Grupo Televisa SAB (TV) 2014 Q3 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa's third quarter 2014 conference call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything we discuss in today's call and in the earnings release.

I will now turn the call over to Mr. Alfonso de Angoitia, Executive Vice President of Grupo Televisa. Please go ahead, sir.

Thank you, Elsa. Good morning and thanks to everybody for joining us today. With me today is Jose Baston, President of Television and Content, and Salvi Folch, our Chief Financial Officer. Let me take you through the highlights of our third quarter financial results. Pepe will follow by discussing the operating results of our content segment. After that we'll be happy to take your questions.

First, as you know, during the third quarter we acquired Cablecom, a telecommunications company that offers video, voice and data services in Mexico. This acquisition is in line with the path for growth that we set out to achieve in order to create a truly national cable operator. Cablecom is a very profitable company with a history of solid financial and operating performance. Over the past three years alone it posted a growth of high single digits in its top line and low double digits in EBITDA. As with other cable operations, the main drivers of growth for this company have been voice and data services.

Moving on to our financial results, consolidated sales increased 5.7% and operating segment income increased 4.4%. Net income was down by 93.5% during the quarter as a result of the writedown of our investment in Iusacell. Excluding that effect, net income was up approximately 20%.

Starting with our content business, revenue decreased by 3.4% to MXN 8.5 billion during the quarter and the margin reached 47.6%. Within our content division, advertising revenue decreased by 6.4%. We are very disappointed with this results. Pepe will go into further detail. In order to protect margins and minimize the impact on our bottom line, we implemented a significant cost-cutting program during the quarter for the rest of the year.

Network subscription continued to be impacted by the must-offer regulation, resulting in a drop of 17.6% from last year, but this is the last quarter that we face the difficult comparison. As Pepe will explain, our Pay TV channels continue to perform well and ratings are expanding.

Licensing and syndication grew by 17.6%. The main driver of growth continues to be the royalty payment from Univision which reached $87.4 million this quarter. This is an equivalent to a growth of 22.4% from last year. We are on track to meet our estimate of about $315 million in royalties from Univision this year.

Moving on to our telecommunications businesses, Sky added over 160,000 new customers during the quarter, reaching a total of 6.5 million subscribers. For the first three quarters of the year, net additions in Sky now total 0.5 million households. As a result, Sky's third quarter revenue reached MXN 4.5 billion, equivalent to a growth of 9.5%, and operating segment income reached MXN 2.1 billion with a margin of 47.7%.

Results should improve further when the economy picks up and we are able to see an increase in the recharge rate and upgrades to higher-priced tiers. The majority of our customers subscribe to low-cost Pay TV offerings, so a stronger economy is a very good opportunity for Sky. In the meantime, we will continue to focus on reaching as many new customers as possible.

Revenue in our cable and telco segment expanded by over 21% and operating segment income reached 37.4%. Excluding Bestel, operating segment income margin for our cable companies reached close to 40%.

We started consolidating the results of Cablecom in September. Excluding Cablecom, revenues expanded by close to 14% and operating segment income margin reached 36.7%. Also, excluding Cablecom during the quarter, revenue-generating units for our three cable operations expanded by 12%. In particular, data and voice expanded by 22% and 16%, respectively, following the trend of the past several quarters.

Year to date, revenue in our cable and telco business has grown organically by approximately 15%. Most importantly, this revenue has primarily come from new customers and from more services per customer rather than from higher prices. We believe that the performance of Sky and our cable operations is noteworthy given the difficult economy we have faced.

In terms of our other businesses, revenue expanded by 3.5% to MXN 1.9 billion. The growth resulted from an increase in the revenues from our softer gaming, movie distribution and radio businesses. Operating segment income margin reached 7.8% in this segment.

Moving on to our CapEx, during the third quarter we invested about $333 million, of which $183 million were in cable and telco, $102 million in Sky and $47 million in our content business.

Finally, as you know, last month we announced the sale of our 50% stake in Iusacell for $717 million. The transaction resulted from a buy/sell mechanism that we agreed to. As a result of the shootout, Grupo Salinas decided to buy our 50% in that venture. The transaction is now ongoing regulatory approval and we expect it to close soon.

