America Movil SAB de CV (AMX) 2017 Q3 法說會逐字稿

Good morning and welcome to America Movil Third Quarter 2017 Conference Call and Webcast. (Operator Instructions) After today's presentation, there will be an opportunity to ask a question. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead ma'am.

Thank you. Good morning, everyone. We have today on the line Mr. Daniel Hajj our CEO, Mr. Carlos Jos Garcia Moreno CFO, Mr. Oscar Von Hauske COO and also from Telmex, Mr. Carlos Robles CFO.

Thanks Daniela. Welcome everyone. Thanks for being in the America Movil third quarter of 2017 report. Carlos is going to make us a summary of the results. Carlos.

Perfect. Thank you, Daniel. Good morning, everyone. Well, the summer holidays came abruptly to an end as a number of natural disasters hit Mexico, the Caribbean and the US. At the same time, and after a period of relative calm in financial markets, information on the likely acceleration of wage inflation in the US earlier this month revived talk of future inflationary pressures, with the Fed signaling it will continue raising rates, which has brought about renewed volatility in emerging market currencies.

Net subscriber additions for the third quarter came in at 330,000. On postpaid we added 1.4 million subs, including nearly 700,000 in Brazil and 200,000 in Mexico. On the fixed-line platform we gained 345,000 broadband clients in the quarter most of them in Brazil 162,000 followed by Central America with 95,000 and Colombia. Our record growth was concentrated on our mobile postpaid and fixed broadband clients with 6% and 5% raise of growth respectively. Other segments raised a net disconnections particularly in mobile prepaid down 1.4%. Our PayTV subscribers were down 1.4% annually. Our 3rd quarter revenues stood at MXN 244 billion with service revenues coming in at MXN 210 billion. There were down 2.2% and 1.9% respectively in Mexican peso terms but at constant exchange rates service revenues actually posted a 1.5% year-on-year increase. Our adjusted EBITDA excluding an item resulting from the arbitrage ruling in Colombia, which is considered to be an operating expense, came in at MXN 66.3 billion, down 2.1% in Mexican peso terms, in line with the decline in total revenues. At constant exchange rates, it was up 1.3% in the quarter.

Revenue and EBITDA growth rates reflect the impact of lost revenues in Mexico and Puerto Rico on account of the earthquakes and hurricane Maria. In Puerto Rico we provided bonuses to our prepaid clients and credited monthly fees to our postpaid clients; in Mexico, Telcel and Telmex opened their networks at no cost to their clients for 5 days, following the earthquakes on September 19.

Consolidated service revenue growth reflects also the normalization of the annual base of comparison in the U.S., since in the third quarter of 2016 we incorporated certain T-Mobile subscribers, including their revenues and EBITDA.

In addition, in Puerto Rico, our expenditures have been affected by the need to clean up of the hurricane and to keep our networks operating on diesel even the lack of electric power. Excluding Puerto Rico, where service revenues collapsed 17.4%, and the U.S., revenue trends in our other operations remained very much in line with those seen through the second quarter as you can see in the chart.

So I think the chart, service revenues excluding again for platform in Puerto Rico, practically identical both in terms of revenues and EBITDA than what you have seen in the second quarter. So we have effectively the same kind of rate of growth, adjusting for Puerto Rico and the change of rates in the US. Mobile data revenues led the way across our operations, maintaining a rate of growth of close to 20% followed by fixed broadband revenues, growing 5.5% and PayTV at 1.6%. In Latin America overall, mobile data revenues was 24.3% increase.

In our European operations, mobile data revenues were expanding 8%, with PayTV revenues growing 22%. The South American block posted the fastest rate of service revenue growth, 3.4%, followed by Europe, Central America and Mexico. In Mexico, mobile service revenues continued to post a strong recovery even in spite of the earthquakes. They were up 8.5% in the quarter, with mobile data revenues expanding 21.3%. In Brazil, mobile service revenues rose 3.5% on the back of 33.6% mobile data growth. Our EBITDA margin came down slightly, prior quarter, it was roughly flat quarter over quarter, particularly adjusting for Puerto Rico, 27.1%. EBITDA margins have risen substantially in substantially all of our operations with over 2 points improvement in Mexico and Brazil, 4 points in Chile, 7 points in Peru from the year earlier quarter. In South America, EBITDA is growing at a nearly 9% pace, followed by Central America with 6%, Mexico at slightly below 1% posted its first increase in 11 quarters.

