America Movil SAB de CV (AMX) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the America Movil second-quarter 2016 conference call and webcast. My name is Sam and I will be the operator for today. (Operator Instructions). As a reminder this call is being recorded for replay purposes. I would like now to hand the call over to Daniela Lecuona, the Investor Relations Officer for the Company. Daniela, please begin.

Thank you, Sam. Thank you, everyone, for joining this morning. We are here to discuss our second-quarter financial and operating results. And we have on the line Mr. Daniel Hajj, Chief Executive Officer; Mr. Carlos Garcia Moreno, Chief Financial Officer; Mr. Oscar Van Hauske, Chief Operating Officer; and also Mr. Carlos Robles, Chief Financial Officer from Telmex.

Good morning. Thank you for being in the America Movil second-quarter of 2016 conference call. And Carlos is going to make a summary of the results.

Thank you, Daniel. Good morning, everyone. The second quarter saw a recovery of several currencies [besides] the dollar. The likelihood of new interest rate increases by the Fed appeared to wane. Some indicators pointed towards a stabilization of the main financial and economic variables in China which had previously been a modest concern for the international markets.

In Latin America both the Brazilian real and the Colombian peso continued their comeback. But the Mexican peso weakened further. We ended June with 354 million access lines, 0.9% less than a year before, after net [reconnections] of 1.5 million prepaid subs in the quarter most of them in Brazil. This figure includes 283 million wireless subscribers, 34 million landlines and 26 million broadband accesses as well as 22 million PayTV units.

On the mobile platform, the postpaid base was up 5.9% and the prepaid one was down 4.2%. On the fixed line platform, RGUs were up 3.6% year on year driven by broadband accesses that rose 8.9%. Other than in prepaid we are seeing good growth in the other business lines.

Second-quarter revenues rose 6.1% from the year-earlier quarter to MXN233 billion, with service revenues increasing 3.2% reflecting the appreciation of several currencies vis-a-vis the Mexican peso. At constant exchange rates service revenues were down 2.1% year on year.

Substantially all of our operations maintained their growth trends in local currency terms. In Mexico, however, we saw a step down in revenues brought about mostly by more aggressive commercial plans in the prepaid segment as a greater part of our subscribers moved towards unlimited call plans.

The South American block and the Caribbean both presented a slight improvement in revenue growth trends from the prior quarter with Central America maintaining a steady one.

EBITDA of MXN61 billion declined 10.7% in Mexican peso terms relative to the prior year, 13.2% at constant exchange rates bringing about a 29% reduction in operating profits that in turn led to a 55% decrease in provisions for income and deferred taxes in relation to the year-earlier quarter.

We obtained a net profit of MXN7.7 billion in second quarter, which were down 45% from the year before. Our net debt stood at MXN608 billion. In dollar terms our net debt declined by $1.7 billion at nominal exchange rates and by $1.2 billion in flow terms.

In dollar terms our gross debt actually came down by nearly $2 billion, $1.9 billion, in the first six months at nominal exchange rates and by $1.5 billion at constant exchange rates. Our net debt to EBITDA ratio was practically unchanged in the quarter at 2.1 times.

Our cash flow from operations, the distributions obtained from our shareholdings, particularly those in KPN, and the unwinding of currency swaps allowed us to finance capital expenditures amounting to MXN57 billion, share buybacks of MXN5.2 billion and acquisitions of equity interests of MXN3.4 billion. In addition, as mentioned before, they allowed us to further reduce our net debt.

Well, with this I would like to turn the floor back to Daniel and maybe the operator can begin the Q&A session. Thank you.

Thank you, Carlos. Let's start with the Q&A, please.

(Operator Instructions). Amir Rozwadowski.

I was wondering if we could discuss a bit more about the competitive landscape that you are seeing in the Mexican market right now. It does seem as though there has been some notable traction with you folks in the postpaid market in terms of the higher end subscribers. But there clearly seems to be a bit more competition in the prepaid arena.

