America Movil SAB de CV (AMX) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the America Movil third-quarter earnings conference call and webcast. My name is Alex, and I will be your operator for today. (Operator Instructions) As a reminder, this is being recorded for replay purposes. I would now like to turn the conference over to Daniela Lecuona, investor relations officer. Please proceed.

Good morning, everyone. Thank you for joining us for the third-quarter results. We have today on the line Mr. Daniel Hajj, Chief Executive Officer; Mr. Carlos Garcia Moreno, Chief Financial Officer; Mr. (inaudible), Chief Operating Officer; and also Mr. Carlo Robles, Chief Financial Officer of Telmex.

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

Thank you, [Henry]. Good morning, everyone. The expectation throughout much of the third quarter, like we said, would lift in (inaudible) before the end of September or about renewed volatility in the capital markets. The fear that such a move would lead to more capital flowing back to the US from emerging markets caused a new wave of currency depreciations in the region and partly curtailed the access that many market issuers had to get capital markets in the US.

In terms of renewed economic weakness in China, while dispensing with some of the peers regarding an interest rate increase by the Fed, spooked markets further but (inaudible) when China decided to depreciate slightly its currency.

In this context, we ended September with 358.2 million access lines, which was 1.1% more than a year before (inaudible) includes stock around 88 million wireless subscribers in 5 million land lines and $23 million both on access. In addition, we had 21.6 million PayTV units.

In mobile, it's important to note that our posted base was up 5.1% year on year to 61 million subscribers. Posted net of issuance were [832,000], most of them coming from Mexico, Brazil and the European operations.

Third-quarter revenues were up 1.2% from the prior year to MXN223 million, bringing the total for September to MXN663 million. At constant exchange rates, February revenues were down 0.6% from the year-earlier quarter, a figure that was almost identical to the one observed in the second quarter. [Board] revenues, both mobile and fixed, continue to decline in relation to service revenues. Data revenue growth accelerated in the third quarter in relation to the preceding one was 10.7% and 10% in the mobile and fixed-line (inaudible) respectively.

EBITDA amounted to MXN66.7 billion in the quarter. It was down 8.2% year on year in Mexican peso terms, which partly reflects the depreciation of (inaudible) currencies, including the Brazilian real and the Colombian peso in relation to the Mexican peso. Year to date, EBITDA totaled MXN203 billion, 5.5% lower than the year before the Mexican peso terms.

Finally, a reduction in EBITDA in the quarter were due to certain extraordinary items in Puerto Rico and (inaudible) and (inaudible), in some cases both in Austria and part of it in Puerto Rico. It had to do with some us having booked some extraordinary revenues the prior year. In the case of Austria, they had booked Lichtenstein. In the case of Puerto Rico, they had booked some EBITDA gains on account of changes to the pension plan that they managed.

And then this year we also had some one-offs partly in Puerto Rico and particularly in Ecuador. In Ecuador, we had roughly $50 million that had to do with a second payment of taxes and particularly a new tax (inaudible) in post compared to market share in the country. And we had to book in the third quarter all the amount that was due since February. Therefore, we had an unusually large booking of taxes in Ecuador in the third quarter.

If we were to adjust for these extraordinary items, the ones that we have booked this year and the ones that were booked last year, then EBITDA would have full in total 9% in peso terms, and it would have fallen 2.5% at constant exchange rates. This means that EBITDA -- the reduction in EBITDA in the third quarter once we adjust for these runoffs was better than for weaker (inaudible) the prior quarters. The prior-quarter EBITDA (inaudible) had been 3.1% of content exchange rates.

In any event, Central America has emerged as the fastest-growing region, followed by the South American bloc. That's actually increased its rate of growth over the last few quarters in contrast with (inaudible) South America (inaudible) must have a plan in place on account of economic slowdown from countries, particularly Brazil. It's important to note in Central America, we are seeing revenue growth in the neighborhood of 7%, 8%, and we are seeing very strong EBITDA growth in the neighborhood of [13%].

I will give you depreciation, amortization charges that were equivalent to 15% of savings revenues, slightly higher in the entire year. Gross payment operating profit of MXN35.2 billion. Our comprehensive demands and cost grew to MXN38.9 billion, mostly reflecting the sharp depreciation that took place in the quarter of the Mexican peso and the Brazilian real relative to the Euro dollar.