After comprehensive financing cost of MXN 32.9 billion, half of which arose from foreign exchange losses mostly incurred as a result of the depreciation of the peso vs dollar and the euro, we posted a net loss of MXN 9.5 billion in quarter principally on account of the Colombian ruling, that I'd mentioned before. In the absence of such ruling, we would have had a net profits of [MXN 2.5 million]. After a MXN 5 billion CapEx, our gross cash flow that is EBITDA minus CapEx -- EBITDA minus CapEx stood at MXN 123 million. The Colombian ruling reviewed that amount by MXN 19 million to MXN 104 million so that is the gross free cash that we have had in the 9 months to September. And these cash flow allowed us to acquire equity interest and pay down pension obligations in the amount of MXN 4 billion and MXN 6.2 billion effectively. And we distributed to our shareholders MXN 5.3 billion, of which MXN 4.3 billion took the form of cash dividends. We were able to reduced and also we discussed that I've mentioned by MXN 18 billion over net debt in flow terms, so that is collecting for all the effects of valuations of different currencies, in flow terms we actually pay down MXN 18 billion. So at the end of the quarter, we had MXN 575 billion of debt down from the MXN 629 billion at the end of last year. The debt at the end of September was equivalent to 2.0x adjusted EBITDA over the last 12 months. So that means that even after the Colombian ruling, the leverage which was stated roughly flat relative to what we were in the second quarter. So with that, I would like to pass the floor back to Daniel, so that we can begin the Q&A session. Thank you, all.

Thank you. We can start with the first question.

(Operator Instructions) Our first question comes with Amir Rozwadowski from Barclays.

I was wondering in regards to the recent natural disasters, is there any way to quantify the impact of the natural disasters on both your topline and EBITDA for the quarter specifically I was wondering how you think about the size and scope of the potential impact your Mexico business, you'd mentioned that costs were disproportionately impacted, yet still delivered regional EBITDA growth. What would those metrics have looked like had we not had this impact?

Well, in Mexico, as you know, we had the earthquake in September 19 and what we do is we open the networks for the next five days, so that people can talk and use data as they wish, as they needed and that's why we do it. We don't have too many, in terms of costs in Mexico, our infrastructure was okay. We don't have any big problem with our infrastructure, some towers that we have some problems with, but we are - so in terms of cost, there was not a big issue in Mexico. It was only the, let's say, the revenues that we don't get for these five days, difficult to say a number, but that's what we have. And in Puerto Rico, it's different. In Puerto Rico, we have Hurricane Maria and it was a very - it's a big disaster in Puerto Rico. We have our external plant with some problems. We have some difficulties with a lot of our sales, energy in the island, still, we have a very small amount, small percentage of energy in the island, so we're putting diesel. So I think that Puerto Rican telecom business, all the Puerto Rican economy is not going to be doing well for the next, maybe two quarter, for the first quarter of next year. We have to - we're in the process of recovering everything. So I don't know exactly what's going to be that cost, we're still reviewing what are the problems and the infrastructure that was damaged and we're having like a project to recover everything.

What we already do is we give like one month credit to all our postpaid customers and $30 to all the prepaid customers. Still, we're going to need some credits of course to some of the fixed lines that are not working and still we don't have all of our network working, so maybe we're going to need to give to some or to other ones all the credit in the postpaid business. We still don't know, depending on the recovery, but the Puerto Rican disaster was huge, it's big what we have in Puerto Rico.

