America Movil SAB de CV (AMX) 2016 Q4 法說會逐字稿

Good morning. Welcome to America Movil Fourth Quarter 2016 Conference Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Daniela Lecuona, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us to discuss our quarterly results. We have on the line Mr. Daniel Hajj, CEO; Mr. Carlos Garcia Moreno, CFO; Mr. Oscar Von Hauske, COO; and also from Telmex, Mr. Carlos Robles, CFO.

Thank you, Daniela. Good morning, everyone. Welcome to the fourth quarter 2016 results and Carlos is going to make a summary of the results. Please, Carlos.

Thank you, Daniel. Good morning, everyone. During the fourth quarter, economic activity remained soft in Brazil and relatively strong in Mexico, Colombia and Peru, with retail sales performing well aided by the recovery of commodity prices, including oil. The news was dominated by the US election, it was to have a major impact on the Mexican peso and a much more limited one on the other regional currencies.

In the postpaid segment, we raised the net additions of 1.3 million clients in the quarter. Brazil was the leader, adding 1 million subs, followed by Mexico with 2,29,000 and Colombia with 1,48,000. During 2016, the postpaid subscriber base increased 10% year-on-year in Brazil, 8.6% in Colombia and 7% in Mexico. We disconnected prepaid subscribers that were not generating traffic in Brazil, Panama, Costa Rica, Croatia and Macedonia after the implementations of stricter churn policies. Altogether, we disconnected 3.3 million subscribers, closing the year with [281 million.]

Broadband was the leader in actual growth, with 7.4% year-on-year, followed by postpaid mobile subscribers with 5.3% and PayTV with 1.9%, with prepaid subscribers coming down by 3.7%. Our fourth quarter revenues rose 16.9% in peso terms from the earlier quarter, which is MXN269 billion. With this, revenues for the year ended up just shy of MXN1 trillion, a 9.1% increase from the year before. The relatively high revenue increase seen in Mexican peso terms are to a large extent the consequence of the Mexican peso having depreciated vis-a-vis the currencies of all other operations.

At constant exchange rate, service revenues rose 0.7% annually in the fourth quarter, the best show in 2016, led by mobile data revenues that shot up 11.7%. Fixed data revenues climbed 5.3% and PayTV revenues, 4.2%. Mobile voice revenues remained relatively stable, declining slightly less in annual terms (inaudible) throughout 2016, where the ongoing reduction in fixed voice revenues accelerated on account of lower interconnection rate and long distance revenues, mainly in Brazil.

Mobil data accounted for the largest revenue share among the different business lines, with 32.8%, followed by mobile voice with 29.7%. Since the second quarter of 2016, mobile data has been our top revenue generator. The average consumption of megabytes per user jumped 81% year-on-year.

Several operations, including Mexico, Colombia, the US, Puerto Rico and Peru posted their best numbers for service revenue growth in at least four quarters. Mexico and Italy (inaudible) main improvements in service revenue growth relative to the currency.

Mexico contributed 24% of our service revenues, followed by Brazil with 21.6%, the US with 15.8% and Telekom Austria Group with 9.4%. Center America and Caribbean (inaudible) all of them dollar based or quasi dollar based countries, accounted for 11% of our service revenues. Altogether, revenue growth was well supported by our strong performance in the postpaid segment and with broadband and PayTV clients.

Fourth quarter EBITDA came in at MXN65.7 billion, a 2.9% increase from the year-earlier quarter, bringing total for the year to MXN256 billion. The year-on-year comparison is affected by the 17.7% decline posted by Telekom Austria Group in the quarter. At constant exchange rates, EBITDA was down 8.1%, but excluding Europe, EBITDA declined 6.5% from the year-yearly quarter, which is the lowest rate of decline in five quarters. As you can see in the chart, there has been a [period tendency] for improvement in EBITDA growth. This is the (inaudible) excluding Europe.

And in the next slide, as we can see, adjusted for one-off items in the fourth quarter of 2015 and 2016, the underlying EBITDA in Telekom Austria actually rose 1.7% on the back of solid stable revenue growth. So rather than posting a decline of 17.7%, which is due to one-off in the last quarter of 2015 and the last quarter of 2016, if you look at the underlying EBITDA growth, it was 1.7%.

