America Movil SAB de CV (AMX) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to America Movil Third Quarter 2016 Earnings Conference and Webcast. At this time, all participants are in a listen-only mode to prevent background noise. (Operator Instructions)

We will have a question-and-answer session later, and the instructions will be given at that time. And as a reminder, this conference is being recorded. Now, I would like to welcome and turn the call to Daniela Lecuona, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thanks for joining us in our third quarter conference call. We have today on the line Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; Mr. Oscar Van Hauske, Chief Operating Officer; and also Mr. Carlos Robles, Chief Financial Officer from Telmex.

Thank you, Daniela. Good morning, everyone. Carlos is going to make a summary of the third quarter results.

Okay. Well, thank you, Daniel. Good morning, everyone. For the third quarter, economic activity showed signs of renewed strength in some of the major Latin American markets, including Mexico and Brazil. And financial flows in the international capital markets remained fairly stable.

There were no imminent threats of an increase in rates by the Fed. The earliest move would have been in mid-September. Bond issuance throughout the summer holidays took place on seasonally high levels. Latam currencies traded within narrow ranges, with the notable exception of the Mexican peso that since the prior quarter had developed an increasingly negative correlation with the US election.

These appeared to increase through September. The Mexican peso plummeted versus the dollar, going from 18.3 pesos to the dollar at the end of June, to nearly 20 pesos to the dollar towards the end of September. As of the date of this report, yesterday, the dollar was trading 18.8 pesos per dollar.

On the Movil platform, we added 750,000 postpaid subs in the third quarter, nearly half of them in Brazil, and the rest mostly in Mexico and Colombia. And in the prepaid side, we acquired 1.2 million subscribers from T-Mobile, but disconnected 880,000 clients in other operations.

Our postpaid base was up 5.7% from the year before, where the prepaid one was down 3.5%. On the fixed-line platform, RGUs were up 3.1% year on year, driven by broadband accesses that were up 8.3%, after net additions of 500,000 accesses in the quarter. Just over half of the increase came in equal parts from Mexico and Brazil, followed by Colombia and Guatemala.

Our third quarter revenues totaled 250 billion pesos. They were up 11.8% in Mexican peso terms, and 3.1% at constant exchange rates from the year-earlier quarter. Service revenues were practically flat year on year at constant exchange rates, which represents a 2 percentage point improvement with respect to the annual growth rate observed in the second quarter.

A stronger revenue base should bring about a notable increase in EBITDA. In Mexican peso terms, it grows 11.1% sequentially, and 1.5% on a year-on-year basis to 67.7 billion pesos. At constant exchange rates, EBITDA was still down year-on-year 5.4%, exhibited a notable recovery from the 13.2% decline posted the prior quarter, an improvement of nearly 8 percentage points sequentially.

The main factor behind improvement in service revenues was the renewed dynamism of mobile data revenues, whose year-on-year rate of growth rose from 4.1% in the second quarter, to 7.7% in the third. Fixed broadband revenues expanded at a slightly faster pace in the latter quarter, 8.8% versus 7.9% in the second, whereas PayTV revenues maintained their trend at 6.1%.

Voice revenues, both fixed and mobile, declined somewhat less rapidly in the third than in the second quarter. So, that's an improvement basically across all business lines.

From a regional perspective, the sequential improvement in the annual rate of growth was 1.2 percentage points in each of the South American and European blocks, 0.7 percentage points in the Caribbean, and 0.5 percentage points in Mexico. Only the Central American block registered somewhat slower service revenue growth, 4.4% in the third versus 5.1% in the second quarter. The US had a strong showing in the quarter, independently of the acquisition of T-Mobile subscribers.

EBITDA trends strengthened across the board, with most countries posting higher EBITDA margins. The Caribbean continued to improve its margin as they have over the last few quarters, while the South American block presented a slight increase. In the US, TracFone had a very strong quarter, with EBITDA rising 37% even before accounting for the T-Mobile subscribers.