That's very helpful. And then if I could, if you could switch gears a bit Daniel to the pricing environment in Mexico, this is obviously have been a big focus over the last couple of quarters if we take a look at sort of ARPU trends up 8% year-over-year I mean how would you characterize the recent pricing environment do you believe that these types of growth trends are sustainable for the foreseeable future, there have been some concerns that with Red Compartida expected to meet its first coverage milestone early next year. Could we see a new renewed round of pricing discounts in the market or do you think that some of the easing pressure, we've seen over the last couple of quarters could continue.

Well it's -- I'm going to give you the way I see things okay. I think prices in Mexico are very low right now so they are low so I don't think we have a lot of room to go worse, not to go down. So that's why you see more stable, competition is stopping Mexico but prices are still very stable for the last 6 months. Let's see what's going to happen on the holidays on November, December. It's going to be important and well I think everybody needs to win money so our competitors also needs to make money and the prices and the way they are doing things maybe it's too -- the promotions are too aggressive sometimes so I don't see that prices are going to go down it's my perception but well you never know. Now prices are still very very aggressive in Mexico. As I said last time in the U.S. they are very aggressive and we are at much lower than them maybe I don't know, I don't know the comparison exactly but maybe vary to 25% to 30% lower than the U.S. at this moment. Now with all the competitive pricing that you're seeing in the U.S. So I don't see much prices going down in Mexico.

Thank you very much. And one last if I may

Red Compartida -- I don't know -- I'm sure you're on Red Compartida well Red Compartida is starting I think is going to start their first phase in May well I don't know exactly Red Compartida was going to put networks where nobody got networks, what they are putting networks today where everybody. So they are putting Telefonica is where AT&Ts and Telcel is there -- we already have infrastructure. So I don't know exactly what's their strategy but my understanding is that they are at the beginning everybody thinks that Red Compartida is going to put infrastructure where nobody has and still we have 20 million Mexicans that they don't have coverage. So the Red Compartida was going to be for that and what we're seeing is that they are putting infrastructure where everybody. So I don't know exactly what prices are low for us but they are going to be low for them. So prices are very competitive in Mexico at this moment.

Thank you very much. And just one last one if I may. There have been reports emerged that the IFT may consider a tightening of the gap between interconnection rates are charged allowing you to begin to charge your customers versus the zero rate we've seen in the past. Do you think that this is likely to go through and any sense of how to think about the potential impact of the business.

Well, we don't know, what we know is that the Supreme Court to resolve that there is no interconnection rate and that IFETEL has to decide what's going to be the rate. Okay. So we're waiting for that there is some news in the, there is news that saying what they are going to be but we don't know, I don't want to talk, because we really don't know what is going to be the resolution. And let's see it's going to be maybe next week or the next one so it's going to be very soon the decision on the IFT what's going to be the new. Because that's not what's going to be the new interconnection to Telcel or I think it's -- all the interconnections -- I think it's going to be the new interconnection for 2018 and we're going to see what's going to be the rates, the new rates for those interconnections. I don't think personally, there is no way that could be a zero interconnection again. So let's see what's going to be the new rate.

Dear participants, please restrict your questions to two at a time. Our next question comes from Leonardo Olmos with Santander.

Very specific question on Brazil. You mentioned in the release that you are reducing and disconnected DTH clients, we just want to know what's the strategy on PayTV and overall fixed in Brazil. And if the disconnections are in, I don't know, what percentage of competition and when are we going, we could be seeing service revenues in fixed going up again in Brazil. Thank you.

When you look at the DTH market in Brazil the decline, the total market was -- we've been seeing that the disconnection mainly is in the low-in of this (audio break) -- raise lot of on collection problem there so we are trying to cancel those customers in order to become more profitable that business, but if you look at the total revenues of the PayTV versus satellite and cable we are growing a little bit, we believe that we have going a little bit of market share in revenue. So we are really focused in increasing the ARPU of the customers and to improve profitability in that segment.

Okay, thank you.

I don't know if that answer your question.

Yes, I just want to know an overall fixed market if there is including broadband, including on the revenues if we could see some improvement in that line.

Talking a little bit about broadband I think the third quarter was a quarter for us in broadband. I think broadband is starting to to ramp up. The new adds of broadband and I think for next year, we're going to have also -- the broadband penetration in Brazil is still low and there is a still good increase in broadband is there so -- we see that we have a good opportunity in broadband for end of this year and next year in Brazil.

