Grupo Televisa SAB (TV) 2016 Q3 法說會逐字稿

Good morning, everyone, and welcome to Grupo Televisa third quarter 2016 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, Anika. Good morning, everyone, and thanks for joining us today. With me is Jose Baston, President of Television and Content, and Salvi Folch, Chief Financial Officer of Group Televisa.

Let me start by addressing the macroeconomic environment which affects all of our businesses. Mexico's economy has performed relatively well in rather a difficult -- in a difficult environment, but the need to strengthen economic fundamentals has increased. The depreciation of the peso to date has had an impact in our operations, particularly in our CapEx, given the majority of them are in dollars.

Consumption remains relatively strong and continues to be one of the main drivers of growth, but consensus expectations for growth in GDP have been reviewed downwards four times, from 3% at the beginning of the year to about 2% today. We are very optimistic about Mexico's prospects over the long run. In the meantime, as most other Mexican companies, the performance of all our businesses will largely be influenced by the dynamism of the Mexican economy.

Now, moving on to our consolidated results for the quarter, revenues grew by 6.6% and operating segment income grew by 4.1%.

Pepe will now discuss the operating results of our content segment, and I will follow after with a discussion of Sky, cable, and our other segments. And then, we'll take your questions.

Thank you, Alfonso. During the quarter, revenues in our content segment were relatively flat, while operating segment income margin reached 42%. A number of factors affected our top line growth.

Advertising revenues declined by 1.5% in the quarter. For the first nine months of this year, ad revenues are marginally down, by 0.7%, compared to a decline of close to 9% over the same period last year. This stabilization of ad revenues is good news for us, and it is an important first step in the restructuring of this business. Our plan is to take this business back to a consistent, sustainable pace of growth.

For the moment, it is still too early for us to have good visibility in terms of the trajectory of revenues. Please keep in mind that 2016 is the first full year under the new pricing structure, both in the upfront and the scatter market, and negotiations have been very intense.

From the beginning of the year, clients have indicated to us that they will not be investing more dollars than they did in 2015, even if that means they will get less volume. Some customers will reach their marketing goals with less exposure on television, but others could have a shortfall and may invest additional advertising dollars with us. We will find out during the fourth quarter.

The strategy we have implemented has the purpose of changing habits and practices that have been in place in Televisa and the industry for over 20 years. For that reason, over the last four quarters we have made several substantial changes in the way in which we run these businesses: in our sales philosophy, in our policies, our procedures, and in our management team. These changes are ongoing.

We are happy to share that this month Giovanni Rier, joined as Vice President of Sales, is strengthening the management team in our sales organization, reporting to Ricardo Perez Teuffer. Giovanni is a seasoned executive with an ample experience in the European advertising market.

In addition, we also recently hired Cesar Jaramillo from Procter & Gamble, Hector Matus from Nielsen, and Millie Carrasquillo from Telemundo. Together, they will enhance and improve our go-to-market strategy, both towards our audience and towards our advertisers.

Prior to joining Televisa, Cesar spent 20 years at Procter & Gamble, of which the past five he led P&G's marketing efforts in Mexico and has an unparalleled knowledge of its consumer market. Hector is the most recognized media and ratings expert in Mexico and Latin America. He will now be heading our audience intelligence and analytics team. And Millie Carrasquillo joins our team to head US Hispanic audience insights after spending 15 years at Univision and 15 years as the senior vice president of research at Telemundo.

It is clear to us that the market has and will continue to change: new platform viewing behaviors, demographic shifts, and changing content tastes. Our strategy is to innovate, test new content offerings, and continually evaluate our progress, with the goal of maintaining our overall leadership position.

Since January, our successful traditional telenovela offering has been complemented with new productions designed to attract additional audiences. Our complementary products include, among others, [edgier] series that have less number of episodes and higher production values.

Part of the strategy is and will be to analyze closely the audience reactions to our traditional and the new complementary products in our free-to-air broadcast channels, our pay-television networks, our [a-bot] offering on social media and on our OTT platform. As I previously mentioned, we have invested in a team of very experienced industry professionals who are monitoring the results of our productions on a near real-time basis. We will continue this intelligence gathering progress, going forward, and use the information garnered to improve our ability to reach connect and engage with our core and new audiences across the platforms in which they are consuming content.