Whereas our third quarter operating profits, 30 billion pesos, were still 14% below those of the prior year, on a sequential basis they jumped 16.7% buoyed by the EBITDA increase. Our comprehensive financing costs totaled 24.7 billion pesos, including a foreign exchange loss of 10 billion pesos, which was [12%] lower than in the preceding quarter, and 77% below that of the year-earlier quarter.

Our net income totaled 2.1 billion pesos in the quarter and was equivalent to 3 peso cents per share or $0.03 dollar cents per ADR.

In the 9 months to September our cash flow, as well as the unwinding of certain currency hedges, allowed us to fund capital expenditures in the amount of 100 billion pesos and reduce net debt by 19 billion pesos. In addition to these, we distributed a net amount of 9.6 billion in dividends and share buybacks, which were partly funded by distributions received from our investments in Europe and the sale of part of our stake in Telekom Austria.

It is important to note that our gross debt has come down by the equivalent of $3.5 billion since December. Our dollar-denominated obligations were reduced by $4.3 billion in the period, including the amortization in September of two bond issues with a face value of $2.7 billion. Considering the equity credit given to our hybrid bond issues and the market value of our currency derivatives, our ratio of net debt to EBITDA last 12 months came in at 2.2 times, which was similar to the one in the second quarter. We expect this ratio to decline in future quarters, as our planned deleveraging takes place.

Thank you. And with this, I would like to pass the floor back to Daniel for Q&A. Thank you.

Thank, Carlos.

We can start with the questions now.

(Operator Instructions). Walter Piecyk, BTIG

Thanks. Hey, Carlos, can you just give us your sense on where you think Mexican EBITDA margins will ultimately bottom out, and when maybe you can see some return to ARPU growth there. Obviously the interest in LTE phones is there. But you've got these other competitive headwinds. So if you can just comment on kind of where margins bottom out and when you might see some ARPU growth.

Well, good morning. In Mexico, what we're seeing in Mexico, I think, in Mexico we're starting to see that revenues are starting to stabilize. Some people are buying a little bit more, are increasing a little bit the ARPU. Other ones are moving to these new plans, still we have some customers that are moving to all these new plans. So we're starting to see that. Still, the market is very competitive, where the competition is tough in Mexico.

You can see that the prices in Mexico maybe if you compare the same plans in Mexico and in the US, with our competitor in Mexico is maybe 60% to 70% lower the price of what they are selling in the United States. So well, revenues, as we're saying, are stabilizing. We are putting a lot of effort in giving the best technology, investing in 4G. I think we're covering maybe 80% of the population in Mexico with 4G.

The new spectrum that we get at the beginning of the year is helping us to have very good service, good quality of service, good coverage. I think the perception of the brand in Mexico is excellent. So it's helping us a lot. So we're moving on that direction. I still don't know what's the bottom of the margin in EBITDA. But because all of these things is we are getting some more expenses. But I think if the revenues are starting to stabilize, and then we hope that next year we can grow a little bit, then we're going to feel very comfortable in Mexico.

Thanks, Daniel. For the follow-up question, can you just comment on strategy in the United States? Obviously there's this acquisition. It looks like you're committed to stay in the US. But is there an opportunity for you to possibly sell that business or potentially partner with other companies that don't necessarily have a wireless presence right now? Thanks.

We're happy with our business in the United States. TracFone is doing good, I think. And that's why we are taking that more than a million customers from T-Mobile. We're managing very well all the retail business, the prepaid business. We know how to handle the prepaid business.

So we're happy the way TracFone is developing in the United States. So that's main. I think margins are better this quarter than the last quarter, and last quarter of last year. So we're doing good improvements in TracFone.

Great. Thank you.

Richard Dineen, UBS

Good morning. Thanks for taking the question, just a question on the depreciation and amortization. They seemed to accelerate sequentially this quarter, up 20% year on year. It was running at more like 10% increases in the first and second quarters. If you could maybe just explain what's perhaps behind this, if it's changing CapEx, changes in the sort of mix of depreciation rates for different assets, maybe if you can sort of say if there's been any change in the methodology or how we should think about that line going forward. That would be very helpful. Thank you.