Net interest expenses actually came down by 2.4% year on year and by 10% year to date. (inaudible) income tax provision in the quarter of MXN1.6 billion we posted on the close of MXN2.9 billion.

It's important to note that the foreign-exchange losses incurred have had no impact on cash flows. They partly originate in the Company financing positions partly have to do with our supplier debt and partly have to do with financial debt. And yet, in very general terms, I would say that of the net FX losses that we would have booked after considering the effective hedges of the net losses, fully one-third came from the combination of suppliers and intercompany transactions.

In the case of suppliers, it is important to understand that a lot of the debt that we have has to do with the purchase of handsets. The handsets are denominated in dollars. And the eventual sale of the handsets in local currency has effectively been borne by consumers with a certain (inaudible), but for the most part the effect of the FX movements is in the end borne by consumers.

So I would say that our net debt increased -- in relation to that of the Company, it is to be said that we have a long-term profile and an average life of more than 10 years, which means that we have a lead that we are financing requirements. And we don't really have any issue maintaining the structural debt that we currently have in place.

Our net debt increased by MXN61 billion in December, allowing for the reclassification of our stake in KPM from a long-term investment value at cost to another little for sale asset value at market prices. Our net debt percent at 1.8 times last 12 months EBITDA. It must be noted that on the spinoff of Telesite, our net debt is to be reduced by MXN21 billion. At the end of September, we have already deducted for MXN10 billion from the (inaudible) investment line item on the (inaudible) that took place to be mandatory (inaudible) in September. We create a mandatory convertible bond -- exchangeable bond that has a three-year tenure, and it was placed in September -- the end of September. And at the end of the day, it involves the outright sale of roughly 200,000 shares of KPN that were valued at EUR750 million at the time that we went to market. So we are deducting now these shares from our holdings of KPN shares in the balance sheet.

It's important to note that through September, we funded capital expenditures in the amount of MXN105.7 billion. Shareholder distributions totaling MXN59.5 billion including both dividends and share buybacks. I would say that are very significant position of the shareholder distributions were factually affected in the third quarter. We have payments the first part of the early (inaudible) in July. In September we had the payment of the extraordinary dividend. Then obviously we have had share buybacks all throughout the year.

So if we look at the -- after the spinoff of Telesite that is happening today -- earlier this week, certainly before the end of the week, the spinoff will have been completed from a legal perspective. We would have reduced, as I mentioned, by roughly $1.2 billion the debt of the Company. And that means that growth debt of America Movil -- financial debt of America Movil valued at -- in dollar terms is virtually identical to very, call it, rough at the beginning of the year. So that's just one perspective that we haven't really had to go to market to (inaudible) and financing.

So with that, I would want to pass the floor back to Daniela. And maybe we can begin the session with Q&A. Thank you.

The first question, please?

(Operator Instructions)

Thank you very much. It's Amir Rozwadowski from Barclays. Just wanted to confirm -- you had mentioned that the Telesite spinoff seems to be on track in the very near term. I was wondering what specific steps need to be taken care of in order to ensure the spinoff occurs. It sounded like you said it could happen by this week's end. Would love some color around that if possible.

I think -- we already have all the authorizations on the Telesite offer. So this week, legally the Company is going to spin off. And during November, I think we can distribute the shares. So that's more or less the timing that we have got all the authorizations that we need -- are okay. So the Company will spin off during this week, and then we're going to distribute the shares during November. I think that's more or less the dates that we have.

Thank you. That's very helpful. And then if I may, switching to the mobile market in Mexico, we continue to see healthy subscriber trends out of your business in Mexico. I would love to hear how we should think about this going forward. And then if I may, obviously we've got some review process going on right now with the various regulatory agencies. How do you think the potential risk is for additional asymmetric regulation coming down the pipeline after this review process is completed? And how do you see your positioning in the marketplace post the review process? Thank you very much.

Let me talk a little bit about the Mexican market. I think since -- to two years, I have always had the Mexican telecommunication reform. I think with that reform, there was a lot of changes in the market. One big company from the US bought two of the small companies here in Mexico. So what you see right now is that we have three big competitors in the market.