We are out of Iusacell but not out of mobility. We continue to believe that mobile is a good opportunity for us given that we have more than 9 million Pay TV customers, many of which also have a voice or data service. At this moment we are going back to the drawing board to understand the options available to us. Fortunately, the telecommunications reform now opens a number of opportunities to provide mobile services without having to make capital-intensive investments.

In the meantime, we will continue to focus on expanding our Pay TV distribution businesses and diversifying the sources of revenue from our content. Following the trend of the last few years, this strategy will lead us to continue to reduce our dependence on broadcasting television advertising. Even though this is not a mature industry in Mexico, it is very cyclical by nature. So far we have made significant progress. Just to give you an idea, some years ago broadcast television advertising represented close to two-thirds of Televisa's consolidated revenues. Last year the figure was less than one-third. Going forward this is likely to represent even less thanks to solid growth in our other revenue lines such as [affiliacies] from our Pay TV networks, royalties from Univision, revenue from video, voice and data services, among others.

So to summarize the quarter results I would say that, number one, we had a bad result in respect to advertising sales. In that front we're cutting costs aggressively to meet our margin guidance for the year. Second, we had a great result in cable and Sky. And third, we took a loss related to the sales of Iusacell which was, I would say, definitely not our brightest deal nor moment and where we have learned many lessons.

I thank you for your time and attention and now I'll turn the call over to Pepe.

Thank you, Alfonso. Good morning, everyone, and thank you for joining us.

I would like to start by highlighting that our content continues to perform very well. According to Nielsen, during the quarter our combined free-to-air and Pay TV ratings were up 10% in the age group of 18 to 49 years old. Ratings in free-to-air television in the aggregate for our four TV networks was slightly lower, but this was driven by a voluntary change in the demographics that we now target which have different commercial values.

Our (inaudible) Channel 2 continues to perform very well. Revenues in this channel grew by 5% during the quarter. As a matter of fact, including the lowest socioeconomic level from the sample, segments D and E ratings for Channel 2 grew more than 30% during primetime. In the same line, we changed our present offering in Channel 5 where we are now seeking a higher-income demographic and (inaudible) content, making PM a more valuable franchise. Furthermore, ratings for our Pay TV networks alone were up 15% in the age group of 18 to 49 years old, far above the growth in (inaudible) Pay TV viewership, which was 6% in the same age group.

Regarding Univision, we continue with our strong commitment to its success. Our content represents a significant part of its programming and complemented very well its entertainment offering during the quarter. During this quarter Univision continued to rank as the number one network on Friday night for several weeks among adults 18 to 49 years old and adults 18 to 44. UniMas, the other free-to-air network for Univision, attracted more total viewers than the combined audiences of Estrella TV, Azteca America and MundoFOX on average for several weeks during this quarter.

For the second year in a row, Univision won the July sweeps, a period where Nielsen compares additional data to complement its ratings. Univision report its coverage of the 2014 World Cup reach a record of 81 million total viewers, 65% more than the 2010 World Cup.

Finally, the finale for one of our telenovelas reach 6.3 million viewers in the United States placing Univision as the number one network among viewers 18 to 49 years old that night.

On the international front, besides Univision we continue to format our shows formats opening new business opportunities for Televisa, our show formats. In particular, we are implementing a strategy aimed at developing new entertainment formats that are attractive to different demos around the world. So far we have a catalog of more than 15 new formats, some of them already optioned and bought in several countries. For example, a format named Stand-Up, a new game show, is now being developed in countries where we do not have a strong presence, such as the UK, Nordic countries and Germany.

At the same time, as Alfonso mentioned, advertising revenue has dropped by 6.4% during the third quarter. We are definitely not happy with this result. We believe the biggest contributor to this drop was a one-time event. Starting mid-July, new regulation was issued concerning the advertising on television of food and beverage items with high caloric content came into place. The new regulation created uncertainty among some advertising customers during its implementation phase and others pull out of the ad market until they were able to adjust their campaigns in order to comply with the new rules.

But there were other factors impacting our ad revenue during the quarter. For example, there was a shift of advertising budgets from the [third quarter to the second quarter] because of the Soccer World Cup. This is a one-time effect which we had anticipated and we share with you during our last earnings call.

