital expenditures in the amount of MXN149.7 billion and distributed MXN52 billion to shareholders, including MXN35 billion via share buybacks. In addition, we acquired minority interests and subscribed new equity in the aggregate amount of MXN10 billion. Furthermore, we contributed MXN16 billion to our pension funds.

So, that was for the year as a whole. But in the fourth quarter, in flow terms, our net debt increased by MXN13 billion, having covered capital expenditures of MXN68 billion in the quarter, including spectrum payments of nearly MXN15 billion, and having made shareholder distributions of MXN18 billion. This was the second dividend payment plus our share buybacks of the quarter. And on top of that, we had acquisitions of MXN5 billion.

So, again, to sum it up, in flow terms in the fourth quarter, we had an increase in net debt of MXN13 billion, and this mostly to do with CapEx and shareholder distributions. And the CapEx has the payment of spectrum as an important component.

Well, with that, I would like to pass the call back to Daniel Hajj. Thank you.

Thank you, Carlos. And we can start, please, with the questions.

(Operator Instructions) Amir Rozwadowski, Barclays.

I was wondering if we could dive a little bit more into the competitive landscape in the market of Mexico. Clearly, we've seen some recent developments take place, where AT&T plans to invest in the marketplace and you and your folks have obviously been working in order to meet various regulatory dynamics around divesting certain assets.

Would love to hear your latest thought process on the competitive environment, where you see it going over the mid to longer term with the potential entrance of a new competitor, one that you may know well, and what progress, if any, has been on the ability to meet some of these new regulatory dynamics?

Well, talking a little bit, as you may know, AT&T has been here. They already purchased Iusacell, and they are in the process of buying Nextel. They announced that they are going to buy that, and I think they are in the process of closing the transaction. So, as you are saying, the competitive landscape in Mexico is changing.

What we're seeing right now is that there is a new competitor. There are two companies merging in one, and this new competitor, AT&T, of course is going to invest and it's going to develop the telecommunications in Mexico. We are sure of that.

And what is going to happen is that everybody is going to invest more and everybody has to have better networks, better costs. And I don't know exactly how those AT&T is coming, but AT&T today, if you see Iusacell and Nextel are the second company in the wireless in terms of revenues. They are bigger than Telefonica in terms of revenues, smaller in terms of subscribers.

But what we're seeing as Telcel is that we're going to have more competition and that we are going to have a competitor that is going to invest more. So, what is going to force is that everybody is going to need to invest. I think Telefonica is need to invest more also. So, I think it's what -- is what you are going to see in the future.

On the process that we are making, we are still in that process. What we want is, and what we said last time is, that what we're looking is if we're going to divest some assets of America Movil, what we want is, first, that the price would be a market price of that sale, and the second is that we could be out of being a preponderant player.

So, those are the two things that we're looking. We are still in the process. As you could see, the competitive is changing. So we're looking also other alternatives of how we can divest that.

So, we are in the process; nothing to say more than that. And still looking the alternatives to divest and to reduce our market share to be out of being a preponderant player. That's more or less what we can say on that.

Thank you very much for the incremental color.

Vera Rossi, Goldman Sachs.

Could you talk about Brazil and the impact of the macro environment in the fourth quarter results and what do you expect for 2015, especially in RPUs or reduction of subscriber growth due to credit concerns, et cetera?

Well, in Brazil, talking a little bit about Brazil, I think we feel comfortable about what we are doing in Brazil. Last quarter, in fourth quarter, we finalized, let's say, the integration and merge of all the companies in Brazil. I think that was the last steps to have one company in Brazil. We have been doing that in the networks, in the commercial area, in all the operations.

So, I could see that in Brazil we feel comfortable. We're investing in Brazil the last three years, and you could see that the results in broadband, in fixed, in TV, and also in wireless are -- we're gaining traction on the market.

Well, Brazil, as economically, it looks like it's going to be a little bit more -- we're going to have a slowdown in Brazil for this year. But we're going to be very close to the market and see. If we still have the growth that we're having, we're going to still invest in there. And when we see that we still have a little bit more of slowdown on the net gains and on the market, then we're going to reduce a little bit more our CapEx.

Data in wireless is being strong with us. We're changing a lot of feature phones to smartphones, 2G phones to feature phones. So, we are moving in a good pace in Brazil. We feel comfortable in Brazil.