As we have said many times, it will continue to be choppy, but we're encouraged by the progress we have made and look to 2017 to see our actions take shape and deliver results.

Moving on to our network subscription revenues. Growth was 20% during the quarter, or approximately 27% excluding the termination of our affiliation agreement with Megacable. As you may be aware, Megacable has not carried our pay-TV channels since this past September. In the prior 12 months, revenue from Megacable contributed about 2% to consolidated operating segment income. However, more importantly, our pay-TV networks provided Megacable with close to 20% of the content watched by their customers.

Licensing and syndication declined 2.6% when compared to the third quarter 2015. Two main factors come into play in this area. The first factor, royalties from Univision were $9.4 million below the number posted last year.

As Univision shared with the market in their second quarter earnings call, there were a number of qualitative aspects to keep in mind for the third quarter. For example, Univision transmitted the Gold Cup, a soccer tournament, in the third quarter of last year but not in this one. Also, in the United States, the Olympic Games are a very relevant event, which captured some of advertising dollars away from Univision. In addition, during the third quarter last year Univision recognized incremental licensing dollars in connection with a licensing agreement, making the comparison more challenging.

A second factor affecting licensing and syndication revenue this quarter was the termination of the content agreement with Netflix. For the last five years, we have provided Netflix with 3,000 hours of dramas, series, and other entertainment programming for Latin America and the Caribbean. Today, our priority is to make our content exclusive to Blim, our own OTT SVOD platform. For this reason, we choose not to extend our content agreement with Netflix. Also, as of October 5, many of Telemundo's most successful shows are no longer available in Netflix and will now be exclusive on Blim.

We are also continuing with our plans to deploy an incremental $100 million for the production of new content in order to meet the changing viewing landscape and complement our current offer, as I mentioned a little bit before. This includes co-productions with some of the top producers in the market. The new Televisa productions will strengthen our offer, complement our dramas, and help us to attract an even larger audience worldwide and in all the different platforms.

And it now goes to you, Alfonso.

Moving on to Sky, third quarter growth was solid, at 12.5%. This pace of growth is in line with the growth posted in the 12 consecutive quarters prior to the phase of transition from analog to digital transmission of broadcast signals. As you recall, this transition benefited Sky favorably starting in the third quarter of last year and continued to help through the first quarter of this year.

During the third quarter, net additions in Sky were very strong, at 123,000 subscribers. Sky has now close to 8 million customers, which is still less than one-fourth of the homes that it has the potential to service.

In addition, operating segment income expanded by 8.7%, and the margin reached 46%.

Sky continues to be one of the most successful pay-television providers in the country and the only one capable of providing the full suite of Televisa's channels to all of Mexico's 32 million homes.

Moving on to cable. During the quarter, we added close to 150,000 RGUs, or revenue generating units, reaching 9.7 million RGUs with our voice, video, and data offers. As a result, sales increased by about 12%.

This growth in the operating segment income was even stronger, reaching 16% and resulting in a margin of 42.2%, in line with our guidance. This is the highest margin on record for this business.

The cost reduction plan implemented throughout this year continues to pay off despite the higher cost of some content as a result of the peso depreciation. So far, we have complemented the technological upgrade in over two-thirds of our systems, and this upgrade is already a strong competitive advantage in an increasingly contested market. As expected, this process has resulted in a disruption in the pace of growth in many of these markets.

Looking ahead, starting in 2017 and taking into account the current foreign exchange rate and our target returns on investment, we have decided to slow down the pace of deployment of network upgrades in the remaining markets. This will reduce 2017 CapEx in dollar terms beyond the level already contemplated in the original plan and possibly result in a smaller number of additions in terms of revenue generating units in the coming quarters. We're focusing on the returns on investment that we have determined as part of the plan.

Also as a result of the depreciation of the peso and the impact in our cost structure, we'll explore raising prices in some of our services. This could further affect the pace of net adds but should have a positive impact in top line.