We obtained an operating profit of MXN25.8 billion in the quarter and MXN109.6 billion in the year, they were down 20.1% and 22.5% respectively from the year before.

Our comprehensive financing costs totaled MXN28.2 billion in the quarter and MXN86.3 billion throughout 2016, which was 3% higher than the year before, reported a net loss of MXN6 billion in the fourth quarter, resulting in an [MXN8.6 billion] net profit [for the year]. Our capital expenditures totaled MXN154 billion and our net shareholder distributions, after deducting dividends received from KPN and Telekom Austria, MXN14.8 billion.

After the sale of part of our interest in Telekom Austria and the purchase of interests in Olo, Blue and Tracfone, we had a net inflow of MXN1.9 billion. Our net debt ended the year at MXN630 billion as compared to MXN582 billion at the end of 2015. The increase in our net debt in Mexican peso terms result essentially from valuation effects as the peso depreciated vis-a-vis the dollar, 17% and euro, 14%. The above depreciation of the Mexican peso compares to an appreciation of substantially all our other currencies versus both the dollar and the euro in 2016, with the Brazilian real gaining 21.7% versus the dollar, 25.4% versus the euro, the Colombian peso gaining 5.7% and 9.1% respectively, the Peruvian sol, 1.8% and 5% and the Chilean peso, 5.7% and 9.1%. Altogether, our non-peso service revenues appreciated 8.1% versus the dollar and 11% versus the euro in 2016. This would not include the appreciation in real terms after inflation of the Argentinean peso.

In fact, during 2016, the purchasing power of our current revenue mix increased to 1% in dollar terms and 4.2% in euro terms. In peso terms, it increased to [21.7%] and this can be seen in the chart. We underwent an important deleveraging process throughout the year, our outstanding debt came down by the equivalent of $6.1 billion, [this is after] excluding the EUR500 million raised by Telekom Austria in December to cover a bond amortization due in January. But After deducting our position in cash, short-term financial investments and marketable securities, our net debt declined to $30.4 billion.

Taking into account the equity credit in our hybrid bonds and our net derivatives position, our net debt to EBITDA ratio stood at 2.1 times, which is an improvement from the prior quarter, marking the beginning of what we expect will be a decline in trending (inaudible) gather force throughout the year.

Our outstanding financial debt saw a major reduction of our dollar debt that went down from $15.0 billion to $10.7 billion, a reduction in outstanding debt of $4.3 billion in dollar denominated debt. And there was a slight increase in our euro debt, it went from EUR13.1 to EUR13.4 billion (inaudible) flat, and we have a slight increase as well in our Mexican peso debt, which increased by MXN4.4 billion pesos. So effectively, (inaudible) a big reduction in outstanding dollar debt with the euro debt and the peso debt remaining (inaudible) throughout the year.

With that, I would like to finish the call. Thank you all for listening and I will turn back to you Daniela.

We can now start with the questions.

We will now begin the question-and-answer session. (Operator Instructions) Amir Rozwadowski, Barclays.

Thank you very much for taking the questions and good morning. I've got a couple of, if I may. First and foremost, can you provide us with some color on the competitive landscape in Mexico? From what we gather, ARPUs increased sequentially in the fourth quarter, a notable difference from recent quarters, how do you see pricing trends evolve in the coming quarters, particularly as one of your more emboldened competitors seems to be increasingly focused on profitability in 2017?

Good morning, Amir. What is happening and what we're seeing in Mexico is that a lot, maybe [60% or 70%] let's say -- let's talk about the prepaid and postpaid separately. On the prepaid, maybe 60% or 70% of our subscribers are on the new promotions, so these new subscribers are already moved. So they are starting to have the unlimited voice, the unlimited SMS, and they are starting to consume a little bit more. So I think that's very good.

In postpaid also what we're doing, we're working very hard to try to maintain our users in the same rate plans that we have. So we are giving them promotions and we're moving on that direction. I think the prices in Mexico are very low, one of the lowest prices in the world, the prices that you've seen in Mexico. If you compare let's say, a plan against the US, maybe the $50 plan that they sell there, here it's around $15 to $17, so it's around 70% less price here, giving the same things that in the same plan.