I think the only thing that I would say, Vera, is, as Daniel pointed out, the country is already in the middle of a slowdown. If you look at the GDP for last year, the expectation is that it didn't grow very much at all. This year, the expectation in the market is that it will be also close to zero, probably below 1%.

So, that's already something that, as Daniel said, we need to pay a lot of attention to, to be very close to the market. But having said that, irrespective of the fact that the overall economy, it seems that it will be weak, I think that our competitive position in the country is fairly strong and it has become strong precisely because of the investments that we have made and are continuing to make.

And last, I think a lot of our CapEx -- part of our CapEx in Brazil is related to the sales. So, if we have sales, then we're going to have more CapEx. If we have a slowdown in sales, then our CapEx is going to be less.

But as Carlos is saying, we're going to be very, very close to the market and taking decisions as we're seeing the develop of the country.

Okay.

Rodrigo Villanueva, Merrill Lynch.

My first question is related to the elimination of domestic long distance in Mexico. I was wondering if you could share with us an estimate of the potential impact that this could have on AMX's Mexican revenues and EBITDA in 2015?

And the second question is regarding the MTR cuts that we saw that you will be paying to your competitors. Beginning 2015, these termination rates were cut by around 17%, and they are expected to fall again by around 35% in 2016. So, I was wondering if you could give us an estimate of the savings that you would be having as a result of this?

I don't have exactly -- talking about the MTRs. As you could see, the interconnection rates in Mexico are low. So, all the cuts and the reductions that we could have are gaining in our costs, but they are small in terms of the cost on America Movil. I think are important. I also expect that they go down every year, and I think everything is gaining for Telcel in Mexico.

So, I don't have exactly the number, and I think we don't open those numbers. But I think interconnection in Mexico right now is low. It's very low compared to other countries. So, we're going to have gains, but they are not big in terms of percentage on the cost on America Movil.

The long distance, the long distance is interesting. Just to let you know what we have been having. In April, when we were preponderant, we have roaming, out. Then, other things, like interconnection, zero. And we are seeing that the customers are paying less, let's say, in roaming. They are going to pay less in long distance. But they are starting to use more other products, like data. So, it's not so fast they change on that, but we think that in the next year or something we can recuperate part of the long distance.

I think the reform in Mexico is working. The reform in Mexico is bringing more investment, new competitive landscape. And all these things are going to be good for the consumer.

So, I don't have exactly the number, because the number is going to be related a lot with some packages that we're going to do, some new commercial things that we are doing. And I'm not so sure what is going to be exactly the number in first quarter and then in second quarter and then in third quarter. But I think the companies can have -- we can change part of this long distance, and they can use other services in Mexico. It's what we could see.

We don't have a number exactly, but it depends a lot on how does the customers are going to behave with the new commercial packages and new commercial things that we are doing. But, let's see. Let's see, Mauricio.

Thank you very much, Daniel. Could you please share with us your CapEx plan for 2015?

I think the CapEx for 2015, it's going to be more or less the same as we said last year. It could be -- we're targeting around $10 billion on CapEx -- 5% less, 5% more. Depending also on frequencies, depending a lot on the economies of the countries, depending a lot on the growth. But more or less, we're having around $10 billion on CapEx.

Thank you, Daniel. Does that include Telekom Austria, as well?

That includes Telekom Austria, yes.

Perfect.

Michel Morin, Morgan Stanley.

So, two questions on Mexico, if I may? The first is on your fixed-line business performed quite well. You were up 3% on revenues. I think that's the strongest growth rate we've seen in a while. So, I was wondering if you can comment as to whether or not there was anything unusual there? I know sometimes you have IT projects or things like that that can move the needle a little bit.

And then, secondly, you mentioned in your press release that on the mobile side you've changed your commercial approach; you're being less aggressive. Can you help us quantify what the benefit of that has been, for example, on handset subsidies? Have those been eliminated completely? Or, are you actually making a profit now on handset sales? Whatever you can tell us to help us quantify that benefit would be really helpful.

I think on the fixed side we're being successful more in broadband. In broadband, it's been part of our growth. And also in IT products. So, those two products I think are the ones that you could see are growing in. And we have less reduction on the voice and all of these products. So, that's what you could see in the fixed side.