Moving on to our other businesses segment, revenues increased 10.8%, to MXN2.2 billion. Businesses that performed well include publishing in the Mexican market, soccer and gaming, while our publishing business outside of Mexico and feature films distribution business posted a decline in revenues.

Below operating segment income I would like to highlight a number of factors. First, we had a drop in finance income, to close to MXN8 billion, primarily as a result of non-recurring income recorded in July of last year as a result of the conversion of the debentures in Univision into warrants. Also, we had an increase of MXN440 million in depreciation and amortization, as we continued to upgrade the network in our cable business.

In addition, our other expenses this quarter reached MXN821 million. However, the large majority of these charges resulted from either non-cash or non-recurring expenses such as the expense related to the upgrade of our network, the cost of canceling a new satellite for Sky, legal advisory services, and charges related to the reduction of our labor force in our cable segment.

Moving on to our CapEx, during the third quarter we invested $382 million, of which $247 million were in cable, $84 million in Sky, and $51 million in our other content businesses.

In closing, Televisa's configuration as a fully integrated media and distribution operation, the result of a strategy which we began implementing over 10 years ago, has allowed us to take the lead in the convergence of these two industries. In the process, we have obtained many benefits, from exploiting Televisa's vast library of content in multiple ways by making it available in as many platforms as necessary to expanding rapidly into the growing distribution business to diversify our sources of revenue while maintaining a healthy balance sheet.

Today, over 60 million viewers watch our dramas every week in Mexico and the United States, more than 44 million subscribers have access to our pay-television networks, and more than 80 countries import our content. In our distribution operations, among Mexico's 32 million homes we count with close to 8 million video customers via satellite and over 4 million through our cable companies, 3 million of which are data customers and 2 million are voice customers.

Thank you for your attention and time, and now we're ready to take your questions.

(Operator Instructions) Richard Dineen, UBS.

A couple of questions, if I may? Firstly, for Alfonso, have you spoken to AT&T since the Time Warner deal? Do you see any implications there for your relationship, perhaps as future competing content owners, as partners in Sky? And maybe to your closing comments there, Alfonso, how do you think this may reflect on Televisa already being a vertically integrated content owner and distributor?

And secondly, maybe for Pepe, on the Univision revenue decline, you mentioned the timing issues. But there's also been a slide in the ratings, with Telemundo gaining some ground there. And there is -- I think there was that Wall Street Journal article, for example, saying that maybe they weren't happy with the Televisa programming in the PLA. So, maybe if you could just talk a little bit about any issue on the ratings? Is it content? Is it scheduling? And what are you doing to address that with regard to new shows and new formats? So, any color there would be fantastic.

Yes, to your first question, we have spoken to AT&T. They are very excited and very happy about their deal. I think it's integrating distribution and content. Televisa, as I mentioned, is a fully integrated company in that sense. We have been doing this for a long time, integrating distribution with content. So, it's the same model.

They're very happy with their deal, as you could see. And we have a great relationship with AT&T. They have joined the board of Sky, and they're contributing a lot to that company. So, we're very happy to have them as partners in Sky.

As I told you in the script, the factors of the drop in sales come from what I mentioned, which was the Gold Cup comparison from last year as well as the money that went away from Univision; also, the licensing deal that they had that I just mentioned.

And what I can say is that the reach of Univision and all the offer of advertising has, by far, the biggest reach of the Hispanic market of the United States. Yes, Telemundo is doing a good job in their products, but we are in the process, like I also mentioned, to reinvent the way that we produce, to concentrate a lot more of our content to satisfy these new threats that we're seeing in the consumption of the content.

But I can tell you that the offer of Univision is, by far, bigger than the offer of any other outlet of advertising in the United States, and I guarantee you that the work that we're doing together will give better results in audience as well as in going forward.

Sorry. Can you maybe just give us any examples of some of the --? Are you experimenting with new formats? Is there something specific with the investment in content surrounding Blim that you think can have a positive impact also with Univision to sort of help it get a little -- get back in the ratings? Is that something you could speak to?