So we already in Mexico have an effective and very competitive market. And I think what America Movil is thinking that, let's say, in the asymmetric regulations like interconnection, we are -- we don't want to subsidize AT&T or Telefonica by paying interconnection to them, and they pay (inaudible) interconnection.

So I think that's a good opportunity for us to -- with a regulator to -- in March, when it's going to finish the two-year term. So we are going to renegotiate some of those terms because I don't feel that America Movil should pay or subsidize these to big companies in Mexico. So I think we have a good opportunity on that.

In the other side, I think Mexico needs more competition in PayTV. So we are also preparing the TV -- we want to grab that concession of the TV. So those are the two issues that we are working with the regulator right now. Today, we are not presenting anything. And still today, we are not -- we haven't presented anything to the regulator, but we are preparing everything to talk and presented to them.

And if I may, what do you think your prospects for getting a license for PayTV will look like at this point?

I think it should be high because I think Mexico -- if you see the Mexican markets, the Mexican market needs more competition, so, in the TV -- in the PayTV. So I think -- we think -- we want to -- we are -- we need to comply with all the rules. That's what we are doing. We comply as a performer and player as America Movil is complying with all the rules that they have been giving to us. So I think we have a good opportunity to have that PayTV license.

Thank you very much for the incremental color.

(Operator Instructions) Vera Rossi, Goldman Sachs.

Talk about Brazil and the impact of the weak economy in your business, especially in terms of subscriber usage and delinquency rates. And what are the services that are most impacted at this point? Thank you.

Hi, Vera. I think in Brazil -- with the economy slowdown that we are having in Brazil, the most impacted subscribers are the low-end subscribers. We have been having less consumption in the prepaid subscribers. We have some cancellation, as you are seeing in the PayTV -- the satellite -- the low end -- the segment, let's say C and D of Brazil. They are consuming less. They are being more careful on their consumptions, and that's what we're seeing. A little bit more on the high -- a little bit more bad debt. We're having a little bit more bad debt also. We are being very careful and how -- to whom we're selling and to all the sales to be more profitable. So we are being careful on the subsidies on the PayTV satellite -- on the subsidies, on the prepaid customers, and that's --.

But in the other side, all the investments that we have been doing in Brazil, the integration of the companies, I think America Movil in Brazil has been doing well. And I hope that for the next year we can see a little bit more on the integration, on the cost cutting and on other infrastructure that we have been integrating. So we are well-positioned in Brazil at this time, Vera.

Even that economies are not looking good also for the next year.

Okay. And one follow-up question on your CapEx. How the currency valuations are impacting your CapEx decisions in Latin America? You think with all the devaluations we saw this year, the migration to 4G will slow down? Or you think will continue at the current pace, especially because the smart phones are getting cheaper in US dollar terms? Thank you.

Yes, well, we have been -- the CapEx is -- not all the CapEx is in dollars. So part of the CapEx is in local currencies, and part of the CapEx is in dollars. So we are reviewing -- yes, of course, we are reviewing. We cannot have the same CapEx in dollars, but we are renegotiating with suppliers, and we are also reviewing what are really the things that we need to.

But one of the things that America Movil has been doing, let's say, in Brazil -- we have been investing very good on the last four, five years. So we have been doing all of our big investments in the last year or so. I think we are well prepared to support -- for even if we reduce the CapEx in Brazil, we are going to be well-supported for the next year.

So we are -- and the other side also, we have variable CapEx that is the CapEx that we put when you grow only. So -- and this one, I think, it's -- we also are renegotiating with all the suppliers, this CapEx, to try to put it in local currency. But that's more or less what we are doing, Vera.

Thank you.

Rodrigo Villanueva, Merrill Lynch.

I was wondering if you exclude that Telekom Austria -- the government of Austria is looking to sell its stake in Telekom Austria. I was wondering if you could give us some color on why they would be trying to do this and if Telmex would really be interested in acquiring the stake. That would be my first question.

We haven't had any indication from the government that they want to sell. So I think today is the -- there are only -- notes in the press, maybe rumors. But what I understand is that the minister of finance said that they don't want to sell or somebody -- they don't want to sell. So until today we haven't had any indication of that.