In addition, the fiscal reform impacted general households' income and the budgets of many of advertising customers in a negative manner. Also, the weak economic environment did not help. Expected GDP growth for Mexico at the beginning of the year was 3.4%. In has now been revised to 2.5%. We should be able to resume growth in the fourth quarter, after which it will continue to depend on the performance of the economy. However, given the weakness of the third quarter results, we will not meet our full-year guidance of top line content revenue growth.

In the meantime, we have taken the necessarily measures to reduce our cost and expenses without hurting the performance of our content. As a result, during the quarter we reported content EBITDA margin was 47.6% and we are on track to meet our full-year margin guidance for content EBITDA of 44%.

Moving on to our pay TV television networks, in the quarter pay TV advertising revenues increased by 18.1% and they now represent 5.8% of total ad revenues. Our pay TV advertising business is less impacted by the seasonality of the business or the macroenvironment because it grows from a smaller base.

Overall, our pay TV business continues to grow. In addition to the uplift in advertising, this had a 21% increase in subscribers in Latin America in the January to September period compared to last year. These results have helped to compensate the impact of the must-off regulation put in place at the end of the fourth quarter of last year.

Also, we continue to expand our content offering on pay TV, now with new premium channels such as the UFC Network which is an ala carte network dedicated to mixed martial arts.

Finally, we will continue to concentrate our efforts on developing distinctive content that (inaudible) sense and leads in all the platforms and that can be commercialized in many different markets. We recognize that content consumption is shifting rapidly and we are doing all the necessarily adjustments to satisfy the demands of our traditional audiences, as well as those more demanding viewers that use other devices and have different viewing habits by managing windows and formats on an (inaudible) way.

Thank you for your attention and now we are ready to take your questions.

Anna, we're ready for the questions.

(Operator Instructions) Andrei Sabah, Credit Suisse.

Yes, good morning. Thank you for taking my question. I would firstly -- just a couple of questions. I would like to ask firstly about the regulation that prohibits this advertising of high-caloric foods and beverages in certain periods. The question is do you have an estimate of the impact that this would have in the following quarters or are you seeing advertisers probably in the next quarters shifting some of that spending to other time slots? That would be my first question. Thank you.

Okay. For your first question, as you know, it is just one of the many industries that we sell advertising to, but it is relevant enough to have a negative impact on our results when a regulation like this comes into place. Now, the percent of -- going to the fourth quarter, our customers are back on television with an advertising strategy that is focusing on other time slots of the day. Others are reformulating their products to meet the standards imposed by the new regulation. We believe this is a temporary impact and we will know better in the couple months to come.

Okay, thank you. Thanks for that. And the second question is since you mentioned several figures on the rating from Nielsen, I was just wondering if you have reached a settlement in the issues with (inaudible). Thanks a lot.

Well, yes, we're having a lot of conversations with Nielsen. We did have an agreement -- we do have an agreement in place now and our relationship with Nielsen is right on track.

Alright. Thank you.

Rodrigo Villanueva, Merrill Lynch.

Thank you. Good morning. My first question is related to the royalties from Univision. I was under the impression that in the third quarter Televisa was going to book around $8 million in royalties belonging to the second quarter. So I'm wondering if this was actually the case or no.

Yes. Hi, Rodrigo. Royalties from Univision during the third quarter amounted to $87.4 million and this we're comparing to $71.4 million in 2013. So on a cumulative basis, royalties have reached $236 million, which compares to $199 million last year. So the cumulative growth of 18.6% is mainly explained by higher sales in respect to the World Cup and to retransmission consent fees that Univision is getting from cable and satellite operators.

So what happened in the second quarter, we reported in early July, as you can remember, in the first days of July before we had received the June royalty payment from Univision so we had to estimate it. The royalty was approximately $9 million higher for June that we had anticipated. So without that effect, the royalty increase in the third quarter would have been approximately 10%.

Very clear, Alfonso. Thank you very much. Is it already a good moment for you to give us some indication about your growth expectations for Univision in 2015?

No, not yet.