Would love to hear sort of your thought process on where you stand right now vis-a-vis your competitors, how you see the competitive process playing out. Should we expect some more pricing concessions come into the market or anything along those lines? Thank you very much.

Amir, good morning. Let's talk a little bit about Mexico. Since 2014 we have a new competitor in Mexico and two international and big competitors that we have been the last two years investing more and having more competition. So that is what is the market landscape in Mexico.

So, for the last two years prices have been going down very fast. We have been having a lot of competition in pricing in prepaid and in postpaid. And we have new plans like unlimited voice, unlimited SMS and with some data. So those are the new pricing plans that we have been having for the last six months.

These prices are with -- are similar than in other countries let's say; they have unlimited in US, we have unlimited also in voice and SMS in Mexico. But the prices that we have in Mexico are really, really low against what you compare in other countries.

So the pricing has been going too long, so too far the [price of the] competition. We have competition in Mexico and we have a lot on reduction on price.

So with these prices, even the competitor that entered in 2014, they have been losing every quarter. They want to gain market share but they are losing a lot of money in EBITDA. The other competitor has been having big reductions in revenues, also big reductions on EBITDA.

So what that means that the competition is tough and the prices are being too low -- even that the consumption for the people, people is starting with this low prices, people is starting to consume a lot more, maybe six times what they used to consume. So the telecom -- the demand for the telecom service has been very strong also in Mexico.

We have and I think I am sure that we have the best network, the best capacity and the best coverage in Mexico so that is very good also for [us].

In terms of that, people is consuming lot more than what they have been consuming. I think that in prepaid our revenues the last two, three weeks have been very stable, much more stable than -- because the people that -- the prepaid people that have the highest ARPUs and they want to change, I think they already changed.

We have been having a lot of people moving from the old plans to these new plans. And I think the people who want to change they already change. So that is why we are seeing more and stabilization in our revenues in the last weeks.

And the other thing is that we are making some changes in the offers. We are moving a little bit the due dates and moving some cards and moving other things. So we are moving also. I think the competition is stabilizing also a little bit more, prices are being stabilizing and our revenues in prepaid, I am seeing that they are stabilizing also more so. That is more or less what you see.

It is natural that the way I see things is natural that the prices in telecom reduce because of technology, because of competition. But these prices has been reduced too far. So the thing that I see and what I am thinking is that in the future the conditions will change. So that is more or less the view of what is happening here in Mexico.

That is very helpful. And if I may, one quick follow up. You had mentioned that utilization of the network has increased pretty dramatically in terms of overall usage. Do you see an opportunity, particularly as we start to see smartphone penetration grow, for you folks to capture some of the incremental usage via pricing?

In other words, is there an opportunity to trade some folks up to higher data buckets going forward? I am just trying to understand where that opportunity set lies for you folks.

The thing is that these data pockets, if you compare these data pockets against the data pockets of last year, you would see that these new plans have been having a lot more of data than what they used to have last year. So also so also in postpaid we are having been too aggressive.

So penetration is moving, penetration on the smartphones is growing a lot. And I think we have an opportunity that people start to use more, use more data, use more voice. And of course I see an opportunity, because at the end of the day I think that changes are going -- that things are going to change.

So the conditions are going to change in the future. So as people is starting to use more and more then we have an opportunity in the future.

The smartphone penetration in prepaid is still very low in Mexico. I think we have also a good opportunity in the prepaid market. In postpaid penetration is high. I think it's one of the highest in Latin America. In Latin America both in prepaid I still -- I think we still have a lot of room to go.

Great, thank you very much for the incremental color.

So Carlos, can you make a comment on the opportunities that you face? Like say I am seeing that both wireline data and also prepaid has been growing double-digits. So can you talk about the opportunity that you face on the specific two areas like data, on wireline and also on PayTV?

I mean I think, Andre -- how are you? Good morning. I think that we are seeing the market generally in Latin America moving from particularly the prepaid market, segment of the market, moving from a voice only market where voice has become commoditized to one that would be voice and data. And as the penetration of smartphones increases the adoption of smartphone devices increases.