So I don't think that the rates and the plans are going to go lower. So where we want to compete this, competing with more coverage (inaudible) good speeds, 4G, we have very good plans to move a lot of our subscribers this year to 4G networks to LTE to have better -- to consume more data and to have a good perception of the network. So with everything that we're doing in Mexico on the network with our distribution network, everything, I think those are the things where you have to compete here to have good handsets, so that's more less where we are in 2017, being competitive in price, both giving something else to the customer, good network, good coverage, good promotion, so that's more less where we are right now. I don't think that prices will go down more -- going down this year.

That was very helpful -- please?

(inaudible) very quickly (inaudible) on a sequential basis from [128 to 132], but we are looking at year-on-year churn rate(inaudible) in the second quarter, ARPU was down 17.7%, in the third quarter it was down 15.7% and this last quarter, it was down 11.5%. So we are seeing considerable improvement in margins that really began since the second quarter (inaudible) I think that, as we move into this year, and we begin to have year-on-year comparisons with the first quarter of last year and second quarter, you will see a normalization of the (inaudible) we will begin to see increasing revenues compared to last year.

And one more thing in prepaid, in prepaid, there is the unlimited voice and unlimited SMS. What I think people in prepaid is starting to use more and more data. So they are changing from 2Gs to 3Gs and 3Gs to 4G, people is using more and more data. So I think that's something that is also helping the ARPU to go up because in prepaid, the ARPU's are also (multiple speakers).

The average prepared client today is consuming twice as much in terms of limited voice, and 3.5 times more in data than a year before. So we're doing a really -- a real surge in provision of data services in the prepaid market. But again also accompanied by [enabling] of the limited voice. In terms of voice in Mexico, today 466 minutes per user per month, which is (inaudible) Latin America.

That's very helpful. Thanks very much for the color. And then secondly, how should we think about the potential regulatory measures that may be on horizon? During the quarter, there was some news that suggested some incremental pricing regulation may not actually happen. How do you think about its prospects and how do you think about potential regulations around local loop unbundling and how we should think about the potential size and scope of that impact on your business, if it was to happen?

Yes, I think well, the first question is the new regulations, the IFETEL is going to take the decision, what they said they are going to take the decision in the first quarter of this year. So we still don't know, we are debating with them, they sent some measures, we'll return with -- what is very important is that we accomplish all the measures that we get two years ago. So it's very important to know that America Movil accomplished all the measures we show to the IFETEL that we accomplished the measures, they make some investigations on that and all the investigations were good. So we accomplished everything.

So still we don't know what's going to be the decision on IFETEL, but what is important is that we're accomplished. On the unbundling local loop, what I understand is that there are four companies today using the local loop of Telmex. And it's working and they are using that. So that's where we are. On the interconnection rates, as we said, we have (inaudible) two years ago, again the [inter asymmetric] in zero interconnection rate and I think that is still in the Supreme Court and it's going to take, maybe all this year to have a decision. So in the regulatory side in Mexico is where we are right now.

Rodrigo Villanueva, Merrill Lynch.

Thank you. Good morning, Daniel, Carlos, Daniela. I have a couple of questions. The first one is related to Columbia, it seems to me that there is going to be the elimination of interconnection asymmetry beginning in 2017. I was wondering if you could give us a potential impact on how these could positively hit your margins there? Thank you.

I guess the -- hi, Rodrigo, good morning. Talking about Colombia, yes, they eliminate the asymmetric interconnection rate. Today the traffic is balanced. So there is -- I don't think it's going to be anything important that you are going to see in the results because the traffic between the companies and (inaudible) and Claro, sorry, are more or less balanced. So there is nothing important that you could see in the results.

But important to say in Colombia, I think the Company is improving very fast, is doing very good, we're starting to grow very good postpaid subscribers again. Our revenues are starting to grow; we are working very hard on cost and expenses. Our fixed line operations are growing also. So I think you are -- you could see a good recovery in Colombia and I'm sure we can have this recur for all this year. I think we are investing in a very good network, and I'm comfortable the way and the trends of how Columbia is evolving. So you could see, all this year you're going to achieve very good trends in the Colombian market.

Just to give you a bit more detail on what Daniel said, in Colombia, the EBITDA in the first quarter was down nearly 13% from the prior year. And the fourth quarter, we posted the first increase, I mean there was an increase of 9% year-on-year. So we have gone from minus 130% to plus 9% in three quarters. That's the kind of change that we're seeing in Columbia today.