Understood, Daniel. Thank you very much. I was also wondering if you could give us an update regarding the investigation related to the Telmex (inaudible) that the Ifetel is doing. What is the likelihood that the Ifetel finds Telmex guilty of any charge? And what do you think would be the worst penalty that the Ifetel could impose on Telmex?

Well, we -- it's under investigation what (inaudible) an investigation. And we have filled a response to that investigation to the Ifetel disputing the election violations. So -- and the only thing that I can tell you is that America Movil strongly believes that Telmex is in full compliance with the terms of its concession. So we are really -- we really believe that we are doing exactly what the concession said. So -- and we already filled that response.

Understood. Thank you very much. Final question if I may, Daniel. Following the implementation of the telco reform in Mexico, AMX has had its subsidies decline for around 20% of the cost of handsets. However, more recently, this subsidy has been approaching to the mid 20s. I was wondering if this has to do with the massive effects of depreciation of the Latin currencies and if you think that the level of subsidies should come back to the 20% that we've seen in the past.

Yes, I think that you are right, Rodrigo. I think that we have been trying to reduce the subsidies. I think everybody in the world is trying to reduce the subsidies. And it's what a -- no Latin American, not only in Mexico, were doing. So in Mexico, we reduced 20% and -- but well in this quarter, the local current peso goes from 15.30 to maybe 17. So you cannot pass all these prices immediately, and that's why you are seeing that the subsidies increase a little bit more.

In the other side, we have been doing a lot more financing on the subsidies. It's been strongly good for the customers. Customers like that. And we are growing on the financing from the handset. So that's a strategy that is working very good all around Latin America.

Thank you very much, Daniel.

Walter Piecyk, BTIG.

Just a sense of what's going on in the United States, it looked like things were more competitive and the margin pulled in a bit. And specifically, the ARPU really came down. Is it that you are just losing straight talk customers and you are just getting a much bigger mix shift to the insurance? Or can you just give us a little bit better color of what is happening in the US and why it makes sense to stay in this business rather than looking for a buyer for that asset?

We lose some SafeLink customers and losing a little bit of truck from the Net10 customers, the old brands. But we are growing on the straight talk customers.

As you said, the US is becoming more and more competitive. The competition is tough in the US. We launched a new product also, and we spend some money on that launching. And that's more or less what you see of the reduction on the retail because the launch of the product -- a lot more advertising, and that's what you see. But competition is growing in the US.

Okay. And then just one other question. The last conference call, and I think the last couple, you talked about the importance of an LTE smart phone getting under a certain price; I forget the exact number. Now that there's been some, I guess you would call it, economic issues in some of these markets, is that price of the LTE smart phone low enough to stimulate interest in an LTE smart phone? And can you give us any sense of what the penetration is of LTE smart phones in maybe Mexico or Brazil? Thank you.

I don't have exactly the penetration here, but you can talk to Daniela. I don't have any issue to give it to you. So we are growing a lot on 3G and LTE. And there still with the intervaluation, I still think that there is a lot of LTE products and phones that are available for the people. And we are -- for the next year, our strategy is to grow more on LTE. LTE customers are consuming maybe 2 times or 3 times what they consume in 3G. So data is going to grow for the next year; I'm sure on that. And we're going to have a lot more customers on LTE.

And prior to quarter years, regarding platform, we want to note the ARPU did not decline. The ARPU is exactly the same this quarter than it was the entire year. And the service revenues are practically identical. They are down 0.1%, so they are practically identical to what they had last year. So we haven't really seen any decline in ARPU in the US. Daniel said it simply the latest events of SafeLink that have very low ARPUs and the old platform or Net10, those are the ones that we have lost clients. But the ARPU remains strong at $20 in the US.

And also, what you said about smart phones, smart phones are growing fast in Latin America. (inaudible) Latin America in America Movil as smart phones are growing really fast.

Okay. Thank you for that extra clarification, Carlos.

Andre Baggio, JPMorgan.

Good morning everyone. So I'm interested in the trends in Mexico, where we saw a sharp a decline in the EBITDA margin. So I want to know what's the measures which are being taken in order to stabilize these margins, and how would you think about this?