We are seeing this, I think it is in its nascent phase. And I think it will be very much about the ability of the different carriers to offer the combination of voice and data services that the clients will be demanding. I think that is what you are referring to, right, Andre?

So, basically we are seeing a period in which competitor operators will be differentiating themselves by their ability to service a market that is requiring both voice and data services. And I think this will lead to very profound changes in the structure -- competitive structure of the markets that we are seeing today.

I think the market for voice only clients is a market that is dying. And I think that we are going to see a very rapid adoption (inaudible) and their price is coming down quite significantly.

My second question, can you comment a little bit on what is going on in Peru? Because each time that I see this country, which is not so big for you I know, but the margins have been lower and lower and lower. Is it just related to the competition to the new player that is there? And could we see the same situation in other markets?

Well, in Peru we have a big reduction on MTR, so it is hitting us in EBITDA. We are having a lot of -- it is the (inaudible) metric, it was in our favor and today it has change. So it hit us on the revenues, on the cost and the revenues over there. So that is one thing.

The second -- the market competition is -- it is aggressive, prices are going down. [Big soft cities] of our competitor I think one of the competitors the new one that it is getting in, in some cases I don't think they are doing a lot of money because they are putting a lot of -- they used to put a lot of soft city at the beginning. I think they are more rational today.

But I am feeling in the other side we haven't had a good network on 4G because two or three years ago we haven't win the spectrum over there. Today we have spectrum. Today we have enough spectrum, we are putting a new 4G network in Peru. And I think, of course not comparing to last year, because last year is doing.

But I think you are going to see increases on revenue, better market share in subscribers. And of course I hope that the EBITDA will get back and start to recuperate in the next quarters, okay. So, I don't think we are going to go lower than what we have today and I hope that we can recuperate in the next quarters.

Okay, thanks a lot.

Andre, if you would like to see -- you know (inaudible) the question was only referring to Peru, but if you'd like to see the other ones. There is another country that have higher margins today than they had a year ago.

Argentina is higher, Chile is higher, Brazil is flat, Colombia is slightly a bit lower. But most of the other ones -- America, Central America is higher -- there is a number of countries that are -- that have higher EBITDA margins today than they had one year ago.

Carlos, if you are hearing and if you are still on the line again, Andre. Just to follow on if I may, the question I had on the other markets is specifically the situation that we found in Peru where there is a very aggressive player with new network, 4G network.

If that situation could not repeat specifically in Mexico where you also have a new player very well capitalized with -- he is investing a lot on a new 4G network, which could trend downward the margins for quite a long time similar to what you saw in Peru.

It is totally different what is happening in Peru that is what is happening in Mexico. In Peru the problem is that they have a good network because they have the spectrum, they have a 4G network. And we haven't had that for the last two years, we have very small amount of spectrum to run in our 4G.

In Mexico we have a lot of spectrum, we have the best network, the best coverage, the best quality by far. And that is totally different. I think in Mexico Telcel is the brand. It is the preference for all the subscribers in Mexico is Telcel. So I think it is different and it is what we want to do in Peru.

We are doing good investment and good network in 4G. We have enough spectrum right now and I think things are going to change in Peru. And you are going to see that subscribers are going to start to grow again and revenues also.

I think, Andre, just to follow on what Daniel is saying. We are mentioning here in the report that in the second quarter we acquired the new spectrum in Peru in the auction that they conducted, it cost of something like MXN300 million.

And then we have also acquired a company that was based in Peru and as essentially what it has is [almost] spectrum. So spectrum became our bottleneck and it was something that really did not allow us to compete particularly in data because we didn't have really the ability to provide -- we didn't have the capacity by way of the spectrum.

I think this bottleneck has being broken right now and I think that we should be able to follow through with our investments to stay in the market, no competitors in the market. But again this was -- where Peru was a one off situation it was exceptional, it was, as Daniel pointed out.