We are feeling comfortable the way the new management is working on Colombia. So that's the first question, then Rodrigo?

Yes, understood. Thank you very much, very clear. Daniel, Carlos. The second question is related to handset subsidies. We have seen some decline in handset subsidies over the last few quarters, but I was wondering if it's possible to see a gradual elimination potentially going forward, probably not on a consolidated basis, but in specific markets, it is something that you are even considering?

Yes. No, well, it's going to be, let me -- my view it doesn't make any sense for any telecom company to have subsidies on the handsets, because the prices are going so low, the investments are so high that you should not subsidize handsets. So you have to have a profitable customer and with some -- the prices and the rate so low, doesn't make any sense to subsidize. So it's going to be different in each country, different in Latin America than in the rest of the world, but in my view in the next years, I think subsidies will disappear in the market. That's where, I think all the telecom companies will aim for that and I think that's what is going to happen. We're working on that. For us, it's been a little bit more difficult in Latin America, because we have -- the exchange rates have been very volatile and the price of the handsets that we're selling is much higher. So even if you subsidize less, well still the dollars are more dollars. But we are working very hard on trying to take out all the subsidies and in each country it's going to be different, each country, the competition is different in each country. So it's going to be different. So it's very important that we take a look at one of our biggest cost that we have.

And the other important issue that we're having is the financing. So we are moving from subsidies to finance the handset and that's been working very good also in America Movil. So to answer your question, I think, yes, we want to take the subsidies, I don't think it's short-term to take out all the subsidies, it's going to be different in all the markets in the different countries, but I'm sure that the subsidies are going to have reductions in in the next years.

Understood, Daniel. And one final question if I may, what is behind the considerable margin pressure in Argentina? And what do you expect will happen in the market -- in that market with a new telco regulation and also if you see any potential M&A taking place there between Telecom Argentina and Cablevision or if it's going to be a market moving from three to four players? Thank you.

Well, I think we have a revision few weeks ago on the Argentina market and I can tell you I feel comfortable on Argentina. The reason of the reduction in the margin this fourth quarter, it's a lot on the -- as the -- also the currencies, we used to have both margin in the handsets and today we don't have the same margin in the handsets. Because of that both prices and reduction on cost on the handset we have been working a lot on that and we think we can recover this year that same margin that we used to having in the handsets in Argentina. We are not subsidizing in Argentina, we are having profits but these profits and these margins has been reduced a lot during 2016 because of that evaluation. But I think in 2017, they are going to recover, that's one thing.

Second, I think also the inflation is high, the increase in prices, we have been very careful on the increase of the prices in our services. So we cannot increase prices every month, so we have been very careful and I think the margins that you are going to see in 2017 are going to be a little bit better than in 2016. We are working very, very hard on cost and expenses, we are putting and working in the network to have more efficiency. So in the market we are well -- we have a very good position in the market. We have a good preference from the customers in terms of quality, in terms of coverage, in terms of service, so I'm feeling comfortable. Also we are putting a lot more LTE network in Argentina, we are going to have more data, the data is growing there. So I feel that Argentina is going to have 2017 better than 2016 results. So that's more or less, I don't know Carlos if you want to give some numbers? And the other question that you said in terms of -- if you -- it's going to stay with four players or three players, I really don't know, there are some changes in the regulation, still those changes are not clear, they change some things in the law saying that the regulator is going to take some decisions. Still we want to see which are the decisions that the regulators -- I hope that the regulators take decisions on improving competition, full convergence and what is the best for the country, so we want that the regulator will be in that direction.

Walter Piecyk, BTIG.

Thank you very much. I'm just curious I guess, what you think the impact would be of a potential 20% import tax on Mexico? Have you had any discussions with your president as far as your (inaudible) and how to respond to this. And is it possible that there could be incremental regulations placed on your competitor AT&T, who's obviously been having a lot of success against you in Mexico? Thanks.

Well, on the import tax. We don't know, I think we have a telecom company, we don't have a (inaudible) for the economy of Mexico would be important, so we don't know exactly what will be the impact if we have that tax from the United States. The regulators, as I said before, they are working and they are going to take the decision on the new regulations in this quarter. Still we don't know what they are going to do, so that's mainly what we have.

Do international discussions have some impact on how those regulations are considered as far as competition in Mexico?

No, we've haven't had any discussion on that. No.