And on the mobile, well, on the mobile there's a lot of things. And we are not -- we are subsidizing less the handsets, but it's not all of them in all the segments in all the places. So, we have been more --. That's not something -- that's not a commercial decision. We have been doing something less in prepaid. We are a little bit aggressive, more aggressive in postpaid. So, it's a different commercial approach, Michel.

And also, we are cutting costs in the Company, being more rational in some costs, some expenses.

And that's more or less what is giving us -- why you could see these results in Mexico in the wireless side.

So, we're going to see how does the long distance is -- without long distance how our prepaid subscribers are reacting, if they are going to -- instead of using long distance they are going to use more data. We're changing a lot all the 2G phones to 3G, and 3G to 4G. Everybody is using more data. Data in Mexico, it's more or less 50% of our revenue at this time.

So, we are doing a lot of things. That's not only one thing, Michel.

Great. That's very helpful, Daniel. And just to follow up on your comment on the subsidies, is there still -- and on the cost cutting, in general -- do you still have room to cut more in Mexico?

Well, it's going to depend. You always have room, and that's our job to be more careful, to realize which CapEx are the ones that are going to be good CapEx, that they is going to give you more revenue.

But all over all, we're investing a lot in data. We still think that data is going to be very important. We are operating our networks, meaning by upgrading the networks, means that we're going to have less OpEx there. So, we're trying to be more competitive in all those expenses, Michel.

Okay.

Valder Nogueira, Santander.

Running on Michel's question, it seems that you guys are gaining a cushion [on EBITDA] and cost cushion in order to face whatever comes in the future and you already experience in terms of competition. In the first stage, it seems that is most likely driven in the mobile business. But so far in the fixed-line business, you guys have done, I believe, way better than the market expected.

My question is, how much more competition have you noticed or have you seen or have you able to force down your teams since new regulation was implemented? Are you seeing your competitors more aggressive? Are they taking this opportunity to try to move their games? Or, so far, no?

There [is] a perception that, yes, you guys are being cost efficient, extremely cost efficient, but there are some perceptions also that you have also jumping to being more aggressive on the pricing or mainly on bundling and how you play out the tools that you have. How do you view competition playing out in Mexico? That's the first question.

Well, let me first talk about Latin America. I think you'll see very different scenarios in all Latin America. Different economies are different in all the countries. We have eighteen countries, all US and Latin America. And the behavior of the competition and the economics in the countries are different.

So, you could see a little bit more competition, let's say, in Peru. It has been more competitive. US, in the fourth quarter, you see more competitiveness. Mexico, in the fourth quarter also, you are seeing also competition from some of our competitors. So, it's different in all the countries. We are not having one strategy for Latin America; we're having different strategies.

We have been doing very well in Central America. Central America has been improving a lot. Then, in some countries, it's more competitive in the fixed and in the TV, less in the wireless. Or, different.

So, just want to let you know that we does not have one strategy -- not one strategy on CapEx, not one strategy on one country, and not one strategy if it's wireless or fixed. So, it's different strategies.

Talking a little bit about Mexico, of course we are preparing. We are working hard, as I said. We are upgrading the networks, working a lot. What we want is to give the best experience to our customers or to the new customers. Best experience means quality, coverage, pricing in all the segments -- in fixed, in wireless, in postpaid, in prepaid.

So, we are working on that, and what we want is to be really competitive in costs. If you are competitive in costs, then you could be as aggressive as the market needs in terms of pricing and in terms of commercial promotions. So, it's more or less what we are doing.

I don't think we're doing something different right now in Mexico because we're having --. I think the reform in Mexico is working, because it's bringing new competition that it's going to invest. But I think these companies that are coming are companies, long-term companies, and they are also want to develop the market and to have also good commercial promotions.

So, I think we are working on that, dealing with that. And that's what we do all day, trying to be most cost efficient and having the best technologies and the best networks in the country.

Okay. Thank you for the clarification. And second, you guys put forth a very important step in changing the game that you play in Brazil, by collapsing the assets into one single unit. That's a very huge plus for you guys. Again, on the cost side, that's going to make you way more effective, and on the fiscal side, as well.

On the potential benefits that we could see from it, do you have any ballpark figure that we could guide ourselves into, meaning how much do you expect to gain from that on the fiscal front and on the cost front? Is there a ballpark figure that we could rely on?