Okay. Thank you. I think that a portion of the rate of depreciation has something to do with more CapEx. But there's a portion that is probably a bit more than half of the increase, and this is basically for Brazil, which has to do with the qualifiers for the set-top boxes and the antennas, which basically is shortening a little bit the life of those for purpose of depreciation. So that's basically it.

Okay. And is there any sort of-- is it possible to guide for that line, Carlos, going forward? Or--

If you look at the numbers in the income statement that also has to do a lot with foreign exchange movements. Because like in this quarter, the peso came down relative to all other currencies. And that means that all of the, say, depreciation expenses, for instance in Brazil and Colombia, will be worth more in peso terms. So what we would need is to look at this at constant exchange rates, and maybe we can give you a bit more guidance for that.

I think for the consolidated, in the absence of these currency moves, we would not have had much of an impact on the overall depreciation of the Company. But I'll give you numbers, if you can contact Daniela, we can give you those numbers.

That's terrific. Thank you very much, Carlos. Thank you, Daniel. Thank you.

Ric Prentiss, Raymond James

Yes. Thank you. Good morning. A question, obviously a very large deal in the United States, with AT&T and Time Warner announced recently. What are your thoughts as far as combining your networks with content? How important is it to have content? And also maybe update us on where you stand as far as being able to combine with-- add video to your bundle.

Well, interesting move in the United States. Let's see what's going to happen. In Mexico we are-- we think that content is important. We have some things in Colombia. We are doing some things in Brazil. We have also Uno TV in Mexico. So we feel that content is going to be-- it's important. It's going to be very important. It makes a lot of sense to have some content to give to your customers. We have satellite TV, cable TV, and all the wireless TV everywhere, streaming all our OTT products that it's Claro Video and even Claro Musica.

So I think content is-- it's important right now. It's going to become very important in the future.

And an update on where you stand on getting video?

In Mexico?

Yes.

Well, we have video in all the countries, not in Argentina. But I think in Argentina it has some time to--

Two years.

Two years, and then we can have video. And in Mexico, well, we are-- we don't have nothing still with video in Mexico. No, we feel that we are covering all the requirements of the IFETEL. And we hope that we can get the video soon.

Okay. Thank you.

But still we don't have nothing.

Yes, right.

Amir Rozwadowski, Barclays

Thank you very much for taking the questions. I was wondering if we may chat a little bit about the competitive environment in Mexico. It looks like based on the metrics you reported, it seems as though pricing pressure has eased a bit, and you folks are doing a lot better in the postpaid market. So it does seem like some of the more pressured competition that we've seen in the market may be easing. Is that a correct way to think about the current environment?

Well, I think it's really competitive. So I don't think we're getting lower rates in the market. But still the competition is-- it's tough. It's big. So everybody is competing. As I said, if you compare prices in the US against prices in Mexico, in Mexico it's maybe 70% lower than what they are selling in the US. So I don't think it should go lower, no? Because it's very competitive.

What we are seeing is that a lot of our customers are moving, still moving a lot to all these new plans. But we don't think that we're going to compete only with price. I think people want quality. People want the coverage. People want the speed in the networks. And we are doing that. So we are being very careful to have the best network and the best quality for our customers. So we are, Telcel is focusing a lot on moving to give the best, let's say, end-to-end quality to our customers.

When they go to a store, we have to give the best service, the best in our own stores. Then the quality of the network, then the throughput; so we are working a lot on giving them a good service here-- well, in Mexico and in all around Latin America.

We are also looking a lot on the ARPUs. We don't want to see only subscribers. We want to see good subscribers, good ARPUs and revenues, okay? Because we can get a lot of subscribers and reducing revenues. So I think we are being very careful also on the ARPUs of our customers, increasing their ARPUs, trying to sell them more things. So that's where we are right now in Mexico.

Thank you very much. And a brief follow-up if I may, I think we've all been watching and waiting for color on the regulatory review process. When do you think we should get some color? And how do you think about the potential for incremental asymmetric regulations? I think it's hard not to argue that competition hasn't increased, and clearly pricing as you had mentioned, has come down fairly significantly. And so we'd welcome any thoughts there.