Okay. And my final question is related to Bestel. We saw a very strong growth for this business and I was wondering if growth in the mid-teens and EBITDA in the mid-30s is something that should continue to be sustainable.

Yes. There, Rodrigo, during the third quarter Bestel, you are right, grew by 15% and we reached an EBITDA margin of 35%. So we're happy with those results because, on a cumulative basis, that gets us to a growth of 13.8% and a margin of about 32%. So the growth is coming basically from new contracts, both private sector contracts and governmental contracts, and margin expansion is explained basically by lower interconnection rates and long-distance costs. So what I can say in respect to Bestel is that it will continue to be very aggressive as to governmental options and to take those contracts and also private sector ones. And we believe that a sustainable margin is in the mid-30s.

Perfect. Thank you very much, Alfonso.

Thank you.

Carlos Legarreta, GBM.

Thanks, everyone. Good morning. Just regarding Cablecom, I was wondering if you have expectations regarding the potential synergies within this company.

Yes. Hi, Carlos. We'd rather not disclose the figures at this moment, but there will be important savings that can be realized by combining those assets with our existing cable operations. So I think you'll get -- we'll be able to provide more clarity next year as to the precise amounts. And you'll see better results coming from that company, even better results because they've had fantastic results, but better results next year.

Okay, thank you. And regarding the notification of the Iusacell sale to [IFP], has that happened yet or are we still waiting for that?

Yes, that happened and, as I mentioned before, we expect that deal to be closing soon, definitely this year.

Thank you. Probably somehow I missed that. Thank you very much.

Gregorio Tomassi, Itau.

Thank you very much. Hi, Alfonso and Pepe. My question is about -- another one about Cablecom. This 47.7% EBITDA margin posted in third quarter looks pretty good. How do you explain that margin compared to all other margins that you're getting in Cablevision and Cablemas and TVI? That's the first question. And the second is if you can -- I think you said it already, but if you can repeat your new guidance for content revenues and EBITDA margin on the content division, please.

Hi, Gregorio. Yes, I think Cablecom has a better cost structure and also better cost of content acquisitions so that's basically why it has expanded margins. It also has a great business in what has to do with sale of network services, similar to the one that Bestel has. So that will be a very attractive combination, their network business together with Bestel. In that business they have high 40% margins, so that is why you can see in the whole Cablecom a better margin.

About the guidance of the year, we -- like I said, we are going to keep our guidance content TV now 44%.

And about revenue growth? Have you said anything about growth in revenues for this year?

No.

Okay. Thanks a lot.

As you could see, Gregorio, because of the results of this quarter we cannot maintain the guidance that we had provided. Things are looking better in October. However, we don't -- we would not like to provide revenue guidance for our content segment for this year. As we mentioned, the important steps that we are taking is that we are cutting costs aggressively and that's why, considering even the terrible results that we had in terms of advertising this quarter, what we're doing, as I mentioned, is cutting costs to be able to maintain our margin guidance for content.

Mauricio Fernandes, Merrill Lynch.

Thank you. Good morning, everyone. A couple questions on pay TV, Alfonso. So first, now this has been successful pay TV penetration increase in Mexico now at about 50%. How do you see that going forward over the next couple of years? I think before you've mentioned a potential slowdown in growth, but it remains somewhat robust.

And also we have -- and we might be wrong, but we've noticed some price increases in high-end packages, particularly at Sky. I was wondering if you've seen the same -- if the cable companies that belong to Televisa have done the same and whether you've seen the same reaction from other -- from the competition. And in general, if you could speak based on that about the competitive dynamics in the pay TV industry. Thank you.

Yes. Hi, Mauricio. You're right that we have made a lot of progress in terms of penetration of pay television. As you know, television penetration has expanded quite a bit in the last years. We were at 19% just 10 years ago and now we're, as you mentioned, at 50%; around 50%. It is difficult to tell how high it can go, but it has continued to grow even in this economic environment, as you see the results in this quarter. We believe penetration will continue to grow, but it will do so, especially Sky, at the slower pace. I think pay television penetration rate can achieve 65%. But as I mentioned, because of the growth that Sky has had and the base that we have now, we will continue to grow, but at a milder pace than the one we have experienced in the previous years. We also believe that Sky will continue to be extremely profitable going forward, as you can see from the results.