Our next question comes Walter Piecyk with BTIG.

I think that was probably may (inaudible) there. Daniel could you hear me.

Yes, yes.

Just first question is on the US. If you look at the margins, I mean, you had some obviously sequential revenue growth, but the gross adds weren't that much higher, was there specific reasons in the US that the margins went down sequentially?

Let me explain what happened in U.S. I think first I want to start that in the U.S. the competition is tough as states -- that promotions and competitions are very aggressive since all this year. So what you could see year-to-date, we have 45% increase on EBITDA, and the reason why in third quarter we are not increasing and maybe in fourth quarter, we're not going to increase because last year we have like a set up in the third and fourth quarter. We start to reduce cost to be a little bit more to be -- not to sell only for selling cost too much to be more profitable in all the customers that we're selling and that's the reason why U.S. is not showing the same growth that we have been doing because third and fourth quarter of last year were very good quarters we grew EBITDA a lot in those quarters. So that's the reason and we have the same trend at the beginning of this year, that's why in the first and second quarter of this year, we have like 45% -- first, second and third quarter, we have like 45% EBITDA growth all overall. So you're not going to see the same trends that you have been seeing but I think we're going to have good results, even with top competition, because we are having tough competition in prepaid market in the U.S. So that's really what is happening.

And then just back to the Mexican prepaid, I'm sorry that the Mexican earthquake impacted, its 5 days of free service, I mean prepaid is whatever it's usage based. So shouldn't we assume that your prepaid revenue would have been like 5%, 6% higher than normally would, since you weren't charging customers for those 5 days?

Yes, it's the quarter, I don't make the math, but that could be, I think people may be start to recharge a little bit more in the next days, when you finish the promotion people start to recharge a little bit more than usual, so you have to take that off. But yes, it could be that that, I don't know exactly the number, its difficult to see what will be the number, but of course it could be better revenue than what we posted in this quarter.

The next question comes from Andre Baggio with JP Morgan.

I have one. I mean, first question I have is in Brazil, you have done some progress of improving the margin, but there is still a good gap for TIM and Vivo. What do you think it's you can do in order to bridge this gap or is it -- you had the cost of the PayTV that you have that could wait down on the path towards, let's say, closing the gap?

Well I think, I'm not going to compare against Vivo, I'm going to compare it against us, and I think we're doing a very good cost cut program in Brazil. It's not something that we're going to do this year, we're going to do it also next year, it's a program for 3 years, and I think it's going to give us very good results. We have different cost structure in Vivo, either now how they account things, but we have more PayTV, we have more broadband, so it's different company. What I think, if you could see really what's happening in Brazil, I think we have been -- as Jose Garcia saying gain in market share, even that we have disconnections in DTH, we're gaining market share in TV, we are gaining market share in...

Broadband.

Broadband. All over all in peaks, in revenues were gaining market share and in postpaid we're doing very good. So I think the last thing that we need to fix is prepaid. Prepaid has been difficult, but I think where all overall, we are doing very good, we have 699,000 postpaid adds in the quarter. So I think it was very good and I think we're very excited about what we can do next year, still with a cost-cutting plan that we have, it's becoming aggressive also for next year. And for what we're going to be -- we're starting to be a little bit more aggressive in prepaid intelligent, but more aggressive in prepaid and and we want to -- we think we could have better 2018 than what we have in '17. So we are step-by-step but we are doing much better in Brazil.

Perfect. And the second question I have is regarding the US. You have an MVNO strategy in the US and then what we see in the US that people are moving more and more for limited plans or at least with the high consumption of data. How the MVNO model works in this process, because in the end of the day, you have to pay for the megabytes of people consume. So how can you balance the profitability of MVNO in a world of people using lots of data?