I think we have competition. Even the regulatory department are saying-- they do some statements that there are a lot of competition in Mexico. So there's no doubt that we have a lot of competition. We don't know exactly when are going to be the-- when does the IFETEL is going to decide on these new regulations or take or put more regulation.

So we think that maybe between in the first quarter of next year we can find some decision on [the sector].

I think one thing that is important to note, I mean, if that [visioned] notion, just general notion of competition, I think there's very clear parameters very objective that you can look at, specifically in terms of pricing and in terms of what has happened to the consumption.

So for instance, take a look at MOUs. MOUs in Mexico were up 68% year on year, 68% year on year. They went from 263 minutes per user last year to 442 minutes per user in this quarter. I mean this obviously goes to show two things. On the one hand that we have a fantastic network that has been able to accommodate this kind of an increase in such a short period of time. And the second thing is that obviously all the consumers in Mexico have benefitted, because they are nearly increasing by 70% their MOU.

But this is happening to a large extent because prices have come down tremendously. If you continue to look-- and we don't too much anymore-- but if you continue to look at the old metric of prices per minute, the prices per minute today in Mexico are MXN0.10. That means that it's approximately half a penny, $0.005 in the US. And that means obviously that consumers have benefitted because of low prices and much more consumption.

So I think these are very objective metrics that we can discuss with the regulators and that they should point to the reduction of asymmetric regulation in Mexico for us.

Thank you very much for the incremental color.

Daniel Federle, Credit Suisse

Hello, good morning. Thank you for taking my questions. My first question is about Brazil. We see that in Brazil, AMX has one of the best service quality in the mobile segment. But the financial performance so far has not been that strong. So I would like to know if you have any plan to change strategically or commercially your strategies in Brazil.

And my second question about CapEx, with all this FX volatility, how are you thinking CapEx for 2016 into 2017? Thank you.

Well, on the CapEx, we don't have still-- we're working on the budget for 2017. And on 2016, we are on budget. We said that we're going to have CapEx at around $7.5 billion, and it's what we think we're going to end this year. So we are on budget and still working on the next year's CapEx.

On Brazil, I think on Brazil we are doing much better in the postpaid mobile customers. We're increasing our postpaid mobile customers. We are also improving on our prepaid ARPU or prepaid usage. So I think overall we are going better. We are in the right direction, but still a lot to do. When you see the numbers of the competitor, we still have a lot to do. And we're investing in our network. We are investing in the synergies of the company. And we still have some bad debt. We still have customers that are not consuming.

When you compare our ARPUs and the ARPUs of our competition, still our ARPUs are much lower than what they have. So we still need to work to have better customers when they get into our network to have a better ARPU. I think we're having around BRL89 when our competitor is around BRL120 or BRL130, so the ARPU of the postpaid.

So, we think we need to increase that. We need to move in that direction. And I think we have a very good organization there. And I'm sure that we are still going to see good performance still this year, and next year in Brazil.

We're still reviewing the numbers for next year. But I'm sure there's going to be growth in revenue and better EBITDA for next year.

Next question.

Michel Morin, Morgan Stanley

Good morning. So first on Mexico, I was hoping to see if you can give us a little bit more color on your margins this quarter. You had-- if we look at relative to the second quarter, you were up in revenues, in service revenues. And yet your margins were still down, even if we exclude equipment sales. So I'm wondering if you can help us quantify-- give us a little bit of color of what's behind this. Have you increased handset subsidies, or is it kind of the asymmetry of termination fees. What's really driving that margin compression in the third quarter?

And also you had very strong fixed RGU net adds. I think it's a 5-year high. So I'm wondering also if you can talk a bit about what you're seeing in the competitive landscape on the fixed line in Mexico. Thank you.

There is a lot of questions in one question, Michel, good morning. Well, in Mexico, talking about Mexico, so in Mexico I think, as you said, service revenue is stabilizing as we said at the beginning of the call. Still EBITDA is not stabilizing. We have some cost and expenses. Yes, the asymmetric interconnection is costing us money. And people is talking more to-- as the prices are going down, there are more calls, and then more calls means more interconnection. So this is part of the cost that we have.