Well, as you know, with the telecom reform in Mexico, we don't have any more long distance. In the wireless, we have zero interconnection rates. So there's some of the things that we are reducing on no roaming. But we have been doing good plans, and I think Mexico is also becoming more competitive. We are having a big strategy on cutting costs, on subsidies, on integrating more and more all of the companies, selling more to our customers and that's where we are in Mexico. Also --

If you look at EBITDA of the second quarter and third quarter, they are basically identical. The core EBITDA, which is EBITDA before (inaudible) acquisition costs, is identical in the second quarter and the third quarter. So basically, we're growing marginally (technical difficulty) you are looking (inaudible) comparison to last year, it's not something that has varied sequentially. Simply, it's something that is factoring in the effect of the loss of the long distance revenues that took place from January 1 of this year.

And Carlos, also the posted subscribers were growing very good in Mexico with the first-rate subscribers. So also it's a very good indication on that.

The only line of growth in the cost side is (inaudible) I have all the costs landscape for the (inaudible), particularly beyond April for Mexico. Particularly, the only one where we see an increase that is significant is in the cost of equipment. As I explained before, the cost of equipment is basically something that will accounting (inaudible) affect you. But is ultimately realized through sales of equipment in the ongoing months now (inaudible). So that's what I would say.

There's really no changes in EBITDA. The cost control in Mexico is fine. The effect is the loss of long distance revenue this year and not really part of the interconnection revenue that started happening in the middle of the third quarter of last year. So that's basically the impact. There is no news here. So it's that and the effect of the depreciation of the peso -- the dollar on the cost of equipment.

And other -- yes, it's exactly --. And you have also other costs in dollars. So we need to start on the cost-cutting renegotiation of everything because a lot of the -- of some, let's say, softwares and a lot of things, it's evaluating in dollars. So that's also a little bit on the reduction on the EBITDA.

And furthermore, one thing that I think is really important because I -- when we look at the year-on-year comparison, last year we didn't have the long distance (inaudible) the long distance. Nor do we have fully the evaluation in the connection rate. But still, it's part of this. By the third quarter -- this is the first quarter in a number of quarters where the rate of service revenue growth is actually better than in the prior quarter. We have seen declines for three or four quarters on account of some of these measures that were implemented here in Mexico. And now we are seeing an upturn.

So I think that that's an inflection point, and it's really, really important. And, again, this is before we look at the fully comparable figures because the long inflection point is already happening without looking -- without seeing the similar -- comparable figures would -- the long distance and technologies.

When we talked along these terms in North Mexico, it was in January. The long distance finished on January.

And the ignition of intercollection rates took place in the middle of August for last year. So it was not a full quarter.

Okay. Thanks a lot. And just a follow on actually two earlier questions. So because part of the CapEx is in local currencies based on your answer, can I understand that this year CapEx and next year CapEx should be a little bit lower than the $10 billion that was indicated before? Like say, do you have a guidance or some -- at least some kind of indication for the number for this next few years?

We haven't finished the CapEx. But yes, I think I'm sure that the CapEx in dollars is going to be less than what we have last year. That this $10 million, of course, is going to be less than that.

And one thing you also -- Andre, that you have to consider, in the last year we had CapEx -- we have said repeatedly, (inaudible) in absolute terms because we had $11 billion of CapEx including the spectrum. We will not see the same spectrum with next year, and we are not going to have the same infrastructure needs also this year. Because this year is the year that marks the end of the five-year plan that we have set for ourselves of $10 billion per year. We have invested now $50 million in that -- in America over the last five years. And now it's time to move into a new phase, and that's what we're going to be talking to you a little bit about on the investor day next week.

And other important thing when you talk about in CapEx is that the CapEx will divided into the fixed CapEx and the variable CapEx. And the variable CapEx depends a lot on (multiple speakers). And I'm sure that, let's say, in Brazil, because the slowdown, we're going to grow less. In other countries also, we're going to grow a little bit less. So I'm sure that in the variable CapEx, we're going to have less variable CapEx than what we have this year.

Okay, thanks a lot. And look forward to see you in a couple weeks.

Ric Prentiss, Raymond James.

Two questions if I may. First, you mentioned Telesites this week, and maybe able to spin that out. How will that affect your financials in Mexico? Will you start paying tower rent starting in late October or November then? Just thinking through how the financials will look when we see fourth quarter.

I think the first effect, as I mentioned before, we are going to have a reduction in the [acquisition] of America Movil in the amount of MXN21 billion. That's about $1.2 billion, $1.3 million, and that's happening immediately upon the spinoff, which is sometime this week, we expect.