Okay. And can you just comment on Brazil, please? I believe that AT&T also might be considering, I guess, a sale of the TV asset there, I know that your market share is very high. Would regulations prohibit you from purchasing those satellite based PayTV services that they have available there? And any other update that you can provide on Brazil is kind of Oi progresses through this. Is there a potential for consolidation in that market or is that now just completely behind us?

Well, I don't know. I have been hearing rumors that AT&T is interested on selling that, but we don't know exactly what they are going to do. So if the market will consolidate there, will be good. I don't think we are interested in consolidating the TV assets of AT&T. As you said, we have a good market share. We are growing in the cable. We have a very good network, and cable network over there, so we are not interested. I don't know if other ones are even thinking or are trying to consolidate that market.

I think still Brazil is -- in 2016, we have a complicated economy there, but I think Brazil is, in my view, Brazil is in the bottom and it's going to be -- the economy is going to get better as time goes. Also I think we have the best platform in Brazil, wireless, fixed, also satellite we have. So we are -- we feel we can take advantage of the recovery of the economy in Brazil. So I don't know -- Oscar is here, I don't know Oscar, if you want to talk a little bit more about Brazil?

Totally. I think we've been seeing some improvements in the last months in terms of the market. So about the (inaudible) let's say eight months of (inaudible) the economy, we're seeing some improvements in the last quarter. And (inaudible) position of the asset that we have, we have the cable network, we are pretty strong on enterprise offering as well within the relevant cloud services, IoT in different markets, so I think we have a good chance to have a good year in Brazil this year.

Daniel Federle, Credit Suisse.

Thank you very much. Good morning, everyone. Firstly, could you provide us more clarity on the margin dynamic in Mexico because services revenues continue to increase sequentially and we see that margins continue to decline. So I would like to understand exactly which cost lines are going up in the market?

I think the margin is getting better in Mexico. I think we, let me have, let's say, we have in Mexico a 23% decrease year-on-year, quarter-against-quarter, and I think in third quarter, we have higher, we have 24.60%, so then margin is improving. Of course, you cannot compare fourth quarter against third quarter because the sales, the postpaid, the promotions, the Christmas promotions are high, but we are working very hard on the cost and expenses. And I think -- we don't think, as I said, prices -- we don't see prices decreasing more in Mexico. So we hope that people will start to use more and more data and with more and more data, more 3G phones, more 4G phones, I think the trend of increasing ARPUs would be again to have a recovery against to what we have last year, it's what we feel, how we feel Mexico now.

Okay, very clear. And my second question.

One more -- one -- subsidies, we are reducing subsidies from last year. So that's another place where we are reducing our cost, if you can check that subsidies has been going down even with the volatility of the exchange rates in Mexico, because the fourth quarter was high moving from $18.9 to $20 then almost $22 and then returning to something, so it's been very, very volatile, all these rates, and even with that we have -- the handsets are in dollars, so even with that, I think the reduction in subsidies has been reduced a lot.

Okay, very clear. And my second question is, how do you see the leverage evolving in the coming quarters and whether or not lower CapEx or lower shareholder distribution are still good alternatives for a faster decline?

Well, I think that the shareholder distributions, basically share buybacks, they take place throughout the year in a very constant fashion, so it's not something that you (inaudible) concentrated in one quarter or two quarters, we don't really split up share buybacks based on that. And the dividends, I expect the dividends will be very much in line with what we had last year and, as you recall last year we had for the first time given the option to investors to (inaudible) want to receive their dividend in cash or in shares, half of the dividend of last -- of the second point to (inaudible) was actually distributed in terms of shares. So that was something that (inaudible). But I think that net, net we'll be leveraging -- leveraging throughout the year takes place based on the [peak ARPU] the Company generating because the share value distributions are [known] to be much more than that we had last year. So as -- the deleveraging is not being there, not all the quarters (inaudible) cash flow, it has a lot to do with working capital. The first quarter of the year tends to be more intensive in terms of working capital, towards the end of the year, we can free some working capital so that's how the deleveraging should be, that it's more biased towards the second half of the year.

Fred Mendes, Bradesco.

Good morning, everyone and thanks for the call. Actually could you just talk a little bit more about Brazil? I mean why we see Claro posting really strong results in terms of the postpaid net adds, to talk about over 1 million subs, we are still seeing weak results, it's now decreasing 8.5% year-over-year in the mobile business. So just wondering if there was any specific reasons for this weak performance and how it should evolve for the next months and quarters? Thank you.