Another cost, we get some spectrum at the beginning of the year. Then you have to pay monthly a fee for that. And we are growing on our postpaid base. And the postpaid base costs you also more [SAT] than the prepaid base. So there's still some cost and expenses that we need to work for the next year. But while the important issue is that service revenue is starting to stabilize, and that's something important for us. That's a good metric in America Movil. As we said, we are working a lot on the networks, doing coverage, more 4G, better quality, more capacity. As Carlos is saying, some of our customers are maybe using 3 or 4 times more the minutes than what they used to have at the beginning of the year. So you need to put more capacity on the network.

So there's still a lot of things to do in Mexico. But I think the first phase of stabilizing the revenues is looking good. Okay? So that what's the other question?

Well, it was around your fixed RGUs in Mexico. They were pretty good. And it looks like it's a 5-year high. I'm wondering if there was anything unusual this quarter.

Carlos?

Yes. It was a good quarter in the sense that as we mentioned, when we are doing it, we are providing better quality. And we are focusing just as in the mobile side, in the fixed side. We're focusing on quality, having the best network in the country. And also what we are doing is including more benefits in the packages that we offer to our customers. So our packages, if you compare them from an international point of view, in prices they are very low compared to other countries, the US and Spain.

So just as it is in the mobile, in the fixed line you can see that prices are going down. But what we are looking forward is to improve through more benefits to our customers.

The bundles that we're giving to the customers, the packages that we're giving are working very good (inaudible).

That's great. And Daniel, just to clarify the CapEx number you gave earlier, $7.5 million; that does not include spectrum, right? And you had some, I think, in the third quarter in Peru. Is that correct?

300 million in Peru, yes. That's what we have last quarter in Peru, and 200 in Mexico. Yes, maybe we're going to get to $7.5 million plus, 500 of spectrum. I don't know if we're going to get exactly to the $7.5 million. So we are more or less in those numbers, Michel.

Okay. Perfect. Thank you.

Alejandro Gallostra, BBVA

Hi. Good morning, Daniel and Carlos and Daniela. Can you hear me well?

Yes.

Okay, great. Thanks. Is there anything specific that you're doing to keep the good momentum going in data consumption? And I'm wondering if growth continues at this pace, would that trigger a higher CapEx, or are you still committed to reduce CapEx to those $7.5 billion to $8 billion for the next four years? Or are do you believe you're still pretty much covered to face increased data consumption in the years to come?

Data consumption, it's different in each country. I think data, it's growing, and it's going to grow for the next year, as we move more customers from 2G to 3G and from 3G to 4G. And then in the future 4 to 5G, there's going to be much more consumption for all of our customers. All the CapEx that we are putting includes all this consumption, the increase of the data that we're having.

I think it's different in each country, let's say. Talking a little bit about Peru that we talked about the spectrum. I think in Peru we get the spectrum. We put infrastructure and everything is working very good in Peru. I think it's stabilizing our customers, using more the data. So things are going well. In each of the countries we have a different strategy, but all over all, Peru is doing very good on the new strategy with the new network. Colombia, with a new organization, is looking very good also. Chile is also increasing revenues. We are selling much more data to our customers. Argentina is doing also very good. Central America; all over all, we are-- besides Mexico and Brazil that we already talked about them-- all the other countries are also doing very good in terms of moving to 3G and 4G, new smartphones, more data, more usage.

We have been, when you talk about the CapEx, we already put our cable submarine that helped us to move all the data around Latin America, a lot of transport networks, a lot of sites connected to fiber, also satellite. So we have been doing, as Carlos said-- has been saying in the last calls-- we put-- we have like a steady billion in three years. I think it was 2012, 2013 and 2014 or 2013, 2014, and 2015 that we put 10 billion per year. And that's allowed us to do everything that we are doing today.