Like I said, we are developing some collaboration with Univision to help them to make the best possible use of our content. We are investing, like I said, $100 million -- actually, it's close to 10% from last year content investment -- which gives Univision expanded content offering. And, for example, we're doing our products for the prime time offer of Univision: shorter, faster-paced. And we're concentrating a lot in the insights that we are getting from the Hispanic research that we're doing.

Okay. Very helpful, as always. Thank you.

David Joyce, Evercore ISI.

I was wondering if you could provide some more color on your subscriber trends, both cable and satellite? So, at Sky, has there been anything meaningfully changing in the Megacable markets, given the disruption (multiple speakers)?

It's too early to tell, although we're seeing positive signs in some of those markets. There are two markets where Izzi competes against them. And there, we're seeing a positive result, as well as in the other markets where Sky competes.

So, let's see. It's a question of waiting and seeing what happens in this quarter. We believe that we'll have good results.

And on the cable side where you've been upgrading, have you been capturing any [privacy] as you move to digital in the upgrades? Or, is there any other disruption as a result of the upgrades? And how is that being resolved?

There have been disruptions. We have been doing, David, too many things I think at the same time. So, that has caused a drop in net additions. I think we're going to concentrate fully on churn, and of course we're focusing on these disconnects.

We have implemented many key strategies, as I was mentioning, at the same time. This has not been a small effort. For example, we have been launching Izzi as a single, unified telecom brand across the country and establishing a single customer-oriented work culture. As you can remember, we're consolidating five cable companies which had different brands, different services, different products.

We're also unifying and simplifying our service offering. So, this is a sharp contrast to the more than 50 different packages and pay-television options that were offered by these five cable operations prior to integration.

And also, as part of these changes and part of this integration, we're deploying a single IT platform and architecture across all areas, and this includes from billing to customer relationship tools to resource planning tools. So, this has been pretty tough and has implied a lot of work.

And on top of all that, we're aligning network technologies and capabilities, as well. For example, David, we're going fiber deep in key markets. This is launching fully digital bidirectional video services. We're guaranteeing 10 megs in our data plans, and we're expanding the number of nodes. And this is also at the same time deploying DOCSIS 3.0 compression standards.

So, we are well into the process of implementing all of these projects, and this has been at the same time. So, although our financial results are very good, operationally doing all these things at the same time and all these key projects has resulted in some service disruptions, and that has driven churn up and that has driven also an increase in the number of disconnects. So, now, we're focusing all our attention on those issues.

Thank you very much.

Rodrigo Villaneuva, Merrill Lynch.

I have a couple of questions. The first one is related to the new content that you have been producing and transmitting in Mexico. I was wondering if there are any metrics that you could share with us regarding the success of this new content?

And the second one is related to CapEx. Alfonso, you mentioned that you're planning to reduce CapEx for 2017. And I was wondering if you could quantify your CapEx expectations for next year?

As to your second part of the question, Rodrigo, CapEx, we're working on that. We don't have a figure yet to share. However, as I mentioned before, we're going to focus 100% on the returns of those investments.

So, considering the exchange rate, we will reduce CapEx. We're going to do this in 2017. So, basically, this is in light of the depreciation of the peso. We'll share this with the market very soon, but it's a whole new plan for 2017.

About the shows, we need more time to see how they're doing. We are very enthusiastic about some of the shows that we have launched. But as I said, we are very close to understand that the changes that we are making how are they working and what is it that we have to go to.

It is very early to call, but one thing I can say is that we are taking advantage of all the knowledge that we have, along with the new team that came along, to try to understand these changes of the market. And we're going to be using all the outlets of Televisa to be able to complement the offer from one channel to the other one and being able to have, by far, the biggest offer for any advertiser that buys media in Mexico.

Understood. Thank you very much. And one last question, if I may? You have been talking about this $100 million in order to produce new content. I just want to make sure, or get your thoughts on, if this $100 million is something that could be recurring, going forward? Or, you will expect this to be a one-off for this year?

It is recurring, and we'll be keeping you informed, although we're being very, very efficient in the use of our resources in all the Company. So, we're working very hard to keep our costs down, as it has always been in our production area, and we are always looking on a permanent basis to see those efficiencies, seeing that the market and the way that we produce this content is changing.