We don't have a number on that, but I can tell you that part of these savings and what we agreed with the government is with these savings part is going to go to some promotions to the customers and part of these savings are going to go as saving on taxes. So, that's more or less what we agree and what the permission of the integration said, and it's what we are doing.

And I think that's very important in all the ways, because it's not only on the tax savings, it's also the way the company, it's operating. So, we have only one company and we're working in all the fronts with one company. So, as you could see in the next two or three years, you are going to see a more efficient and integrating company in Brazil.

We still investing, and the investments that we have been having for the last three years, [four years] are -- we're having good returns. We are doing very good on TV. We are doing very good on data, on mobile, and triple play. I think more than 50% --.

54%.

54% of our customers have triple play, and we're starting to offer the wireless also, to have quadruple play. And all these things are the things that we are doing in Brazil.

Okay.

Andrew Campbell, Credit Suisse.

I was wondering if we could get an update on the tower spinoff process, if you guys still remain committed to that and what the next milestones would be in that process?

I think we are very advanced in this tower spinoff process. On the -- we're going to present the tower spinoff in our shareholders meeting, to approve that. It's going to be on April. And I think on May, if everything is okay, I think on May you could see that -- May, June you could see the spinoff working, Andrew.

Okay. And as I understand it, that new entity may continue to be labeled as a preponderant. Would that do you believe have a big impact on the opportunity to increase the tenancy ratio, to go after new customers for that company?

No. I think, no. I think this tower spinoff, at the beginning it's going to have the same shareholders. But I don't think -- there's other companies, and we are working on that with the IFETEL. But there's other companies in Mexico, American Tower and other ones, who are renting that.

So, I think this company is going to be open. It's going to be a new entity, nothing to do with America Movil. And this company, I think what they want to do is to rent the towers and have their own business. And I think it's more or less what they are going to do.

I'm not so sure that they are going to be looking as a preponderant company, Andrew.

Okay. Perfect.

Still discussing with the IFETEL, but there's other companies with -- there's a market in Mexico for the towers. So, this company is going to compete with other ones, and it's what you're going to see.

I see. So, you think there's a chance it may not be actually labeled preponderant?

Yes. We're discussing that with the IFETEL at this moment.

Okay.

Soomit Datta, New Street Research.

Just one question, please, on Mexico. I gather you're in discussions with a number of operators in terms of wholesale pricing, which relates to presumably mobile access for Telcel, leased lines, network sharing, these kinds of issues. Could you help give us an update as to where you are in that process? I assume that has kicked off; I'm not 100% sure. But if you could give an update, that would be very helpful. And I guess, ultimately, when are we likely to see new input prices established in the market?

I think we're complying with all the rules that we're having, on time. And let's say in Mexico, we already having with Telcel a new MVNO. I think also Telmex is signing some contracts with other companies. So, we're advancing on that, and we're complying with all the rules that the IFETEL is putting to Telcel and Telmex. And I think we're going to comply with everything.

We already have an MVNO, and we're talking with a lot other companies on shared networks, on MVNOs, on roaming, on leased lines, as you are saying. So, we are open. We're complying with everything. And I think this year, you're going to see more and more companies working and making agreements with us.

Okay. Can you say who the new MVNO is with, out of interest?

I don't remember the name, but Daniela can give you the name of the company, because I don't have it, but Daniela can give you the name.

Okay.

Andre Baggio, J.P. Morgan.

This question is regarding the PayTV. Is there any news in Mexico with regarding the possibility of America Movil offering PayTV?

Well, what we are --. I think it's what the first question was on divesting and being out of being a preponderant player. So, if we are going to be out of being a preponderant player, what we're going to be allowed is to give PayTV services, and it's what we're looking for. So, it depends on -- .

[But even if you are still preponderant], can you offer PayTV?

Yes, it's --. Sorry. What's the question?

If you are maintained as preponderant, can you still offer PayTV? Or, that's not a possibility?

No. I think, no, we cannot offer PayTV. So, what we want is to --. We can offer PayTV? Carlos can talk --.

As I understand it, Andre, if you are in compliance of your [foundation] preponderant player for a period of 18 months, then you can request and the regulator will be obliged to provide the PayTV concession put in a period of three months. So, that's basically what we have (inaudible).