It's a very good question. We still -- we just -- we're reviewing the results of our competitors, we are posting very good results on the postpaid net adds. I think these are small against all the big guys that we are having. So that's why we are -- you are not seeing a good growth on that. And I think maybe because we are being a little bit more aggressive in terms of rates, that will be another reason. But we're feeling that in the long run, we are moving, we are doing much better than what we used to do. We used to have to a sweet thing, 13% -- in data let's say we have in quarter -- in second quarter, minus 13.9%, in third quarter, minus 5.5% and today, minus 1.7%. So the increases that we're having in the data revenues are being good. And I think you're going to see a much better 2017. So that you are still not seeing growth, but the reduction of what we used to have, the improvements, let say the improvements of the data revenue where everybody is growing and where we are growing also are being good. So we're feeling comfortable on that.

Alejandro Gallostra, BBVA.

Hi, good morning, Daniel, Carlos and Daniela. Thank you very much for the call. My first question is related to CapEx and depreciation. We can see that you have been reducing CapEx in dollar terms although so it has remained stable in Mexican pesos. But the depreciation has been increasing significantly in 2016, specifically 16%. Do you expect the depreciation to stabilize at some point and when should we see stabilization of the depreciation?

Well, I don't have that answer, but I will check. Mainly because a lot of the CapEx that we put last year that was higher in 2015 and 2016 would be in 2016. Maybe the reductions on the life of the products, the set-top boxes, the depreciation on the set-top boxes will reduce their life from five years to three years. That would be, but we will check and get back to you.

I think what Daniel has said is correct, I think that has been -- and I think that we have mentioned in our calls that we have shortened the life or depreciation of certain things, particularly set-top boxes. But the other thing that is important and we have to account for this is when you are expressing in peso terms, the depreciation that you have in other countries, mainly in (inaudible) when you have had a depreciation of the peso vis-a-vis the real, then all of that depreciation from Brazil (inaudible) much more in peso terms and that's something that is having an impact.

Okay. Good explanation. And my second question is the following, is regarding the status of the 60 megahertz spectrum that you want to acquire from MBS. I understand that it's still pending from the regulatory point of view, but I was also wondering if you could disclose the cost, perhaps, the grid cost? And also since this is a higher frequency than the ones that you're currently operating within Mexico, I was wondering if depending on your deployment, if you will require a significant number of additional towers to rent?

No. I think we have enough towers in Mexico. We don't have towers, the towers are from Telesites or Telesites have enough towers. And then we can put -- it's in the 2.5 GHz frequency, 2.6 GHz frequency. So I think we don't need extra towers in Mexico. We are not disclosing the price, and it's still on the IFETEL to have the authorization on IFETEL. So we already have the disclosure on that, what we need the okay of the IFETEL, that's where it is. Well, I think it would be important to give more data to have more speed and to use all the towers in other sites. It will be, this new frequency would reduce the CapEx in Mexico. So we can give more data using that frequency. So that's what we are trying to do here. So we're only (inaudible) the decision or for the okay of the IFETEL.

Okay, great. Daniel, thank you very much for the explanation. My understanding is that, since this is a higher frequency, I would expect you to rent additional space, perhaps not additional towers, but additional space in each tower so that you can put additional antennas to operate this higher frequency, is that correct?

No, yes -- what you are saying is correct when you are starting a network, okay? When you start a network, I think you prefer to have low frequency than high frequency, but today we have, let's say, the Telesites, we rent from Telesites, maybe [13,000 or 14,000, I don't remember, there are 14,000 towers, so I think with these 14,000 towers, I don't think we need some more towers than -- if we will start making a network, then I think it should be better 850 MHz than the 2.5 GHz, but with the amount of cell sites that we have today, I don't think we need more than what we have. So it's not -- if you're asking me if it's going to be a big investment to put the 2.5 GHz now, no, it isn't. It's a frequency that we are using in Brazil, it's a frequency that we're using in Colombia and it's working with the same towers that we have been having in Colombia and in Brazil. So we don't think we need more towers to do that.

Richard Dineen, UBS.