We just had the bad luck that two years ago we lost out in an auction and ended up not having the spectrum that we needed for 4G. And this obviously made us have that competitiveness over the last couple of years. But this has been resolved and I think that we are going to be much more competitive going forward.

I do apologize, this is Sam the operator, we have the connection resolved now. So if you would like to commence the Q&A again I can start that for you.

I have Walter's question here. Walter Piecyk from BTIG. The question is please provide more color on prepaid usage, that was up six times in Mexico on the popularity of unlimited. And then comment on whether this means CapEx can still come down 25% this year and what the outlook would be for the next year on CapEx.

Mexico, I think in prepaid, as I said, customers that are changing from the old plans to these new unlimited plans are moving and they have six times -- five times to six times more usage in voice. Also they have more usage in data. But we are prepared with the spectrum that we have, this new spectrum that we had in beginning of this year we are able to do.

So, we are investing and all overall I don't know in Mexico. But all overall we are still trying to do our $8 billion CapEx that we estimate and not only in Mexico and other countries are growing a lot the usage in data and in voice. And we are going to still have that --.

All the big investments that we do the last three years are going to make us and be able to do all these new plans and all these new data and unlimited voice that we are doing all around Latin America. The next one.

Alejandro Gallostra.

My first question is regarding your leverage. Do you have plans to further deleveraging your balance sheet? And do you have any net debt target in mind?

Well, as shown here, I think in the first six months of the year our growth debt came down by nearly $2 billion in nominal terms. We have some important phone maturities that are taking place in September that amount to close to $3 billion.

I think for the most part we should be able to pay that down from what the cash position we built and the cash flows that we are going to have from here to then. So I do expect that in nominal terms for the full year probably gross debt is going to be coming down at least [$]4 billion and may be between [$]4 billion and [$]5 billion the gross debt.

In terms of net debt we are probably looking at roughly [$]2.5 billion reduction, [$]2.5 billion, [$]3 billion reduction in net debt for the year. So, yes, I think that we are continuing with this deleveraging. It is important we have maintained our ratings that, as you know, are top ratings in telecom sector.

And we intend to hold onto them. So, we are acting quickly just to make sure that the leverage position stays within the guidelines that we have seen with the rating agencies.

Okay, great. Thank you so much. And my second question is regarding the favorable ruling from [Isatel] when it comes to Telmex broadcasting [uno] TV through the Internet. Do you have plans to becoming more aggressive in your streaming as a result of this? Or your strategy in Mexico going to change as a result of this favorable ruling from Isatel?

No, I think what we have been doing is exactly what we are going to do. And there is no new plans that we are going to do with this new decision -- with this decision on the Isatel. So, we have our plans, our strategy and on the streaming. And we are going to do exactly the same of what we are doing right now.

Okay, thank you very much.

Michel Morin.

Hi, it is Michel Morin at Morgan Stanley. So I was wondering if we could dive in a little bit more into Mexico and if you could by any chance break out the prepaid and postpaid revenue growth trends? It seems like you are describing that the impact has really been on prepaid. So it would be helpful to get a little bit of granularity there.

And then in Brazil, both of your major competitors, [Vivo] and TIM, have flagged that they have experienced positive portability metrics over the last several months. So, I was wondering if that is consistent with what you are seeing. And if so, what would be -- what would explain that situation for you in that market? Thank you.

Starting with Brazil, the numbers that I have -- Hi, Michel, first hello -- on Brazil on number portability, on June we have lost 8,000 number portability on gainings. Year to date we have 41,000 on postpaid, those are numbers on postpaid. And on prepaid we are losing a little bit, I don't know how exactly how much, but on prepaid we are winning 41,000 postpaid new adds in number portability.

I think that the total numbers on postpaid we are gaining this year 600 -- more than 600,000 postpaid and I think it was one of the biggest for us. So, in postpaid we are doing good. And prepaid we still need to adjust some things but we are focusing a lot on the postpaid sector.