Okay. Great. So it seems that your CapEx estimates already include maybe (inaudible) and data consumption and (inaudible), you will be comfortable maintaining these level of CapEx. Okay, great. Thank you.

And then my second question is if you plan to change your dividend policy review, where if you will start paying in stock going forward, and looking to further deleverage your balance sheet.

Could you repeat the question? I don't understand the question.

It's regarding the dividend policy. If you would also propose to keep paying in stock going forward, for the purpose of deleveraging the balance sheet?

For this end of this year, I don't know what the assembly is going to propose next year. So I still don't know what's going to happen for next year.

Okay. Great. Thank you.

Carlos de Legarreta

Thank you. And just two questions--

And-- sorry-- just to answer the other question, is remember that it's always is going to be your decision if you want to do shares or cash. So if you want cash as in your dividend, it's always going to be-- stay cash. It's your option that. And if we do that and if the assembly proposes that, I think that's going to be the same for next year. But it's your option to do cash or share or cash and shares, okay? So that's your option.

Go ahead, Carlos.

Sorry.

Thanks. Getting back to the question, no problem. I mean for the first one on prepaids in Mexico, you're measuring improvement there. I just want to know, what is the driver that you're seeing for the increases in the recharges? Is it perhaps, I mean the more attractive pricing? Is it the fact that the recharges last longer? I mean what is exactly what's moving the market there?

Well, it's a lot of things. I think people is using more, so they need to recharge, and data. So data because we have unlimited minutes. But also the prepaids are being-- we shorten a little the base of the cards, so also make them to recharge a little bit more. So there's a couple of things that we're doing in the prepaid side.

Okay. I think I'd just like to add, and this is not specific about prepaid. But when I was mentioning that we already have 442 minutes of use in Mexico, I just want to put it into perspective. This compares-- this is more than twice-- more than twice the median of MOUs in the rest of the countries where we operate. And we're operating today in 25 countries. So if you take the median of MOUs in all of these 25 countries, Mexico has twice the median.

Thank you. That's very enlightening. And the second question is a bit more forward-looking. So obviously it's a little bit early, perhaps, to talk about 5G deployment for America Movil. But maybe-- I mean I was wondering if you can share with us your view on this technology and what it implies for the market for Internet of Things. Because I really haven't heard much from you guys regarding this segment.

No. I think we're still putting a lot more coverage in 4G. But of course, we're thinking to put 5G. We're moving a lot with we're preparing the Company in the LTN, on virtualization, and we're moving on 4G Plus that 4.5 LTE, the narrow band. And we are moving there, and of course we're getting prepared to 5G. If you don't hear about America-- I think we do some testing, big testings in Brazil about 5G and in Puerto Rico with our networks in 5G. So we are testing and we are prepared when we decide to do that. I think it's too early to talk about that. But we are preparing our networks to when we decide to go to 5G then we can go there.

That's great. Thank you.

Soomit Datta, New Street Research

Hi, yes. Question on Colombia, please. First of all, the numbers look to be improving there. The margin was a little stronger than in the first half of the year. It would be interesting to get some kind of general perspective on how you see that market. And on a related note, we've heard from one of your competitors this quarter who I believe have-- are pursuing antitrust measures against you in Colombia, suggesting you've been discriminating pricing by geography. Have you got any perspective on that particular accusation, please? Thank you.

The second question is-- let me answer you the first question. And then I don't understand the second question. But in Colombia I think, as we have a new organization, and I'm going to talk a little bit about mobile. We are increasing our coverage, doing much better in terms of quality and throughput of our networks. So, we feel that our customers are getting very satisfied with that network. And we're increasing our distribution.

We're putting a lot more focus on the commercial side. So we are-- this new organization is a lot more focused on all the commercial side. And I think I want-- also we are doing very well in the fixed side, in TV. Oscar can talk a little bit about what we're doing in the fixed side in Colombia.

Yes, sure. Well, as you know, we launched different kind of packages through the years, and the market has been very well receptive to our triple-play offer in the markets. So we've been growing on triple-play and double-play offering that includes PayTV and broadband as well. And I think we have the best offer in PayTV. It's not only on PayTV. We already have streaming video, video on demand through the offering, and the market has been very well receptive to these new packages on the marketplace.