What you're going to see is that we're going to give also only -- we're giving unlimited plans already, and well, what you need to do is to -- would if that carriers do also have a good negotiation to allow you to give also and to be competitive in the market and to give also unlimited plan. So that's more or less if the market moves to unlimited, I think everybody needs to move to unlimited, and we're going to move to unlimited. So that's more or less is what you're going to see, we are not the only MVNO, but I think as an MVNO, we're also very important for some carriers, and also the carriers want us to be competitive. So I think it's what you have been seeing all this year. We already have unlimited plan in TracFone now.

The next question comes from Daniel Federle with Credit Suisse.

My question is regarding the fixed line operation in Mexico, revenues are declining in the in the region. My question is if you could share with us more color on the main reasons for this decline in fixed line revenues in Mexico. And if you see any reason to see those revenues to stabilize in the coming quarters. Thank you.

Sorry, can you repeat that question. I didn't hear you very well.

Yeah, sure, my question -- do you hear me?

Yes, yes.

Revenues in the fixed line and the wireline business in Mexico, what are the main reasons for the decline. And if you see any reason to for those revenues to stabilize in the coming quarters?

Yes, when you say revenue side, basically two things are happening. The first one is the growth in the broader market, it's being reducing in the last two quarters. And it's mainly due to the highly competitive market in which we are playing. And the second one is the fact that the long distance revenues are declining due to the reduction in the traffic of other operator. So basically what we are - what we could see looking forward is, what we are putting in strategies to increase revenues so that they stabilize in the future and increase.

Daniel, if I may add to that, I mean it notwithstanding these decline in longer term revenue that has been happening for some time. If you look at the rate of growth of service revenues in the fixed line side in Mexico, it came out at 0.6% in the third quarter, in prior quarter it had been 0.9%, in prior quarter it had been, actually first quarter, it has been minus 0.2%, and in prior quarter it has been 1.4% and a year ago it has been minus 2.0%. So the fact of the matter is that you can say that fixed line service revenues in Mexico have been really flat for the last year essentially, okay? So, yes, there's been some changes in like reductions in long distance revenues, but there's been good traction in new products, particularly in fixed broadband and corporate network and managed services that have been doing really well, particularly with the new services that we have been offering cloud and so on, they have allowed us to compensate for these decline in both. So service revenues in Mexico fixed line side flat for the last year and good growth in mobile that is the one that is determining the growth of service revenues in Mexico.

The next question comes from Richard Dineen with UBS.

So just a question on local, maybe a question for Carlos Robles. But presumably Telmex is pretty concerned by the ultra-low local bundling rates set by IFETEL [MXN 68] per month per line. So that's third of the rate in Europe essentially what you're getting at Telekom Austria. And I can't believe the cost stack is so radically different in Mexico. Just wondering if the scope to appeal that rate as we head into 2018 because as things stand, Mexico looks like it's about the most profitable place to do ULL on the planet. So just wondering whether we should anticipate some disruption there if the rate remains like that. And just secondly on the unbundling, if you can just give us an update on how many players are actively taking advantage of the ULL or maybe planning to do that to unbundle Telmex last mile that would be super helpful. Thank you, guys.

Yes, I just to mention about unbundling beyond the disaggregation after of services of Telmex began two years ago in January.

Ladies and gentlemen, please hold.

All the main operators having asking us for services, either the resale of products or the unbundling of the local loop. In terms of pricing, what I can tell you is that, yes, the price that we have in Mexico, it's much lower compared to that to other countries. If you compare Europe, Europe, you have EUR 9 and in Mexico, you have only like EUR 2 so which our third what is happening, but at the end, this is one of the solution of the IFT in which it will apply for this year and the next year. So we will see what will happen in the, in the coming resolution of the IFT.

So just if I understand that correctly. That the right, current rate of MXN 0.68 is supposed to, it is expected to continue into 2018, as well, is that right?

Yes, for the moment , yes .

Okay, understood , thank you for those comments. And maybe just a super quick clarification, I think it's Walt's question earlier, just to make sure, in Mexico, just trying to figure out the impact of the five days free service, is there any sort of subscription credit for postpaid mobile of fixed line customers? For those five days in Mexico, kind of thing that you did with the postpaid mobile customers in Puerto Rico what was that?