Okay.

Let me -- Carlos can explain again the process?

Just so that it's very clear. So, if we are in compliance, as we are, for a period of 18 months, of the obligations that have been imposed on us as a preponderant player, then we can request the PayTV concession, and the regulator would be obliged to provide it within a period of 90 days.

It's what the law and the secondary laws says.

Perfect. And Carlos, this year you made a [near] MXN16 billion contribution to the pension fund. I guess it's related to Telmex. Is there still a lot of contribution to be made in the next few years?

It really varies depending on the interest rates, as you know. So, this is not something that you can consider as a fixed payment obligation over time.

The reasons for the contributions basically have had to be [here], as has been the case in other places, including the US and Europe, on account of the reduction in the discount rates. But to the extent that the discount rates can stay where they are or even go back up, then the need to contribute any more funds to the pension plans would be diminished. So, it's difficult, really, to say that there is a fixed payment obligation from here now on.

Okay. Perfect.

Walter Piecyk, BTIG.

Carlos, the first question is for you. Historically, if we look at your use of cash flow -- and you've commented on this on many conference calls over the years -- you've talked about, well, when we invest in a year, then we don't have these massive special dividends that you had back in, like, I guess, 2007, 2009. It looks like the share repurchase also can go up and down.

So, if I look at 2014 and 2012, when you were making these big investments in Europe, the dividends stayed the same. You haven't shifted into those special dividends like you used to, those massive MV or special dividends. But it seems like you were more willing to go into share repurchase last year, when you spent a lot more on share repurchase in 2013.

So, can you just give us --? Obviously, there could be new investment opportunities, new acquisitions, that may or may not happen in 2015. But assuming that you're not making big investments in new markets, how are you thinking about the use of free cash flow in 2015 -- dividends versus share repurchase?

Indeed, we have commented often on this. We have always said so long as we are within our leverage targets, whatever excess cash flow we end up having at the end of the day [is flowed] back to the market via share buybacks or via -- and dividends, ordinary dividends. Or, to the extent that we have more cash at the end of the day than we were expecting, then we are willing to offer extraordinary dividends. As you point out, twice we have given extraordinary dividends of some size.

I think if you look at overall distributions, they've been fairly stable, with the exception of the years when we have made the investments. So, you are right to point that out. To the extent that we don't have any major new investments this year, all things equal, we should have a little bit more cash available for distributions.

So, that's consistent with past practice. And again, the cash flow, in the absence of acquisitions and so long as we are [operate in] our leverage targets, I think the excess cash all has to flow back to shareholders.

But in 2013, when you also didn't have much investment -- I think there was a KPN rights issue -- rather than taking your distributions up that year, you actually increased your share repurchase significantly, to MXN70 billion. So, are you saying that you would go back to using the special dividends? Or, is it possible that you could also jack up the share repurchase?

I think -- remember, what has happened in the past is that we had increased our leverage targets. Remember? So, we had been at 1 times net debt to EBITDA, and then we decided that we wanted to be closer to 1.5. And that was basically what allowed us to be more active, both in the acquisitions and in the distributions.

This time around, we are not seeing any change in the leverage targets, and what that means that you look at our cash flow and if we do not engage in any acquisitions -- and we are not talking about any one at the moment -- then it means that the cash flow will be available for distributions.

Okay. And then, Daniel, just a question on the US market. Your TracFone had a really great year: the revenue was up 15%; EBITDA was up 20%. It seems like -- and the critical mass of those customers, it would seem like the value to existing players in the US to gain the scale of buying TracFone and the EBITDA and the free cash flow it's generating would be very high right now. I'm just curious if you would consider a sale of that business? And if so, how high of a price would it take for you to consider getting out of the US market?

Well, it's a very good question, but I think the only thing that I can tell you right now is that we're focusing on growing TracFone, is growing on the subscribers. The competitiveness in this market has been growing. So, competition fourth quarter has been more aggressive, with a lot of commercial activity there.

But, well, we are open to everything, but we're right now focusing on the growing, taking care about the costs, having a good EBITDAs, and growth in the US market in the prepaid US market. So, we are open to everything, but right now we are just looking to develop the company as we have been doing for the last years.

Are you also open to owning network in that market? Because I think on past conference calls you've at least ruled that concept out.