So we've been growing pretty good on fixed, broadband and PayTV as well. And as well, the bundle includes fixed voice that it's all included. So it has very good reception for our customers.

To add, I think (inaudible) revenues in Colombia on the fixed line side have been growing double digit for quite some time, for two years. They're now growing nearly 13% (inaudible).

And the second question; what's your second question? I don't understand.

Sure. Sorry, just to be clear, one of your competitors in the market in Colombia has said it's filed antitrust lawsuits against you in the context of discrimination in pricing between different regions in the country. I just wondered what your view on that was.

I don't have any news on that. So discrimination on pricing on these different regions; well, that's a new for the competition. So let me understand that. I don't have any news on that. So we don't think we are giving anything different on pricing. We don't think-- maybe we have some special offers in some places, but not on pricing, maybe on handsets. I don't-- I'm really sure that we are not doing something that the regulations don't allow us to do.

So we fulfill all the commitments or all that what the regulation ask us, we already fulfill everything in Colombia. So we are okay on the regulation side.

Okay. Very clear. Thanks.

Julio Arciniegas, RBC

Yes. Hello. Thanks for taking the question. Very fast question, can you give me some color of how your network in fixed compares against your competitors in Brazil and Colombia, in terms, for example of home pass and technology.

Well, first in Brazil, in Brazil we have 22 million households. And all of them, 98% of the network is fully bidirectional. And we are using, as you know, DOCSIS. We are using DOCSIS 3. And then in some regions we already deployed DOCSIS 3.1. And [all of our networks] are fully integrated network, all IP network. And we are in the process, as Daniel mentioned, on full integration of the network. We are making some changes in the network to merge IP and optics in order to reduce the cost of the network and improve the throughput of the network.

And in Colombia we have 7 million households. And as well, fully bidirectional, 98% the network, and the same situation. We have seen DOCSIS 3 and DOCSIS 3.1 in some of the areas. So we (inaudible) the fiber even in Brazil and in Colombia. So we could deliver good speeds for broadband, and a very good offering for PayTV with high definition channels all across the networks. And as well, this network serves small business and enterprise market [through those last miles].

Okay. Can I follow up with another question? How do you see the evolution of fixed mobile conversions, for example, in Colombia? Well, as you had said, you have been growing quite well in the two-play and triple-play packages. But do you see any potential for fixed mobile conversions?

You know, we start to offer in some combos in Brazil that includes mobile in an offering. And as well, we recently started to do that in Colombia. And as you know, the market in Brazil has good appeal into this kind of program. So we witnessed that, and we already start in Colombia to bundle the triple-play and the mobile offering in the benefit of our customers. So that's on the commercial side.

Within the network, we already have just one network. We fully merged the network, all the [core] and aggregation of the network is the fixed and mobile. And now, as Daniel was explaining, we are moving over the (inaudible) network as well, and the new evolution of the network, not only in Colombia. We are doing this-- all the testing in AMX. So we really have a state-of-the-art networks in Colombia and Brazil.

Okay. Thank you.

Rodrigo Villanueva, Merrill Lynch

Thank you. Good morning, Daniel, Carlos and Daniela. My question is related to Brazil. I was wondering if you could give us an update on what you're seeing there with respect to the potential for the market to consolidate. I think there were some news reports a couple of weeks ago suggesting that you would be interested in some of the assets of Oi. So I would like to hear what you can-- or what you have to say on this respect. Thank you.

What I said, and I said always is that we are always open to hear things and to review things that-- I never said that I'm interested in buying Oi. So what I said is I'm open and that we can review. And we are going to be open always in Brazil, in Mexico, in Latin America to hear and to see opportunities for America Movil. That does not mean that we [have].

And in Brazil in specific, there's a lot of rumors and a lot of talks about merging and consolidating the market for the last two years. So I don't know still what is going to happen. And I don't think there's going to be something soon. It's my perception. But you don't know. Maybe things get a little bit on a hurry and start them to consolidate sooner than what I think. But all over all, America Movil is not having talks with anyone. And we don't have anything right now.