And then, as you point out, there will be some rental payments that we make over time. I would say that at current pricing, we are only looking at slightly less than $200 million a year on rental payments for (inaudible) sites.

Okay. And then within Brazil, obviously a difficult economy right there. You talked a little bit about what you are seeing on the customer side. There has also been some speculation in the press that there could be some industry structure changes. Nextel Brazil might be coming up. DirecTV Brazil might be something on the market in the coming period. How do you think about your position in Brazil? And are any of the assets at other operators of interest, and why would they be interesting?

Well, I think we have -- in Brazil, America Movil is in a very good position. So we have -- of the cable company, we have PayTV satellites. We have pics. We have wireless. We have all the backbone with Embratel, the corporate customers. So America Movil in Brazil the last five years have been doing a very good job, so we are well-prepared and we have a very good position in Brazil.

On all the speculations that are in the market about Nextel, as you are saying, or Dish or all these companies, well, we're going to be -- we are open to see anything. But right now we are in a very good position in Brazil. So that's what I can tell you.

Okay. So you've got a good bundle, but if somebody has got something interesting, you'll certainly take a look at it?

Yes, of course. If there's something interesting, we're always open to look at the opportunity that we could take.

Thanks. See you guys next week.

Thank you.

Andrei Sabah, Credit Suisse.

I just wanted to clarify on the detail on the Ecuadorian tax. I understood that there is an impact of $50 million being accounted for in 3Q 2015, but that accounts for a longer period of time. So if you could just help us understand how much do you think we should expect for coming quarters on a normalized basis, and if you expect to be also continuing to disconnect more of these low -- low-volume prepaid subscribers as well. Thank you.

What happened is that you know we have a new law in Ecuador. This new law, you need to pay on -- depending on your market share, a percentage of your revenues. So this law gets, I think, into January or February or March. I don't remember exactly the day. But the secondary loss finished in September. So what we are booking is all this revenue that we have since, let's say, March.

So that's why we are booking -- it's February, August what we are booking in these quarters. So they are around $40 million. I think it's going to be around $60 million what it's going to cost this tax that we are paying. And it's more or less what you're going to see quarter by quarter. So to this time, we are booking since February to August, and then you're going to see month by month.

Thanks.

Valder Noguiera, Santander.

As you said in your answer to Baggio, your ARPU has already undergone a long series of strong headwinds ranging from the long distance to interconnection and so on. And if we look beyond the FX headlines of the third quarter, what we could see was decent, good execution in Mexico. And I believe this has to do with the quality of the client that you are getting. So although the price is coming down, the volume that you are getting or the quality of the client is reverberating stronger.

What do you -- what can you say about it? Because at the same time you are losing the market share that you need to lose and you are keeping the right one. How much room do you have to fight this battle? What else can you put on the table of the customer in order to continue this strength?

Well, I think that's a good strategy. And we have been doing also this strategy in other countries. It's not only because the regulation here. It's because I think when there's economic, let's say, slowdowns, economic things in the country, you want to be sure that all the post-paid that you are selling are good clients, good customers. So what we want is that everything that we sell, if it's PayTV, if it's prepaid, and if it's post-paid, it would be profitable. And it's exactly what we're doing here in Mexico. And what we said in Mexico is we are not going to sell anymore (inaudible) anymore --

Assets.

Because when we know that AT&T is coming and they have the assets -- so we are not going to sell anymore assets. We are open to sell some customers, to do more MD&Os and to reduce our markets here. But on the other side, we are also -- we think that we can lead with that preponderance.

So those things -- it's going to depend on what is more convenient. We are hoping to sell to customers. We are hoping to do a lot -- we already have two MVNOs in Mexico. But that's one thing. The other thing is that we are doing the right things in the market, the commercial things to get the best customers in the market. So that's what we're looking and that's what we're going to still see in all the strategy for next year. And not only in Mexico. We're trying to do that in all Latin America.

On this [Wright] thing -- to the Wright customer that you mentioned, has it been more data capacity, has it been more bandwidth or how you treat voice, how you combine that with the interconnections that you have to pay on all ends and netting out in the best way possible. What has been the main driver of this -- of these, in my view, better quality?