Perfect. Thank you very much.

Alejandro Gallostra, BBVA.

My first question is related to the cable operations, specifically to margins, where it seems that they are stabilizing. I know that they are in line with (multiple speakers).

Sorry, Alejandro. I can't hear you.

My first question is related to the cable operations, where we are seeing margins stabilizing. I know that they are in line with your guidance for the year, at approximately 42%. But I'm just wondering if there is still room for improvement here and if there are more synergies that you can still extract from integrating your five cable operations?

Well, Alejandro, there, the margins will remain at around 42%.

Okay. So, basically, the synergies are over? Or, it's because of the margin pressure (multiple speakers)?

To get there, we implemented a cost reduction plan. We laid off about 1,200 people this year. We exploited a lot of synergies. We're integrating the companies.

However, on the other side, you have the depreciation of the peso effect. So, you have that effect on the purchase of programming, where in some instances it's denominated in dollars. Those contracts are denominated in dollars or are denominated in dollars with hedges. On the internet side of the business, those are dollar-denominated payments.

So, although we suffered the devaluation of the peso and that, of course, affected the costs denominated in dollars that form part of our cost structure, on the other side we had a huge synergy plan and a huge cost reduction plan, which we fully implemented.

So, that's why we believe that it's a great margin for this type of operation, considering the devaluation of the peso, as I mentioned. And we believe that this is sustainable in this type of percentages.

Okay. Great. Thank you. And my second question is related to leverage, which it seems it keeps going up. And given the still low growth in the advertising business, which is the main cash flow generator, and the still high CapEx, even if you mentioned that you plan to lower it -- although I still do not have clearly if you plan to lower it in dollar terms or in Mexican pesos, [but] still the Mexican peso is very much depreciated -- I'm just wondering what's the leverage level that you're comfortable with and if you will be able to decrease it next year? Or, when do you plan to decrease it?

Our current level we believe to be the right level. We're not planning to increase it. And there, Alejandro, if you see the main effect has been FX. So, it has to do with the depreciation of the peso. So, of course, in peso terms the debt is higher. But that has been the effect.

Okay. Thank you very much.

Soomit Datta, New Street Research.

Two or three questions, please. On the CapEx for next year, could you maybe give a sense as to what CapEx is being saved? Maybe just talk around that subject? What kind of CapEx were you planning on spending that you're not going to? Was it geographic? What kind of upgrades are we referring to exactly? And is that simply being deferred? Or, is that some CapEx which can be absolutely saved? And that's the first question, please.

Secondly, on EBITDA, there were in the other expenses line two or three one-offs mentioned in the press release. Could you perhaps quantify those? They look to be reasonably material. If you could put some numbers onto that, that would be very helpful.

And then, thirdly, just on the $100 million of extra spending in content this year, how much of that has been spent in the first nine months? Are you on track, broadly, to hit that for the full year? That would be helpful.

As to CapEx for 2017, it's basically we're focusing on our target in terms of returns on the investment. So, in essence, we're slowing down the pace of deployment of network upgrades in the remaining markets. That's basically where we're focusing our attention in terms of reducing CapEx for 2017.

Now, I'll ask Salvi to answer your question in what has to do with other expenses.

In terms of quantifying what's the composition of the other expenses line, close to one-third of the amount is explained by the cancellation of the satellite in Sky. The FX depreciation, basically, made Televisa and AT&T to take the decision to cancel that satellite. And that is a one-time impact. So, that's a third.

Another third is explained by expenses related to legal and accounting advisory services, most of which are not recurrent. But as you are aware, we had some legal expenses during this year.

And the remaining third, most of it is the disposition of assets of cable. As we upgrade our networks, some of the older networks are disposed.

And that's basically how it's divided the other expense line.

Okay.

Of the $100 million investment we have, for this year we're going to be investing between 75% to 80% of that quantity. As you know, we have a pre-production process where you're only writing and going through different research to be able to keep the actual real production going forward. So, this year we only are going to be using that. And next year, we'll keep going with some work that has already started this year.