And we are doing very well with our strategy on the combo we are offering to our cable subscribers as we have a very good distribution network for our postpaid. So we are being -- looking very deeply on all the postpaid business in Brazil and we are doing good. In Mexico, what was your question again, Michel, please.

It was just because when you talked about the relative weakness year to date you flagged the unlimited plans on the prepaid. So, I am wondering if your revenue growth on postpaid has been trending maybe more favorably. If you could share with us the trend for both postpaid in prepaid revenue growth as one of your competitors did for the second quarter. That would be helpful, thank you.

I don't have right now the number right here with me. Let me find it. But I do know that in postpaid we are having positive service revenue growth. It is likely less than the pace of growth of the postpaid subscriber base, Michel, so that means that there is some ARPU dilution in the process.

But service revenue growth is positive on the postpaid segment. So what you are saying is correct, basically all of the service revenue decrease is taking place on the prepaid side.

And as I was mentioning before with Andre, I mean this is I think a moment in which we are going to see the last parts of our market that is voice only and that will be morphing fairly rapidly to voice and data. And we believe that the ability of operators to provide voice and data will be key to their competitiveness going forward.

And just to add more one more thing to Carlos, Michel. In my view I think we have been too aggressive in the promotions in prepaid and in postpaid. I think we are -- if you compare prices against US on plans or prepaid plans or unlimited plans in prepaid and on postpaid the differences are high.

So if you compare please check in the Internet prices here to prices in US. So the prices are really low here in Mexico. And my view is that things are going to change. I don't know if they are going to change tomorrow, but things has to change in the future. So that is how I see it.

That is very helpful, Daniel. And if I can just follow up on that. When you say we have been too aggressive, are you referring really to we as the industry or we, America Movil? Do you think that your Company?

No, in Mexico we as the industry have been very aggressive, not us. All the industry. We don't start with a promotion. I think the promotions, one of the competitors started with those promotions in November of last year or maybe a little bit earlier. So with this big promotion.

So when they are not promotions and they are plans that they are going to stay, well everybody has to follow that. And it is what we have been doing and I think it hasn't been good for anybody.

You could see one of our competitors, since they get in in the market they are losing money, they don't have any profits since they start. I don't know if that is their plan or not, I don't care. But they have been losing every quarter since they start.

And then the other has been if you see the last results, well the revenues and EBITDA has been going down very fast also. So that is the market, it is not us. And I think in the future things are going to change. No, I don't know where and how but things are going to change.

Thank you very much, Daniel.

Carlos de Legarreta.

I was wondering if you could give us more information. I mean I was looking at the CapEx figure that Telmex discloses. I believe this is 45% larger year over year for the first semester of the year. And I am just curious what it is related to. It seems that it is not in line with the reduction that you are mentioning on the conference call for CapEx. That is the first question, please.

Well, I don't have the disclose of the CapEx of each company of each country. But I can tell you that all overall what we are going to do is to -- we have the budget of $8 billion in CapEx plus the frequencies that we bought is what we are thinking. It could be a little bit higher, it could be a little bit lower. But that is around the strategy that we have.

I don't know if in Mexico how much is Telmex, how much is Telcel. All overall the networks are the same. So they are doing more or less the same CapEx. So I don't see any change on the numbers -- I don't know exactly what is the number that you see, but Carlos is here, he can talk a little bit about that, no -- Carlos Robles.

Yes just to mention one thing. It is basically a matter of seasonality in the sense that at the end of the year we will be with a target of the $8 billion that we have as America Movil. There is a reduction also in Telmex (technical difficulty) and it is basically a matter of seasonality (technical difficulty) that we are making to strengthen further the network for our customers.

Okay, great, that is helpful. Thank you. And if I may just a follow up. I don't know if you are disclosing the figure that you got for the sale of the -- is taking the (inaudible). If you could talk about a little bit about that. Thank you.

Well, as you point out we have sold part of our stake in the combination of transactions that the sum of which allowed us to sell 7.8% of our stake. And that is providing us -- I think there was an average price of about [5.21] I think it was. So maybe you can compute that. I don't have the exact proceeds here with me. okay?