Again? Sorry. I don't hear you.

When you say "open to everything," are you also open to being a network operator, actually building network or buying network in the market? Because I think on past conference calls you've said that wasn't one of the options.

No. No, I think that's going to be very difficult. When I said "open to everything," it's open to, as you said, if we're going to sell the company. But no, we don't think we are going to make a network in the US. You know that it costs a lot of money. You need to have a lot of -- you need to have frequencies. So, no, no. We don't have a -- we are not thinking to do that.

And in the other side, we are also not thinking to do that. What we are thinking and, really, our strategy today in TracFone is to develop, grow more, and being more -- look on the market, a better EBITDA. So, that's more or less what we are looking at this stage on TracFone, to develop the company in the US.

Thank you.

And grow the company in the US.

Thanks, Daniel.

Ric Prentiss, Raymond James.

I've got a follow-up question on the tower question from earlier. Can you let us know how many towers that you have in Mexico that you're looking to put into the spinout? And is there any possibility that you would consider taking some of your towers in your other markets, Brazil and elsewhere, and putting them into a similar spinout?

Well, the spinoff in Mexico is going be around 11,000 cell sites. The other ones, we have some cell sites for rent to other ones. But more or less, the spinoff is going to be around 11,000.

And we don't have and we're not working on making any spinoff of the other ones, of Brazil or Colombia or other places. Right now, what we are doing, it's only in Mexico, and we're doing that to accomplish some of the rules with the IFETEL, not to have this [Company] as a preponderant company.

Makes sense. Telecom Italia Brasil is selling some towers to American Tower, and there was a right of first refusal or there was some ability for existing tenants to take on ownership of towers in Brazil. Any interest in increasing your tower count in Brazil, in case you were able to do that?

No, I think they already do that. The decision is done. I think American Tower just bought or they are in the process of doing that. We decided not to get in that business. So, we are not going to buy the towers of TIM that they are selling at this moment.

Makes sense. And then, a final question. Telekom Austria mentioned last night and this morning that they might be interested in some M&A, particularly in their footprint, for converged offerings. Any thought about what magnitude of transactions might be possible in looking into central and eastern Europe?

I think what we're looking on Telekom Austria is to --. We are in Austria and in other six countries. So, what we are looking for is to have a convergence in all the countries; not only to have mobile, also to have fixed, to have broadband, and to have TV. And I think it's what they are referring. I don't hear anything and I don't hear the call today or yesterday. So, I don't know exactly what they are referring for.

But I think the strategy on Austria today is giving all the services in the countries that we have. It's more or less the strategy that we have.

We are starting to understand more or less the business there. We have some people working and they are going to start to -- we're going to start to have people working more closely to the management there. And we are moving on that direction.

Very good.

Kevin Smithen, Macquarie.

Maybe I can follow up a little bit on the TracFone. It looks like you're paying AT&T, which is going to be a large competitor of yours in Mexico, a lot of money in the US for use of their network. If you were to pull that traffic away and give it to one or all three of the other remaining players, it would certainly hurt their ability to fund their CapEx and compete with you in Mexico. How do you think about continuing with them as a partner for TracFone, when you're going to be competing head to head very quickly in Mexico?

I think TracFone is in the US. It has a business in the US. And what we have been doing for the last years is we are committing traffic to the one that give us the better rates, and I think it's more or less what we are going to do in the future. If it's AT&T the one that give us good rates, it could be AT&T. If it's Verizon, it's Verizon.

I think today the traffic is with the three operators; it's with Verizon, with AT&T, and with T-Mobile. So, those are the three big ones that where we have the traffic, and we're going to -- I think what's going to be the most convenient for TracFone is what we're going to do. We don't have any change on that.

And also, there's been press reports that Google is going to be launching an MVNO in the US space. Are there opportunities for partnership with Google for TracFone and also in the Mexican market?

Well, I think I read those press and interesting what they are doing in the US. We are not talking with them. So, we are not doing anything with them right now. As I said a few minutes ago, we are focusing in the US market, TracFone, growing the company. It's what we are looking right now in the US market.

And just a quick question on Europe. KPN shares crossed EUR3 today. What is your strategic view on KPN, given the appreciation in the value of that investment?