But the short answer will be between 75% to 80% of the $100 million.

Okay. Thank you.

Carlos de Legarreta, GBM.

My question is regarding pay-TV pricing, both in cable and Sky. So, according to official figures by INEGI, it seems like the industry has been able to raise prices above average -- not a lot, but a little bit -- since at least March. And I would like to know if the average price increases that you guys are having in both of these divisions are in line with that? The figures I'm thinking should be around [3%] year over year, but I would like to be more clear on that.

We have increased the prices of our lower-tier package on the Sky side -- this is VeTV -- from MXN169 to MXN185. And cable has raised prices in about 4%. Of course, as I explained before, as a result of the depreciation of the peso and as a result of our target returns on investment, we are looking at possibilities of increasing prices in several of our products of Sky and cable, going forward.

Okay. That's very clear. And a follow-up, if I may? I can't help but ask about the government cuts and what would that represent for Bestel's and Cablecom's network operation for next year? Not to maybe ask about a guidance, but I know Bestel it's a big government provider.

I didn't get your question. I'm sorry, Carlos.

Sorry. So, the government has announced big budget cuts, and I would like to understand if that has any effect on Bestel's and Cablecom's network operations for next year, perhaps?

No, the agreements that Bestel has are firm. So, they, of course, are services that we provide. And therefore, those would not be affected.

Okay. Thank you very much.

(Operator Instructions) Michel Morin, Morgan Stanley.

It's Michel Morin. I just wanted -- two things. The first is on the deposits and your advertising revenues during the quarter. Maybe I missed this in the opening remarks, but if we look at the deposits, they were down only by about MXN2 billion, but your advertising revenues were MXN5.4 billion. So, it seems to suggest that a lot of your sales this quarter came from the scatter market. So, I just wanted to confirm that. Or, possibly, are you already seeing some activity in terms of booking upfront deposits related to 2017 that might have contributed to your revenues this year and might be skewing things? So, that's question number one.

And question number two is on cable. Alfonso, I just want to clarify a little bit your earlier statement on the outlook for margins. Because when I look at the last roughly two years, the incremental margins on your incremental revenue is north of 50%. So, when I look at that, it seems to tell me that your margins have a long runway, and that would be consistent with what we've seen in the US. So, if you could clarify, kind of taking a longer-term view, is that fair to assume that there's still a long runway to margins in cable?

Going to the second part of your question, Michel, I think you're right. However, we have a big effect in what has to do with exchange rates. As I was mentioning, all the services that have to do with the international part of the business, such as internet connections, are dollar denominated. And a lot of the programming deals that we have, especially sports deals and deals like that, are dollar denominated or foreign currency denominated.

And some of those agreements have been hedged in the sense that we share the depreciation of the peso with the programmers. However, we continue to have a lot of costs in dollars or dollar denominated or partially hedged.

So, that has an effect on the cost structure of those companies and will continue to have an effect. So, that's why we have to be conservative in terms of guidance of margins.

Now, you're right. The deposits were down 2% by the end of the third quarter, although those deposits do not include only advertising, but also other businesses. And the actual mix between scatter and upfront for the third quarter was pretty similar to every third-quarter, which is the mix of about 85/15; 85%, and it's 15% of scatter.

Sorry. Just on that, are you seeing -- are you already starting to have discussions for next year's upfront?

Yes, we are in discussions. As you know, the fourth quarter it's a very, very tough quarter, because we have the highest season of the year, the highest prices, and also the negotiations of the upfront. So, we are already close (inaudible) the most important time of the upfront negotiations with a number of customers.

We will not know the overall result of the upfront until the end of the year. At this moment, we cannot share with you the result of the negotiations that have been concluded. But I can tell you that this is the moment where we have to be very, very strong with our strategy to increment the value of our inventory, and this is exactly what we're going through right now.

Great. And if I may, Alfonso? Just following up on your margin answer, is it fair to assume that your cable businesses have already absorbed the content cost increases that your content division is charging? So, the same kind of issue that Mega is facing is reflected in your margin performance this quarter?

That is correct.

Okay. Thank you.