Is that five days, right?

It's totally different in Puerto Rico, we have credit for our postpaid in Mexico. We just opened the networks in Mexico. There is no interruption. We have the service as usual. So we only give that for open the networks to give it to people talks with their families and to do that so, that's only the reason why we do it in Mexico, so it's different in what we do in Puerto Rico and what we do in Mexico .

Got it, thank you, Daniel and thank you for this color -- comments . Thank you very much.

The next question comes from Julio Arciniegas with RBC.

Some of your competitors in Colombia they have mentioned that they are reinvesting heavily in acquisition on commercial activity. Have you seen some pricing pressure in the market? Can you give some color of the competitive dynamics in Colombia? And my second question is regarding Puerto Rico. I saw that revenue was down 17%. How should we think about Q4 considering that part of the infrastructure has been. And have you seen that repairing fixed networks is more challenging than models in this market? Thank you.

Well, in Colombia. I think we have been with -- the promotional has been, all the promotions and the market is very competitive. Always during all this years so and I expect that this going to be the same in the end of this year and next one. I think everybody is -- in Colombia I can split into. I think in the mobile we're doing cost-cutting and we're growing on postpaid and we're growing revenues of where we're recovering a little bit on what we have last year. So we're doing very good, in peak, we are growing our Pay TV and our broadband and also we have a, like a cost-cutting plan, so, all over all in Colombia, we're doing okay. And we feel we can do also a good 2018. So we stop the decline in the EBITDA, it start to grow our EBITDA and I think we can sustain that, so that's mainly we're doing very good in peak and in postpaid also we're doing very good in Colombia. In Puerto Rico, as part of the infrastructure, if its still not working. We don't -- still don't know what we're going to do in the fourth quarter in October and November, depends on how fast we can recover our network today, we have a much a lot more infrastructure working then what we used to have when the hurricane passed so, we have been moving very fast. As you said, external plant and the peaks is much more difficult and take more time to recover than the wireless and the we are thinking what strategy to do to give some wireless to the people until we recover the peak. So we are deciding and how long its going to take on that recovery and what, how we are going to compensate the people we saw, still we don't know and we're in the process of deciding that but still fourth quarter maybe is going to have some credits that in the billing or some of our customers, and I hope its much less in the first quarter of next year, so the recovery has been doing good, still very difficult because we don't have energy in the Island still I understand and what my people told me, sometimes we have 20%, 25% of the Island with energy and then sometimes with 15% to 20%. So is still a lot of that, the government said that, at the end of December, they are going to recover everything, all the energy, so that will help a lot to give the service. A lot of our problems with energy at this moment.

The next question comes from Fred Mendes with Bradesco.

Thanks for the call. I have two questions and the first one is related to Argentina, how do you think the competition evolve in that market for the next quarters, considering the M&A between Cablevision and Telecom and also in this line, and Mexico seems to be not a relevant convergent player in that market, at least, yet . The question is, what's the overall leverage decreasing, If you see an opportunity for an M&A move in that market. That's my first question? Thank you.

Which market you're talking about, sorry, we don't hear you.

I'm Sorry, Daniel, we're talking about Argentina.

Argentina okay, while in Argentina. I think we're doing good, we're gaining market share. As the revenues are doing okay. Our EBITDA is growing and what we've is a good challenge for next year because next year we are going to be allowed to be give TV. So we are going to have an strategy to do some home passes and to start giving broadband and TV in peaks to some of our customers. So that's going to be the challenge in Argentina, we have the opportunity all ready to do it maybe it's not the resolution done but maybe we're gonna do also also direct TV, satellite TV. So we are in the process of making an analysis and strategy to to give broadband and to give TV to some of our customers.

Okay, perfect, thank you. And then, and then my second question, just regarding the competition in Mexico I had the impression that your competitors do decrease in the level of subsidies for the handsets for the equipment but if you see that on despite they adapt different strategy and actually increased the subsidy. So just wondering if it is really correct. And if it is correct there is any change, you could also, let's say change you strategy and be a little bit more more aggressive. Thank you.