I think we're trying to give the best service to our customers. It's that end-to-end service -- end-to-end quality. We're not trying to have the best quality in the network. We are going to be very transparent. We are selling to our customer, financing good equipment, going to 4G, giving a lot of data. Our infrastructure is working very good. So data is a part -- a very important issue for the customers, for the high-end customers. And we are giving very good speeds on data. So, all overall, it's the strategy that we are following all around Latin America.

And just to elaborate on the (inaudible), we gained 351,000 subscribers in Mexico, which were all posted. And we also added 122,000 broadband accesses on the CTN platform. And -- so that means altogether, we're talking our nearly at 400,000 (inaudible) issuances of IDUs (inaudible) in the quarter.

One other thing that is important to note is that the service revenues in peso terms, absolute terms, they are literally identical in the second quarter and the third quarter. As I said, we have -- it's (inaudible) the decline, the momentum of decline, and I think that we are seeing now a good platform point from which to begin to grow the revenues.

So I think that's where we should be focusing on. The clients that we are getting are essentially all good clients, our higher ARPU clients. And I think that the (technical difficulty) addition that we are starting today.

And it's because the good service that we are giving to our customers.

And as my last question, if Telesites proves to be a good strategy, if the market reads it in a very mature way regarding at which stage of the tower business you are running to and proves to be a good unlocking of value for you guys, would you consider doing a Telesites LatAm?

At this time, we are not considering doing any Telesites LatAm. We're not close on that. But at this stage, this and next year, we don't think we're going to do a Telesites LatAm. Maybe in the future. We are open, as we're saying -- as the opportunity that we could see in Brazil, we are also open to review that. But today, we are not considering doing any Telesites LatAm.

Thank you, gentlemen.

Morin, Morgan Stanley.

Good morning. It's Michel Morin. So, first on Mexico, you have talked about the post-paid net adds. It was a record for the third quarter, so congratulations on that. And I was just wondering if you can give us a bit more color. I think in the past you have alluded to there being a lot of iPads and non-voice customers driving that. So if you can parse that out for us, that would be helpful.

And then also in Mexico in the fixed line, you also did very well. You just mentioned the net adds. And I'm wondering if that's voice, broadband or both, and if you can give us a bit more color. Also, with the revenues on the fixed line -- because when I look at your sequential uptick on fixed-line revenue in Mexico, it was also very strong. Sometimes there's some IT projects to move the needle a little bit, so I'm wondering if there's anything unusual there that we should be aware of. Thank you.

No. I think on the fixed side, we are selling voice and broadband (technical difficulty), so those are broadband and voice, those two things. And we are seeing with the corporate customers giving all good service that's all around what they have. So we are going more to the cloud, to all of these communication services that we are giving that.

In the postpaid is what I'm saying. No, I think we have the best network, good-quality customer care centers. So we are giving a good value to our customers. And it's more or less why they are moving to have a prepaid -- that's the -- those are the things then, Michel.

To your question, Michel, we have currently 2,000 new broadband accesses. (multiple speakers)

132 --

122,000 new broadband accesses on the (inaudible) platform.

Great. Okay. And if I can throw a quick one out there, receivables seem to have gone up. So I don't know if that's just because of country mix changing or if there was really higher delinquencies that are starting to creep up in your receivables.

No, I think it's more on the economic slowdown a little bit in some countries more than in other ones, but that's what -- that's -- the economic situation brings a little bit more the bad debt.

Great. Thank you.

Kevin Smithen, Macquarie.

When you think about the diversification of revenue and EBITDA away from Mexico, can you talk a little bit about some of your strategic priorities in the Caribbean? Digisale just pulled their IPO. Brazil is still a four-player market, and it looks like Oi is struggling. Vivendi is looking to do something maybe with [Tem]. And then there's Europe. So how do you think about M&A in this low interest rate environment and seemingly a lot of deals on the table right now?

We have also Central America. Central America is doing also very good. We are growing in Central America. We are developing very good our -- these countries. We are putting 4G. They are growing in 4G. They are growing in data. And then we have the Caribbean. And as you are saying, we have -- we are open to seeing (technical difficulty) depending on the country, depending on our market share, depending on our position. But our strategy is to give the four-play to give pics, wireless, broadband and TV. And depending on which country, we can see that -- you will see that we are growing in small companies in Eastern Europe, but we are buying some fixed companies so we can be allowed not only giving wireless, to give pics, to give broadband and to give PayTV. And it's more or less what our strategy has been in other countries. Now, at the end of the day, what America Movil wants is to have the four-play in each country.