Arturo Langa, Itau BBA.

I had two questions. My first question was on open TV. I was wondering if you are seeing any pressures from the new open TV channel in Mexico? And has that diverted away any advertising budgets away from Televisa? And also, if you could share maybe the timeline of the other TV channel? I understand a second one is to be launched maybe next year, but that's still being worked out by the regulator.

And my second question is, Alfonso, you mentioned that you're keeping an eye on the targeted returns for cable. Could you share what those targeted returns are in terms of ROIC, maybe, and how that kind of compares with the other businesses? That will be very helpful.

About your first question, it is too early to tell, because it has only been basically two weeks since the third network started in Mexico. However, we think that the new network is likely to take some share of the broadcast audience and, eventually, of the advertising dollars.

About the other network, there is not much information about what's going to happen with the other network that is supposed to be launched next year. We don't have much information about that.

Arturo, we're not sharing that level of detail at this point, in terms of our target returns on investment.

Okay. I understand. Thank you.

Ed Kuczma, BlackRock.

Just could you give any indication of your intentions to use the local loop unbundling change in regulation over the next year? And what kind of feedback are you giving to the regulator on this?

And then, second, in terms of your budget and CapEx planning for next year, what level of peso are you anticipating for next year?

The local loop unbundling we believe to be a great opportunity, especially for Sky. Given that Sky is not a bidirectional type of operation, we could offer triple-play services using the preponderant operator infrastructure. So, a clear example of this is the success that BSkyB has had in the UK, where we believe that now it sells as many voice and data services as it sells video services.

So, we're continuing to evaluate the offer that America Movil did under the regulation. The initial findings show that the conditions in place do not permit us to offer those services to our subscribers. So, we're pursuing the necessary changes with the regulator in order to turn this into a viable opportunity for Televisa.

As you know, the preponderant operator published the terms and conditions of the offer for the access to its local loop. As to your question, we have made many comments to the regulators and are working with them to show them, basically, that we have to make this a viable business model for ourselves and for anybody else that wants to use the local loop unbundling. So, a number of changes are necessary, and we're working with the regulator in this sense.

Great. And the peso outlook for your budget?

As you know, the exchange rate has been very volatile. The peso is one of the most liquid currencies in the world. So, for 2017, we're using market estimates, which don't differ a lot from the ones we used when we prepared our own budget.

Andre Baggio, J.P. Morgan.

So, I had two questions. One is, what do you think it's going to be the outlook for advertisement next year? Because this year there was a change in strategy in which you increased the prices. Is anything that should be [counted as new] for next year? Or, should we see some sort of similar trends that what we saw in 2016?

Well, as I told you a little bit ago, we are in the process of the negotiations, as we speak, for next year. We have, with no doubt, the best product available in the market, in the advertising market of Mexico. We are going to stick with the strong position of keeping our rates the way they are, the way they have improved from last year, and we want to keep re-valuating the value of our inventory.

So, we think that this is the right position to take, thinking in the medium- and long-term basis for Televisa. Like I said, the reach that the Televisa offer has is unique, and we have to put the value where it is.

So, it is early to call what is going to happen next year, because we are, as we speak, in the actual negotiations of the upfront for next year. So, we're going to keep strong. We're going to keep our discipline in our rates, and we'll keep you posted.

Thank you. And my second question is that there was an earlier question on the cable outlook and the margins. And there was a discussion on your sharing the FX changes with the programmers. And I just wonder if these contracts, where you share the FX burden with the programmers, they do not have -- if they don't expire at some point? You're going to have to increase your cost towards the, let's call, new level of rates, which is around MXN18.5, which we see in the market today, as opposed when you negotiated the contract which was a lower FX.

Yes, Andre, I think there will be a lot of negotiating, going forward, because you're right. In most cases, when we signed those agreements, the exchange rate was much lower. So, it will be a negotiation, as it has been in the past. For the time being, we're sharing in most of those agreements the depreciation of the peso with the programmers. So, it will be a negotiation when those agreements end.

Okay. Perfect. Thanks a lot.

Well, thank you very much for participating in our call, and call us with any questions you may have in these days.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.