I think, yes, I think they have to do it because in my view, their way and their subsidies that they have been giving to the customers are not profitable. So, of course, they need to change it, if they want to be profitable, they need to change some of their promotions and subsidies that they have been doing, our non-profitable. So of course they have to change and to do if they want to be profitable, they have to do it. So I don't know if they are going to stay that way or they are going to return to subsidies, you never know what does the competition is going to do but while it's more rational what they have been doing now.

The next question come from Mauricio Fernandes with Bank of America.

Thank you. Good morning. I would like to go back to the subject of pay television in Brazil, maybe to Oscar. Oscar you mentioned that the decline in subscribers and eventually -- I am not sure if PayTV revenues are falling to or not, is more concentrated on DTH rather than cable. And particularly because it seems it's on the low end of our customer base. Just wondering with economy improving already even though not yet as much as expected for next year, I would expect that to stabilize instead of still declining unless we are going through a structural change in which people are definitely cutting the service because they're watching video differently, through [OTT] and all that. So just wanted to get your perspective about what's driving that decline in DTH? And whether you see that happening as well in cable TV? Thank you.

Well, I totally agree with you. I mean the economy has improved, we see a lot of room in DTH because as Daniel mentioned, the PayTV penetration is very low in the country. So if economics improve, we will see an opportunity there. I think that we have the right product. The problem is economics, I mean, with a good economy as you see, two years back we were in pretty good in those segments. If those segments come back, I think we will have a good opportunity, but when you look at the cable, the total market with PayTV declined. When you look at nature of issues we were growing pretty fast and then we reduced when the economics has slowed them. But on the last quarter we have improvement in PayTV and as well in broadband. So if that will continue, we will see 2018 a good year for not only broadband as well cable PayTV and in some segments of DTH. So I agree with you, if the economic is right, I hope that we will have a good year, a major year if the economics improve.

I am adding something to Oscar Mr. Mauricio is that, I think -- I see DTH as a little bit that's postpaid. You need to go to the customer to be profitable since the beginning. So if you are going to give everything for free, then maybe they are not going to pay you never. Not so as the churn side -- and the churn is going to be very high. You need to have a good strategy to go to DTH to be segments of the market. And if you have a good strategy and you will be profitable since the beginning. Then I think it may have a very good market, and I think if the economy of Brazil recovers, I think there's a lot of people who is going to be interested in these products now.

The next question comes from Cesar Medina with Morgan Stanley.

Hi, thanks for the call. I have 2 questions. One on Colombia, what does the arbitration payment does to your carry over losses and the tax impact in the country? What type of effective tax rate should we expect? And then the second one is, how should we think of the impact of currency movements on the Mexican peso on your overall debt? What percentage of the foreign denominated debt is hedged?

On the part of the currencies as we've mentioned several times before, we manage our FX position, so that is not necessarily corresponding to the underlying debt. And the notion of hedging doesn't apply necessarily to bring everything into pesos because we do not generate all our (inaudible) pesos. So that's what I would say. I think if you look at the structure of our revenues and EBITDA, 80% of our revenues coming for currencies, which are pesos, reals, euros and dollars. That's 8% of our revenues and 80% for EBITDA. So that's basically the currency that we need to be - we have to cover our exposure to irrespective of what the accounting FX that we might have in Mexico on account of this.

To the Colombia situation, currently we don't have any tax losses in Colombia that we were carrying forward. So I think it's an issue that we need to be determine how things should be, what would be the impact of this measure, you know how it has been created, you have seen, you know, we have basically had to account for a new obligation that was established by the ruling of this arbitrage panel. It gave rise to a new application that has come up without anything in exchange for this. So it's an obligation that has to go against our network or the company or our equity and that's why it has had an impact on income statement by a way of compensating expense. That's how it has been called. So what effect it has in Colombia, well I don't know, we need to look at this coming next year.

Our last question comes from Rodrigo Villanueva from Merrill Lynch.