Thank you. Good morning everyone. Thanks for taking the question. Actually most of the things have been covered but maybe quickly on Mexico PayTV. Couple of weeks ago there is a tribunal ruling forcing IFETEL to re-examine the question of dominance and significant market power in PayTV, particularly with regards to Televisa. Do you think that's an important development as regards your ambitions to receive a PayTV license? Maybe just update us on the status of that strategy currently. And then secondly, just quickly on Chile and the margins. You have made some pretty decent progress there. I'm talking about the kind of cost cuts that are driving that. I'm just wondering where you think those Chilean margins might go in the coming years. Do you think there is room for continued margin gains into the teens, that would be really helpful. Thank you very much.

Well, what is important is to complying with the preponderance rules that we have. So we have some rules in the last two years when we start as a preponderant player and we have all the rules. We do what IFETEL and the rule said. So, we comply with everything that they put. So that's very important and I think that's important.

In the other side, when you talk about PayTV for Telmex, well we are the only country -- maybe there is one or two countries in the world where there is no convergence. Then so , I don't think make any sense for the Mexican people even because I think prices in TV are not going down as they are in the telecom, in the wireless, in the [fixed]. So what is clear is that, it's important to have more competition in the TV market and that's what we are saying. So in all the world the rules are the same for everyone. There is convergence for everyone. And I think Mexico has to go -- to have convergence also here and that's what we are asking and I don't think that's something different from what is happening all around the world. So that and in the other side, as I said, we comply with everything that the IFETEL as a preponderant player in the wireless, and in the fixed, we comply with everything that they put to us. So well that's on Mexico.

On Chile, I think we're doing very good, on Chile, we are growing revenues and I think that the margin would also -- it's still a low margin. So I think we can grow the margin also next year. And I read your report, which in return what I want to comment to you is, I think that the results -- in my view the results of America Movil I look at very good. I think a lot of the markets has been having an increase. Colombia is having increased group trends. In Brazil, we're moving in the right direction. I think in Mexico, you are seeing signs that things are getting better. In Peru, the revenues are growing. As our revenues are growing, I think we're going to increase our margins. US has a very good report, also the fourth quarter was very good. Central America is not growing as base has been growing, but still growing in Central America. So I think all overall, we are receiving all the work that we have been doing on cost controls, taking care about the CapEx, looking deeply on the market. We are taking care about the [subsidy], growing on the fixed, everything is starting to have very good results.

So I hope that 2017 would be also as good as 2016. So, that's what I can tell you about the result.

Very shortly, [the work that] was going on in Chile. And within Chile, we have 5.4% stable revenue growth, which is very well distributed between mobile and fixed. Fixed already accounts for one-thirds of our (inaudible) earnings . And we have roughly same kind of revenue growth in mobile and fixed, so it's broad based. But what is interesting is, if you look at year-on-year, EBITDA is growing 80% because we have had a very significant recovery of margins. Margins used to be same [1%]today they are 12%. So, yes, I think that it is clear we expect that IFETEL will get to [test] they are awaiting the team and I think that we should expect to continue to see them going up.

Gregorio Tomassi, Itau BBA.

Thank you very much for this call, Carlos, Daniel and Daniela. I have a couple of questions, first on again a little bit of follow-up on PayTV license in Mexico and the second one on CapEx. On the PayTV license in Mexico, I understand if I am not mistaken that according to the reform, you need to -- America Movil needs to ask from the regulator a letter of confirmation that has been stating that America Movil has been in compliance with all regulations before requesting the PayTV license and I understand that you haven't yet requested that letter from the regulator. Is this right? Are you following a different path than the one I am assuming it will take you through the PayTV license That's the first question and the second question is about CapEx, if you can verify what your CapEx guidance is for 2017 and what do you see would be regular CapEx outlook from the years onward.

Well on the TV, I don't remember exactly what are the rules or the policies. We haven't maked the IFETEL for that, and we want to be very clear that when we ask for that for the PayTV license then everything is settled and there is no complaints against any of our rule. So we wanted to be very sure that when we ask that, it's everything -- it's done and we're seeing what is the best timing to do that. So that's more or less what we are asking. The second question is on the CapEx, I still think we are managing very well the CapEx in 2016. And I think that we're going to have a reduction of around 10% from 2016. The CapEx of 2017 will be around 10% lesst one we have in 2016. We are reviewing and we think it could be around. We still haven't finished up but we think it's going to be around $7 billion to $7.5 billion the CapEx that we are budgeting for 2017.