Okay, thank you.

Richard Dineen, UBS.

Just interesting commentary on the Brazil competition. Maybe if you could just comment on the sort of Brazil margin progress. It flattened a little bit this quarter on a year-on-year basis versus some gains previously.

I'm just wondering if you are starting to see the synergy benefits from the integration of the three companies, whether that is slowing down or whether there are other things in the mix this quarter. Whether that is cost pressures or other one offs that seems to have slowed down that sort of margin progression a little bit.

And then secondly if I may, I understand IFETEL has ordered fixed to mobile termination rate cuts of 30% in Mexico from August 1. Just wondering if you have given any thought to how significant that would be on your Mexican revenue or whether that is something that is probably not going to make much of an impact. Any color on the above would be fantastic. Thank you, gentlemen.

Carlos can answer the interconnection. Please, Carlos.

Yes, basically as we have done in previous years and we have been doing for the last 16 years we have lowered -- we have reduced our prices by transferring the benefits of our operational effectiveness and to the reduction in the technological costs to our customers.

So this year we announced that we were going to try to reduce the CPP costs for our customers by 30% and by 50% for the next year and then 50% in the following year. At this point it is difficult to know the impact because at the end it is a matter of electricity in which traffic might increase and therefore it is difficult to actually have a number about that.

But I can tell you it is two things. First, it is that our customers will receive directly the 3% reduction starting on August 1.

And secondly, our package customers, what we are doing is we are further increasing the speed of our Internet services, we are strengthening our packages by value added services so that, as you can see just as in the mobile sector in the (inaudible) sector, we have very competitive prices and we are getting very competitive conditions even compared to international standards when you compare to the US or any other country in the world.

Right, that is very helpful. So this is sort of a voluntary rate cut rather than something that is -- this is not the interconnection rate, yes.

Yes, that is right. That (inaudible) of reducing the CPP tariff.

Right, okay, that is clear, thank you.

And in Brazil I think the margin reduced 4.5% against last year. But I think we are working hard on the cost and expenses. You know the integration of the companies are doing that. But in the other side we have Brazil with action rates a little bit higher so that means a little bit more cost in local currencies.

We have some other contingencies on collectibles are growing also. And also there are new things that we are facing in Brazil because all these economical political issues. But I personally feel that we are doing very good in Brazil, that we still need to fix some things there. But in TV we are doing very well. In broadband we are doing well. In fixed we are doing well. In postpaid we are doing well.

We need to fix a little bit data on the prepaid that we are looking to be -- to see. There is promotions that they are being out of the market. So we think that the data in prepaid needs to grow faster. And we are working on that. So, all overall I see Brazil in good shape.

I don't know if we are going to end the year with the same margin as we have last year. But we could be very close on that. So, we are working to have those numbers. So, I am feeling comfortable on Brazil.

That is great, maybe just to clarify. Just in terms of that specific integration of the three businesses, Claro, Embratel and Net, how far through that process are you? Is that mainly complete or there are other efficiency gains that you think you can make from that exercise?

No, of course there are more efficiency gains that we need to get more and more in the network, in the IT, in the engineering side, in the marketing side also. So there is still a lot of things.

That -- I think there is still one or two years more of efficiencies that we need to get in Brazil. So that is something that we need to focus and we are really focusing on that. And I think we are advancing on the right direction in Brazil.

Okay, got it. Many thanks indeed.

Mauricio Fernandes, Merrill Lynch.

Morning, Carlos or Daniel. In Mexico could you tell us -- and I apologize if you already mentioned this -- but what percentage of subscribers, particularly prepaid, but overall have migrated to the new pricing plans at the end of the second quarter.

I remember you saying half of them had migrated to the new pricing plans at the end of the first quarter. And if you could give us some sense as to what has been the speed of migration towards -- during the quarter or even in July that would be great.