In terms of pricing, Sky did increase prices by approximately 10%, but that was only among some of the higher-tier service offerings. So we did not move the prices of (inaudible), it was only the higher-tier service offerings. On the cable front, we will be even more aggressive in terms of prices of our products going forward. You will see that in the following quarters. So even with those very aggressive prices, we'll maintain our margins on the cable segment, but we believe that there's space to be aggressive in terms of pricing of the new products that we're launching.

Okay. And if I may, one more, Alfonse, on cable TV specifically. CapEx has been very higher, particularly because of footprint expansion and subscriber growth. And now with Cablecom done, does that mean we could see, as you integrate Cablecom, maybe CapEx to increase, but then it finally falling as subscriber growth slows? How should we expect CapEx going forward?

Yes. Well I think, Mauricio, as long as the growth opportunity in video, voice and data services remains attractive, our CapEx is likely to remain strong. We're investing a lot of money in cable and fiber because, as you saw from our results, all of them are growing. As we discussed, penetration of video services is still low, penetration of broadband even lower. So we think that there's a huge opportunity there. And of course by integrating Cablecom, Cablecom also has its own CapEx. CapEx for Cablecom this year will be close to $70 million out of which $50 million have already been invested. And we'll be determining the CapEx going forward and we'll disclose that next year.

But the message that I would like to transmit is that as long as the growth opportunity in voice, video and data services remains attractive, I think it's great that we're investing because we're investing in the growth of the Company. This is an industry where you make a lot of investments and you have huge CapEx, but eventually, and I expect it to be soon, it gets to a point where they become huge cash generators.

Okay. Thank you, Alfonso.

Thank you.

John Tinker, Maxim.

I wonder, given the activities in the States with HBO announcing over the top, CBS announcing over the top services, I believe that Televisa has plans in that area. Can you discuss them at all?

Hi, John. Yes, we have launched our own OTT service in Mexico which -- I mean it was launched recently. It offers, movies, series, our own telenovelas and our content on demand, including and very importantly the catch-up content of many of our shows. We offer that service for MXN 99 per month and we do that especially through our cable platforms and also through Sky.

Just to add something, we are [doing a transformation]. We are restructuring the use of our content in the different windows of transmission. So what you're going to see beginning next year is a relaunching of our HBO service with a lot more -- let's put it power and also with very, very good service to be added to all of our pay TV subscribers.

And just a quick follow up. How are you thinking about the strategic opportunities for Univision right now?

In what sense, John?

In the sense there was a lot of talk the private equity part might be for sale. There was thought they might come public. Do you see anything happening in the near term or are you quite comfortable with the way the business is being run?

Yes. Well, what I can say, John, is that of course the sponsors, the private equity firms, are sellers by nature. They are all raising new funds, so eventually they'll sell the asset. They can do it, as you were mentioning, basically in two ways. One would be to sell Univision to a strategic investor. In that front we have a tagalong right, but we do not have a drag along, so we don't have to sell. I think any strategic interest that Univision would definitely come to talk to us. And I know it as a fact that they would -- I mean they would definitely like to partner with us. They would not do anything without Televisa because of the importance of our content and also because we're holders on a fully diluted basis of around 38% of the equity and so, we're the largest equity holders if you were to convert the debentures.

And the other way that -- where they can divest is if they take Univision public. No decision has been made at this point. What I can say is that Univision is performing extremely well and it's becoming a more appealing asset every day. As you know, the company is delivering very solid results in terms of both growth and profitability. And what I can also say is that their outlook is very attractive. The US Hispanic population remains underrepresented in terms of advertising spend and Univision is very well positioned to benefit from that.

So, we have a very strong relationship. We trust Univision's management. We feel that Randy Falco is doing a great job. So we love that asset, it's strategic for us, and anything that happens in respect to the sale by the sponsors is very important for us and we'll be very close monitoring that and forming part of that process.

Thank you.

Richard Dineen, UBS.