And then, on Telekom Austria, I think you've got 58%. Your target is 51%. How do you think about lowering that stake to your target level?

Well, as we've said before in the case of KPN, it's an investment where we have a minority position. We have not defined whether we want to reduce it or whether we want to increase it from current levels. Today, we have close to 22% of the company, which is a bit less than we used to have at some point. Up until now, we have decided to stay with a position of greater than 20%, and that's where we are.

Mauricio Fernandes, Merrill Lynch.

Carlos or Daniel, if you look at the operations and the results in the fourth quarter in margins, specifically the EBITDA margins, there are a few countries like the US, Colombia, or as you mentioned in the press release, Telekom Austria, and you made some comments on Colombia and the US, as well, of [what's seen to] as non-recurring expenses or costs. Can you elaborate on whether those are really non-recurring expenses? Because that's important from an expectations perspective in those countries.

Well, let me talk a little bit only about Colombia. I think on Colombia, as we said, we have some -- we have to sell some tablets. As we win the frequencies, we were to sell -- not to sell, I think to give -- some tablets. We have been doing that. Maybe 80% of the tablets that we have the commitment to do we already put it in the market; still 20%. That's one-time.

The other important thing, one-time item, is cleaning the spectrum for using that. That's also one-time.

The other thing in Colombia -- it's not one-time -- is that the market is a little bit more aggressive and more promotions and more of aggressiveness on the market.

I think we also have some prohibitions about some injunctions that we're having that maybe we can finish in the quarter.

But I think you are going to see better results in Colombia during this year. We could see better results than what we have the last six months in Colombia, having the benefits of these one-time items that we are not going to make.

Mauricio, just to give you this reference, in Mexico, in Brazil, in Argentina, and (inaudible) -- well, Paraguay -- in Chile, in Central America as a block, in Caribbean as a block -- in all of those we had better EBITDA margins this year than last year, at the same time.

I think in many countries we are seeing very strong operating trends, and I think that that's the case to a large extent because of the infrastructure edge that we probably have over our competitors. We are seeing a lot of FX noise in the translation of our revenues from different countries over to Mexican pesos. There's a little bit of that. But I would say, if you look at the metrics for local currency in the various operations, we are seeing very significant trends to improve the margins.

What we did see that was extraordinary was, as we mentioned before, in Colombia we had to pay close to MXN600 million for one-time obligations that included distribution of tablets and some other things. So, that all was accounted for in the quarter, but we don't see those going forward. This is probably about 80% of the total that we are supposed to deliver. So, most of that is already behind us.

In the case of Telekom Austria, as we mentioned, there's been the need to revisit the pension obligations on account of a certain ruling that came out towards the end of last year. This is not a definitive ruling; the Austrian government is actually fighting it in courts itself. So, it may end up coming back. But it means that at this point it affected us by something like MXN1.2 billion. Again, this was a one-time charge, non-cash, probably may be reverted down the road. But it was an exceptional and extraordinary item here.

So, if you look at operating trends, I think very strong across the board in the main markets. In Mexico, Brazil, we are seeing a lot of progress. Just to give you an example, in Mexico we went from an EBITDA margin of 48.5% to -- a year ago, it's nearly four points increase in margins.

So, we are seeing good trends in the main markets. We are seeing some exceptional items -- some of them cash, some of them non-cash -- that took place in the fourth quarter. The cash ones were in Colombia; have to do with a mandatory compliance of certain obligations under the concession, particularly distribution of tablets. In the case of Telekom Austria, a non-cash item that had to do with the pension obligations.

We're seeing in some markets a bit more competition. Probably Peru is a case and Colombian, even the US. It's been a bit more competitive. But as I said, I think in the main markets there is good operating trends across the board. I just mentioned you a number of countries. And I think that we are going to continue to make progress here.

Thank you, Carlos. I just want to understand you. When you mentioned MXN600 million, that's Colombian pesos, not Mexican, right?

No. Mexican pesos.

(multiple speakers)

It's around --.

(multiple speakers) $40 million.

$40 million to $50 million.

Got it. Okay.

Well, thank you. Thank you, everybody, for being in the call.

This concludes today's question-and-answer session. I will now turn the call back over to Mr. Daniel Hajj for any closing remarks. Please proceed.

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

This concludes today's conference. You may now disconnect. Have a great day, everyone.