And the second question is in Brazil. There was a decline, a steeper decline in wireless service revenues, it went down by 11% versus 6% in the first quarter contrary to what we saw happening at the competitors so far who have reported. At the same time your fixed line revenues accelerated.

So, I am wondering if there was any change in the way you account for wireless or fixed line PayTV revenues and particularly in the bundled product? Thank you.

Our first in Mexico. What I remember in prepaid, I think in postpaid maybe 20% or 25% of our subscribers are on the unlimited plans. Remember that on postpaid they are having some contracts and in postpaid what we are trying to do is that they don't go down. So we are giving more and more things to the plans to stay or to upgrade the plan. So it is what we are doing on postpaid.

And in the prepaid side maybe on June we have around 56% of the subscribers moving to the unlimited plan. So, a lot of the subscribers has been moved. What is happening I think the subscribers and what I said at the beginning of the call, the subscribers that have the highest ARPUs in prepaid are the ones that move faster because they get a lot of games there.

So they are using more the phone, using more voice, using more data and paying less. So it is what we see at the beginning. So first and second quarter is what you are going to see. The older subscribers that hasn't been changed are the subscribers that has less consumption and those are the customers that have less ARPU subscribers.

So these ones, maybe it is not convenient for them to move. So it is what you are seeing. I think people is moving less and less to the unlimited plan at the beginning, maybe January, February, March, April, we have a lot of subscribers moving. But the last two months less subscribers moving.

And as I said, the last weeks we have been stabilizing. We are checking every week how those prepaid revenues are behaving. And I think they are stabilizing in the last week. So that is more or less what is happening in Mexico.

In Brazil what -- I don't know, I need to check if they have a different impact on [stability], but I don't think so the way they account for the unbundled -- for the bundle -- for the combos that we are doing in Brazil. What is happening I think in data, in prepaid what I said again is postpaid.

I think we are doing [good] and we want to accelerate postpaid and go deeply on that. On the prepaid side what you see on voice we are doing better than the competition. In SMS we are doing better than the competition. In interconnection we are doing the same if you compare revenues against revenues. But in data we are not doing as good as the competition is doing.

And what -- we have two things. First, in value added services the content that we have there, last year we are comparing last year that we have a lot of revenues but also we have a lot of uncollectables, okay, because people ask for a lot of services and then they don't pay for that service.

So today we are being more -- we have different policies for these customers so they have to really commit that they going to pay for that service, for that content. And that is why we have been reducing our revenues in the content and value added services.

And the other one is in the Internet and data. And in data what you could see, Mauricio, is that we are still giving social networks included in -- they included in the ARPU we have social networks included there.

So competition is getting out for that and we are reviewing what to do with the social network. We still don't know what we are going to do, but we are reviewing what would be our strategy in the future. So that is more or less the explanation on what is happening on Brazil, Mauricio.

Thank you very much, Daniel. And just if I could come back to Mexico. Even with only -- well, 56% of subscribers seem to have migrated at the end of the quarter. But still revenues are down year-on-year 17%, which would suggest we could continue to see the revenue decline going forward.

But what you are saying is that it seems to have stabilized in which case the revenue decline that we saw in the second quarter could be slower going forward. Is that a right assessment?

Yes. Look, Mauricio, really these new plans, the unlimited plan, what has happened with the unlimited plan. The unlimited plan is it hit us with higher ARPU subscribers because that higher ARPU subscribers, if they put let's say MXN150, MXN200, MXN250 pesos, if they moved to a MXN100 card what is happening is that they have more service, they have more data and they have unlimited.

But the other -- and they have a lot unlimited voice and date. But the other ones that they are consuming, let's say MXN50, MXN30 in the other plans, maybe it is not too convenient for them. And if it is convenient then they are going to pay the same and use more. So maybe they are going to use more but we are not going to have a reduction on ARPU.

So it is what we are seeing. I don't know if I explained well what is happening. But the lower ARPU subscribers, if they change we don't have a big heap on ARPU on revenues, they are going to get more and more minutes and more data. But we are going to not get a hit on revenues. So it is what we are seeing in the last weeks, Mauricio.