Thank you very much. Good morning, everyone. Alfonso, just to understand your thinking a bit more about the Iusacell disposal, we've had some pretty major reforms in mobile. I think these have been quite quick and quite meaningful in leveling the playing field. I mean surely that's very positive for Iusacell. You've had some pretty good momentum I think in subscribers and profitability, so it really looked like the stars were aligning for your mobile business. So I'm really just wondering why you chose to exit now. Was it CapEx, was it a different view of the upside, or was it really just about the partnership? And if that was the case, why did you decide not to buy out Grupo Salinas? Thanks. Thanks very much.

Hi, Richard. Well, look, the partnership was not working and I would say it was not working because we have different views as to the long-term prospects of the business and long-term prospects of industry. As we have mentioned before, our view was that we wanted to consolidate Iusacell with -- basically with Telefonica's assets in Mexico because that would have created a company with around 27% of the market and it would have been free cash flow positive from day one. So that company would have the scale to be able to take advantage of the new regulations and also to compete against the preponderant operator. Our partner did not have that view. They wanted the company to remain independent. They wanted to operate that company on a standalone basis.

And so considering the operating performance of the company, the additional capital that the business needed, we decided -- I mean also the contingencies that that company had, the risk of both performance and the risk of execution of the reform and the new regulations, we decided that it was better to basically trigger a shootout mechanism where we put out a price and Grupo Salinas, based on that price, decided to buy the asset.

The price was based, as I was mentioning, on -- I mean a number of things, including the operating performance and including basically the capital needs going forward; and also the contingencies that the company had, the capital that we would have to allocate to that business, and also the guarantees that we would have to give to providers of equipment and also to banks or other types of financing alternatives.

So based on all that we decided to exit. It doesn't mean that Televisa is out of mobility, as I mentioned before. We're out of Iusacell. And now the reform provides us with many opportunities in terms of entering into mobility. So as we mentioned, we have 9 million pay television subscribers that require mobile services. So what we do not want to do, based on the new regulation, is to go back and invest and go into a capital intensive way of offering mobility. There are other ways of doing it. We're back, as I mentioned, to the drawing board and we will offer mobility to our clients, to our customers one way or another.

So that was basically the rational why we decided to exit Iusacell. It has been a painful deal for us, a painful way of exiting, but I think it was the right decision at the right moment. And we'll figure out a way, as I was mentioning, of offering mobility going forward in a less intensive capital way.

Okay, thank you. Those comments are very helpful. Just a quick second question, if I may. Just wondering what the risks are to Televisa from IFETEL's investigation into significant market power in pay TV, and particularly with regards to further consolidation of the cable sector. Any views on that would be gratefully received. Thank you.

Yes. Well there, Richard, I would not like to speculate as to potential outcomes of investigations by IFETEL, but what I can tell you basically is that we have intense competition. Every one of our cable and DBS customers has at least one more paid television options to choose -- option to choose from. I am particularly referring to DISH, which operates nationally and which we believe is illegally subsidized by American Movil. And I would also mention that our paid television offerings are incredibly accessible, with prices as low as MXN 169 per month on a prepaid basis. This is what we do through Sky. So the prices are really competitive. Even if you compare them internationally, they're extremely attractive.

And so finally, I would say that as a result of the broadcasting and telecommunications reform, our main broadcast signals are now available for free to competing paid television platforms. As you know, this is unheard of in other places around the world. So there are no retransmission fees anymore and you have seen how that has hurt our results. So that takes away from us our main advantage in terms of using content in respect to our paid television distribution businesses.

So, I would not like to speculate on any investigations or determinations by IFETEL but, as you can see, I mean it's a really competitive market. We're offering very attractive prices and now we cannot use our content in that front. So I would say that we're pretty safe there.

Okay, thanks. That's great. Thank you, Alfonso. Thank you, everyone.

Thank you.

Michel Morin, Morgan Stanley.

Good morning, everyone. So two questions. The first is on cable. Your video net subscriber additions were essentially down slightly so I was just wondering if you could comment on what's happening there. And now the flip side is you saw good margins in cable, so I was wondering if that's a direct consequence of lower subscriber acquisition costs or if it's more a function of your driving the ARPU higher.