Understood, Daniel. Thank you very much.

Mitch Reznick, Hermes

Hi. Thanks for taking my question. Just on the credit rating, notwithstanding the gross de-levering that America Movil has executed over the past 9 months; to what extent are you willing to defend the rating to avoid a kind of a triple-B rating?

In other words, to what extent are you willing to keep from-- if there's rating pressures, to keep from staying out of the triple-B rating category?

Thank you for clarifying that. I think it's clear that we are in the single-A category in all three ratings. As you know--

Yes. Sorry, I apologize--

Yes, yes. I was getting confused as you probably were in a different-- thought that you were in a different call, no?

Basically, I just want to know to what extent and how important it is for you to keep your-- maintain the single-A rating is what I'm driving at.

No, no. I think we have been committed to the ratings, and we have a mandate directly from the Board to see to it that we maintain those ratings at all costs. So I think that yes, we are good. We are in constant dialog with the rating agencies. They know exactly where we are. They've seen our forecasts, et cetera. And I think that we are confident that it has been the case in the past that we will not get any downgrade and (inaudible) negative outlook by one of the agencies that those outlooks will become stable probably going into next year, or in the middle of next year. That's our expectation.

But yes, we are committed to the ratings. And we are in a path, as you can see, of de-levering the Company. We are proceeding very much according to plan. We expect further reduction in debt, probably net debt of roughly 2 billion next year, and the year after. So I think that we are in good shape from the point of view of the overall leverage position of the Company.

Okay. Thanks. That's clear. And my other questions were already answered. Thank you.

Arturo Langa, Itau BBA

Hello. It's Arturo from Itau BBA. Good morning, and thank you for taking my question. Just two brief questions. First, could you remind us, what is the timeline for the local (inaudible) bundling process in Mexico, and what are your thoughts around that?

And then my follow-up question would be regarding Telekom Austria. We saw a nice increase in EBITDA. If you could just share with us the strategy that the Company is implementing there, and also if you could comment. There has been some headlines regarding a possible capital increase, just to hear your thoughts on that would be great. Thank you very much.

I'll talk a little bit about Austria. I think in Austria we took over the Company, the control of the Company formally barely two years ago, I think in August of 2014. And obviously at first we were more than anything focused on reducing the leverage of the Company. It had been very high. And I can say that it has been brought now down to the level that America Movil overall has.

So from 3.5 or something net debt to EBITDA, it's come down to 2.2 net debt to EBITDA. So that part of what we did in the first year. And then we've had our management on the ground for just a bit more than a year, a year and a half. And quite frankly, we have had very successful results. The EBITDA is increasing, and so far it's-- a lot of this is driven by (inaudible) itself. And in Austria, we have been able to get significant efficiencies from the operations, simply by reducing costs, streamlining the operations.

We have stabilized revenues, and they are supposed to grow. But EBITDA is really growing fairly rapidly. So in the Company that has now much less debt than used to be the case, and that is now having a much more coordinated approach towards the rest of the operations in Eastern Europe. I think this company will continue to surprise us with positive increases in EBITDA.

And you mentioned about a capital increase. Well, we have never done a capital increase to fund an acquisition. And I think the Company today is in very-- it is getting stronger financially, and it is getting stronger operationally. And maybe one day you can look eastward, and look at the possibilities of expanding there. I don't think it's there yet, and we certainly are not looking by any means at any capital increase in the Company, other than the one that was done two years ago.

Finally, regarding the (inaudible) bundling, it's something that is already implemented in Mexico. We have already since starting, we have implemented in accordance to the rule stated by the IFETEL. And we have already provided these services to the operators that have been appealing to them, or have been signing the contracts for them.

Thank you.

Okay. Thank you.

And ladies and gentlemen, this concludes our Q&A for today. I would like to turn the call back to Daniel Hajj for any final remarks.

First, thanks, everybody, for being in the call, and Carlos, Daniela, Oscar also, thank you very much.