Okay, understood, thank you very much, Daniel.

Andrew De Luca, Barclays.

My question is related to the competitive environment in Colombia. And I was wondering if you could just give us on update on what you have been seeing in the market both on the mobile and the cable side. And then if you could just remind us of what your strategy is for each of those segments within the country? Thank you.

In Colombia, let's start with fixed. In Colombia in fixed we are doing very well. I think we are growing our revenues, we are growing our subscribers, we are growing TV, we are growing fixed, we are gaining market share and I feel very comfortable on what we are doing on the fixed side in Colombia.

On the wireless side I think we are turning around. We have been losing some subscribers. We have been losing also revenues because as they don't have any more contracts in there they can change. So if you have any new promotion that subscribers will change for this new promotion. So that is why we are losing some revenue in Colombia.

In the postpaid side we are starting to grow. This year we are growing 4.7%. And I think in the prepaid we are going to start to grow the second quarter.

So we do some changes, we do also the new organization there in Brazil, more focus on what we -- more focused on sales, marketing, customer acquisition, more focused on all the commercial side and it is working. So you could see a much better turn around. And I think it is stabilizing and turning around subscribers and I hope it is coming also the revenues.

Great, that is helpful. And just a final (multiple speakers).

It is not immediately but it is moving on the right direction.

Okay, great. That is very helpful. And just to follow up. On the absence of subsidies can you just explain what you have been seeing in terms of smartphone penetration in Colombia?

I don't have the number here. But what we have been doing in Colombia, we have been financing the handset, so they are more -- it is more affordable for there in 24 months, 12 months, 18 months small payments and smartphone penetration is growing. And I don't have the numbers here what level of penetration we have but it is also growing the penetration in the smartphones.

Great, that is very helpful. Thank you very much.

Daniel Federle, Credit Suisse.

My first question is about the fixed line business in Mexico. I was wondering if you could comment a little bit more about the competition in the fixed line business especially regarding the fixed broadband product. And what is the next strategy for fiber to the home and fiber to the nodes and how you see that your competitors evolving this segment?

And my second question is about the wireless market in Mexico, because you mentioned that prices are very low in Mexico already. Who you think will be -- which will be the Company that increases price first? AMX could be the first mover increasing prices or AMX will wait for the competitors to increase price? Thank you.

In Mexico in the wireless side, it is a difficult question. Also I think those things -- you don't decide on who is going to be the first or who is going to be the second. I think it has to be overall the market it has to have enough stabilization of the market.

It has to be the conditions -- I don't know if we are going to increase prices. Maybe we can reduce due dates of the cards, we can give more to the customers, we can increase ARPU. So, I don't know, there is a lot of things that you could do. We have been reducing subsidies. I think we are the Company that has been reducing more subsidies in Mexico.

So, we are doing -- in prepaid we have been profitable on selling the handsets here in Mexico and we are doing a lot of things. As I told you last time we think that the conditions will change. I don't know when but the conditions will change in Mexico. And on the Telmex side, on the (multiple speakers) Carlos?

Speaking about the broadband business in Mexico, what I can tell you is that it has been -- it is a very competitive market in which basically we are competing with cable operators. And in the market what we are doing in our strategy is two things.

And the first one is to have the best network and to further invest in technologies, fiber to the home, fiber to the node, to be able to provide our customers with better services, more speed and more value added services.

For example, of this is for the [SME] customers we have introduced the last more services, cloud services included in their packages so that they can be able to -- so that we can even become more competitive.

Speaking about offers. What I can tell you is that the market -- the competitors are also giving more products, but at the end it is in the benefit of customers, no. Daniel.

Yes.

Okay, thank you very much.

I would now like to turn the call over to Mr. Daniel Hajj for the final remarks. Thank you.

Just thank everybody for being in the call and thank you again, Sam.

Thank you. Ladies and gentlemen, that concludes your conference call for today, you may now disconnect. Thank you for joining and have a good day.

Thank you.