Thank you. Good morning, Daniel and Carlos. My questions are related to 2 specific markets, Peru and Telecom Austria. We saw significant improvement on a sequential basis with EBITDA increasing in Peru by around 11%, and then Telecom Austria by around 14%. I was wondering if there is any one-off that we should be aware of or if you could elaborate a little bit on the strong performance this quarter? Thank you.

On Peru, I think we are doing very good. The cost cuts has been going down. We have been very careful on the costs and expenses in Peru. Our -- even with competition, the new competitor that we have seen in the market for the last 2, 3 years, we have -- we maintain our postpaid base, our revenues. So we don't lose a lot of market share. So we're in a good position in the market and we are reducing cost, we are reducing expenses and that will allow us to increase our margins. So, it's not the one-off of anything and we're doing good in Peru. So we're happy with how the company is developing in the last 2 quarters. In Telecom Austria I think Telecom Austria also there is good market, the Eastern countries has been doing also very good. Also Telecom Austria has been good. So we are growing in broadband, we're growing in postpaid in some markets. In PayTV, we are also growing. So that's allow us to bring the better result.

I think generally Telekom Austria we were having very strong performance, I'd mentioned and both in the fixed line platform. We have fixed broadband is growing very fast and I will have -- PayTV is also growing I think something like 22% year-on-year. And at the same time on the mobile side, I think that we have seen a stronger revenue position than most everybody had expected on account of the phasing out of roaming charges that were very important for us too in particular. And so it's been the end of December, our roaming charges came down and it didn't really have much of an impact on our overall revenue. So that I think speaks a lot about the strength of the operation put in Telecom Austria. So very strong fixed. It has been good at managing these declining roaming charges. And on the mobile side, I think it has good potential. Overall, the economy in Austria has been much stronger than we would have expected beginning of the year. I think it's going close to 3%. I think the expectation is it will be 1.5% and rest of international footprint they have in Eastern Europe is also doing very well.

Remember that 2, 3 years ago, we don't have anything, we are only mobile in all the Eastern Europe countries that we have. Today, we have big broadband TV in a lot of those countries. So that allow us, it's giving us good results and allowing us to grow in Pay TV and Broadband.

Moving your convergent platform, which is what we've done in Latin Americas. They are doing that in the European operations and it's being well.

Understood, thank you very much.

One more question, yes.

But you have the time for one more question that comes from Carlos De Legarreta with GBM.

Just going back to Mexico operations. I'd love to understand a little more. So you're seeing the increase in the wireless service revenues, which hasn't really being translating to higher profitability. And since we noticed a slowdown in the minutes of use year-over-year, atleast when compared to last few quarters. I'm wondering if the hampering, the slowdown or -- I mean, certainly an improvement in EBITDA, but not as much as perhaps we anticipated. Do you think this is related to how you're subscriber acquisition costs, perhaps?

I don't understand your question?

Sorry, I'll try to rephrase. We are definitely saw an improvement in -- wireless service revenues in Mexico even with the effect of the earthquake, right? So we would anticipate that would improve that would translate to better EBITDA margin for the country and that wasn't necessarily the case. So I'm wondering, given that we are seeing the minutes of use, still growing but at much slower rate than before. You think this is related from other subscriber acquisition costs, perhaps?

Yes, of course. We remember that we are growing more on the postpaid side and that could be part of the reason why we are growing more on revenues than what we grow on EBITDA. And not everything that grows our revenue, that goes directly to the EBITDA, because part of the revenues are also value-added services and other things, but I think that's the reason, the subscriber acquisition cost now.

But you can say -- for instance if you look at -- sequentially service revenue went from growing 2.3% in the second quarter to growing 3% in the third quarter. So that's an increase from [2.3% to 3% of 0.7%] but if you look at EBITDA. In the second quarter it was down 3.3% year-on-year and now in the third quarter it's up 0.9% so the increase is 4.2%. So I think, I don't know that we trying to say also too much more all time -- the basis of comparison also have an impact.

This concludes our question-and-answer session. I'd like to turn the conference over to Mr. Daniel Hajj for any closing remarks.

I just thank everybody for being in the call. And thank you.

Thank you all. Bye, Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.