And then the second question is on Sky. I know that over the past year it's been -- the margins have been impacted by the World Cup costs. And I was just wondering if you can help us quantify kind of what the impact has been and whether or not that is now completely gone starting in Q4. Thank you.

Hi, Michel. Yes. As to video and our cable subsidiaries, it has slowed down because I mean it's a traditional business and penetration of that service is higher. So we are growing high single digits, but it's still, I mean, lower than the other services where we're growing double digits.

As to Sky's margin, yes. I mean we had the cost of the World Cup so that had an effect this quarter, especially. As to margins of cable, yes, it had to do with the most offer and most carry obligations and also the scale.

Okay, thank you, Alfonso. And sorry, just to come back to Sky, the World Cup, there's no more expenses in Q4, correct?

No. No expenses relating to the World Cup.

Okay. Thank you.

Alvaro Garcia, BTG Pactual.

Hey, guys, good morning. Thanks for the call. Most of my questions have been answered, but I was wondering if you can give us any color on -- you mentioned, Alfonso, advertising rates had picked up in October. Was this a significant pickup or was it more gradual, one. And two, you mentioned you're cutting costs more aggressively. I was wondering if you can give us more color on how exactly you guys are going to go about doing that. Thank you.

Yes. I definitely can answer the second part of the question in respect to cost cutting, but I would say that October -- but what I mentioned is that it's slightly better, but not great, either, but Pepe will get into the cost cutting environment.

Yes. The activity has (inaudible) to be able to reach what we want at the end of the year based on the guidance that we shared about the EBITDA margin of the content business. And the cost cutting was basically done to efficiencies in the production that we have on the air, and we decided not to launch some projects that we were going to put on the air. We were very, very cautious not to hurt the results of our audience and the result that we have to give to our clients. So this is not going to impact at all our audience nor our quality of product, it will just help to be able to reach the guidance of EBITDA margin for content of the year.

Perfect. Thank you, guys.

[Sunil Barack Bhopal] from HSBC.

I think most of my questions have been answered but, Alfonso, you mentioned in the beginning of the call that you want to create a truly national cable operator. If my calculations are right, right now Televisa's total network covers 33% of the households in Mexico. So how do you see this developing? Do you see opportunities for further M&A in the sector. And particularly with the regulation getting stronger here, what's your overall take on this? Thank you.

Hi, Sunil. Well, in the case of Cablecom we took advantage of an opportunity and we bought the asset. I think the new law provides us with that opportunity of consolidating the industry. We'll continue to seek for opportunities. I think it's the right path. And having a national cable system with a national network creates a lot of synergies and possibilities. That's what -- just as an example, that's what Comcast is trying to do in the United States and I think we're on that path, also. So if opportunities come up on the M&A side, we will definitely take advantage of them. And if not, we'll also look at opportunity in terms of building infrastructure.

Sure. Thank you, Alfonso, that's very helpful. Thank you.

Thank you.

Maria Azevedo, UBS.

Thank you for taking the question. Following Cablecom acquisition and the Iusacell disposal, in what direction should your M&A strategy focus now? I mean do you see room for further consolidation in the cable business? Are there any assets on your radar? And on the telco front, would an MVNO with Telefonica make sense to address the mobility issues you've mentioned? Thank you, Alfonso.

Hi, Maria. Yes as to consolidation. As I mentioned, we would love to consolidate the cable industry, as we have been doing for the past years. If there are opportunities at still attractive prices and values we would take advantage of them. As I mentioned, I think creating the national cable system with a national network and with all the synergies involved in doing that would generate tremendous value for the Televisa shareholders. So if opportunities come up, we will definitely take advantage of them.

As to doing a deal with Telefonica, we're doing an MVNO. As I mentioned, we're back to the drawing board. What we have are great assets, which have 9 million customers, as I mentioned, and so the opportunity is there. So we'll look at different alternatives. What I can say is that we would not like to go back to capital-intensive alternatives and I think that the new law provides us with different possibilities. So we will definitely offer mobility to our customers one way or the other, but not doing it through capital-intensive means.

Perfect. Thank you very much.

And we have no further questions.

Okay. Well thank you very much for participating in our call. Bye.

And thank you for attending today's conference call. You may now disconnect.

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