Great. Thank you.

Soomit Datta, New Street Research.

A couple of questions, please. First is on the balance sheet. I make your net debt just sort of shy of MXN600 billion. And you report a 1.8 times leverage number. Can you help me understand how the two reconcile? I'm guessing there's a couple of adjustments in there. I'm not sure if you are already adjusting for the Telesites debt spinoff, but a bit of clarity there would be helpful, please.

And then secondly, maybe if we could touch on Colombia. Much better, I think, trends on the fixed side, some better trends on data. But the voice market on wireless looks very difficult still. Are there any signs of improvement there? Is there anything you can do to alleviate some of that weakness there? Thank you.

Okay. On the first one, I think that we have disclosed before how to run it. It's basically -- we applied -- we use the same methodology that the rating agencies utilize. We have some aggregate which you have meant to be like (inaudible) subordinated debt. And that has a 50% credit, but it's very negative. We have roughly $3 billion, maybe a bit more, of hybrid securities at the level of America Movil, so in that case we have guided 50%.

And then we already discount, and that's all we (inaudible) rating agency, too. The net value that we have under the cash positions that we have, they have a market value. That is (inaudible). So that amount is also deducted from the net debt we did a (inaudible) those positions, you can immediately realize that mark-to-market value that they currently have.

And then on the Telesites, it doesn't have an effect because the Telesites -- we have already issued debt at the Telesites level at [Opsinet]. But all of that debt -- or responding from the proceeds from the issuance of that debt who are building cash. So Telesites as of the end of the quarter had really no impact on net debt because, yes, they had issued more debt, but they had all the cash there. The cash (inaudible) is required to pay us off upon the spinoff. So we're not including yet the reduction of net debt at the America Movil level that will take place after Telesites. That is not yet included. If you want to contact Daniela Lecuona, we can provide you the (multiple speakers).

Okay, yes. Thanks. Just on Colombia, if you could help with the wireless voice market. Thanks.

Can you repeat the question on Colombia?

Sure, yes. In Colombia, some better trends in parts of the business, but the wireless voice revenues continue to be under pressure. I just wondered if there was any sign that that may improve, if you are doing anything actively to improve those trends. Thank you.

What happened in Colombia is that -- well, since one year for all the country you cannot do contracts in the phosphate side. So what you are seeing is that people is adjusting to new plans. So what is happening is that -- all the phosphate customers can come, and they don't have a contract. They can move to a better plan. But in the other side, we are not anymore subsidizing any handset there. So that's the regulation in the country. It's not for America Movil. The regulation is for everybody in Colombia. and that's what is happening.

So, what I think -- that's something that it's almost taking place. We don't think that in the future there's going to be big momentum on those customers. And the prices and the competition in Colombia is tough. We have been having the 17% reduction in price per minute.

In data, also the competitiveness is high. The prices in data are low. And that's more or less what is happening in Colombia. But I think I could see -- we can maintain the EBITDA that we have in Colombia for the next -- I hope for the next year.

True. And again, following on (inaudible), if you look sequentially from the second quarter to the third quarter, service revenues increased by 1.4% in Colombia, again sequentially. EBITDA was practically flat. And this is part of the fact that the currency sales have depreciated considerably because of the impact of all prices. But at the end of the year, we are to take this issue of the equipment costs -- the cost of equipment practically divested the cost well below inflation in Colombia.

So I think, again, EBITDA has held up in spite of the -- increasing the cost of --

Daniel Hajj

And let me add something. I think in the fixed side, we are doing very good. We are growing a little bit more market share on TV.

We have a low market share. We are starting (multiple speakers) market share in TV, in broadband, in fixed. And we're trying to do conversions. And I think for -- we feel that in the fixed side, we are doing also very good in Colombia. (multiple speakers) in market for the future.

Okay. Thank you.

And ladies and gentlemen, due to time constraints, that was our last question. I would now like to hand the call over to Daniela for closing remarks.

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