I think it's important because they were the question . I think that we expect to reduce debt further the year by an approximately $2.5 billion [mid free] and that's -- I think that we are going to probably end the year very much alone, very close to the targets where we have had significant target that we have that of closer to one branch maybe (inaudible) So I think this is going to be, as Daniel partly based on a little bit less CapEx but partly based on including operation for growh.

And one important thing is that we I think 2013, 2014 and 2015 we do have big CapEx all numbers, so we are well prepared it's not because we have -- we are reducing important things in our CapEx. Now we are making more efficient our CapEx, but the big things we are already invested in that. One of the strategies in America Movil is to have the best network, the best cover, quality in the fixed and in the wireless and we're still going to aim for that. So we are doing that in all the countries and I think in 2017, you're still going to see very good, very good networks in our markets.

Yes, thank you very much. Thanks a lot.

Michel Morin, Morgan Stanley.

Thank you. Daniel, I just wanted to clarify what you said earlier about subsidies, you're saying that, you've been reducing subsidies, was that comment more broadly about the Company or about Mexico specifically.

Now that's. Hi, Michel. I think our strategy and what I said and I'm going to repeat it. Our strategies to reduce subsidy. We are reducing subsidies all around in terms of percentage maybe in some countries like in Mexico as we're having a lot of volatility in the exchange rates. We haven't have the results that we won, but of course we are reducing subsidies in all the -- we are financing a lot of our handset and that it's helping us to reduce our subsidies. So yes, we are, we won and we're trying to reduce subsidy. Of course it a lot -- that is related a lot to the competition to the markets on what everybody is doing, what our competitors are doing in the markets, what we are trying and it's going to be different in all the countries in the different countries. But we're trying to reduce subsidies Mitchel.

Okay, and then, I was asking the question really when looking at Mexico in particular, you've done a good job in terms of the top line stabilizing and now growing again. But when I look at the difference between your revenue and your cost, your EBITDA to get a sense of what's happening on the cost side, those costs are up 14% year-on-year on my calculation. So, I'm wondering how much of that is the impact of handset costs? How much of it is other things that you may be doing in. I don't know, interconnection is having an impact. If you can help us understand, what's been driving the cost increase there, that will be very helpful.

There is a lot of costs. Of course, we're trying to manage all our cost, very difficult to manage the cost when as I told you we have exchange rate of [18] and then [21], a lot of things are related in dollars. So it's not so easy, interconnection is growing, of course is growing, it doesn't make any sense, any sense that we're subsidizing to AT&T, we are paying them interconnection and they are paying zero interconnection. I don't think that's something that make any sense. It is the biggest company in the world and we're subsidizing in Mexico, the interconnection. Also to Telefonica, both -- and other cost that are related in dollars, they are going up a little bit, but in the other side, there are some cost that are going down. So also you are not going to see as revenues are stabilizing and growing a little bit or ARPU increasing a little bit, then the cost, well we need a little bit of time to control more the cost.

I think there is (inaudible) to what Daniel is saying in terms of the effects of the potential exchange rate, if you look at the cost of equipment specifically, it goes up really 20%. We are looking at stable revenue that were declining 70%. So that's basically the big difference was because of equipment in prior quarters have been at 12%, the [price points have been] maintained. So it basically doubled from the second quarter that was growing 10% percent year-on-year to practically growing 20% year-on-year in the last quarter. But that is not something very sustainable, because it will have to do with this (inaudible) begins to strengthen again, you will see this reduction again.

And what I'm seeing here is initially our equipment revenue is growing 24.5% quarter against quarter and our cost is increasing 19.3%. So the revenues is growing faster than our cost. That means that the subsidies going down. (multiple speakers) postpaid.

That was for Mexico, right, those numbers?

Yes, that's for Mexico. As you are asking Mexico, no you are asking -- you can see in the rest of the countries where we are doing also big efforts there.

This conclude our question-and-answer session. I would like to turn the conference back over to Daniel Hajj for any closing remarks.

I just thank everybody for being in the call. Thanks Carlos, thanks Daniela, Oscar, everybody. Thank you.

This conference is now concluded. Thank you for attending today's presentation. You may not disconnect.