Good day, ladies and gentlemen and welcome to the América Móvil fourth quarter 2011 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference is being recorded. I'd now like to turn the call over to your host today, Mr. Tomás Lajous, please begin. Tomás Lajous: Good morning. This is Tomás Lajous from UBS, and thank you everybody for being on the call. So, welcome to AMX's fourth quarter 2011 conference call. We have today on the line Daniel Hajj, CEO of AMX; Carlos García Moreno, CFO; Óscar Von Hauske, COO, and [Carlos Robles and Daniela Lecuona] [ph]. With this, I'll just turn the call right over to AMX and then we can move on to the Q&A.

Thank you, Tomás. Thank you everyone. Carlos, as always, is going to make summary of the results. Carlos García Moreno Elizondo: Thank you, Tomás for hosting the call. Good morning, everyone. In spite of the increased uncertainty experienced worldwide in the last quarter of 2011 with high financial volatility stemming from the European crisis and a still weak U.S. economy, the tone of the Latin American markets continued to be strong throughout the end of the year. América Móvil thus posted a 13% increase in gross wireless subscriber additions in that quarter relative to the prior year, hitting a record in Brazil at nearly 10 million and continuing strong in Mexico with 9.1 million. América Móvil finished the year with 300 million accesses, of which 242 million were wireless subscribers, and 58 million were revenue generating units on the fixed-line platform. We added 16.7 million subs in 2011, including 304,000 subs in the fourth quarter. The latter figure reflects the connections affected in the period after the introduction of a change in the methodology used to count for subscriber statistics in Mexico, Colombia and Ecuador. In particular, we are now excluding from the subscriber number those lines that have not had any air-time recharge during the second period, the churn period. In the absence of the change in methodology, we would have posted lower churn rate in all three countries relative to the fourth quarter of 2010. We continued making inroads in the postpaid segment across our operations, adding 1.6 million subs in the fourth quarter and 6.1 million in the full year. Our postpaid base increased to 20.5% in 2011, except for Panama. In all our operations, the postpaid base increased more rapidly than the prepaid one. Our RGUs, revenue generating units, rose 12.3%, driven by a 15.6% increase…

Thank you. (Operator Instructions) Tomás Lajous: Okay, so while we get the roster together I'll start with the questions. The first question on my end would be on growth and margins. Daniel and Carlos, you've talked about in the past how you prefer growth to margin at this point, and if you can further clarify if this continues to be the strategy and what is the level of growth you are seeking and how much margin? And what the margin we should be looking for in the short term given that level of growth?

Well, Tomás, as we have been saying, growth is very important still in Latin America and there's a place where even that we're slowing down a little bit, we're in better shape than the rest of the world. The rest of the world today is weak. So I think what we are going to do is we're going to take advantage still of this growth. So growth is very important, but that doesn't mean that we are not taking care about margins. Why margins are slowing down a little bit? Well, margins are slowing down because, first, we are growing a lot on postpaid. Now, postpaid has been growing around 30%. So the growth on postpaid is more expensive than the growth on prepaid. Then, the growth on prepaid we think are having very good growth this year, as some analysts are saying this month only we could have around 8 million new subscribers in the quarter if we don't have this new methodology on the churn. So we have been growing a lot. The second, very important, is that we're investing a lot and when doing that you have more cost, more expenses, more maintenance, and we think that the revenues of all these investments are coming. So we hope that day by day the investments that we do against the revenue that we're going to get are going to help us to recover the EBITDA. And there is also very important, we are not only a wireless company. We have other lines of products. We have wireless, wireline, broadband and TV, and today TV, we're growing fairly fast on TV, and TV has some things like the content now, and I think as we grow faster we're going to get better deals with the content and better margins in those segments. Then we're going to have other lines of products like the cloud computing, OTT, and we're investing a lot on all of these new lines of products. Tomás Lajous: Great. And I guess my second --

Sorry, I wanted to finish about growth. We are really focused on growth and we're going to try to catch all those new subscribers, capture all those new subscribers that they are coming in Latin America. Tomás Lajous: Okay, thank you. The other question on my end, before moving on to the Q&A, is on overall year investment both in terms of CapEx and in terms of investment items that you're expensing. Where is it going? We had a particularly high level in 2011. Where are we going in 2012, in 2015? What happens when net is included into the equation? And related to that, maybe Óscar can help with how the full fiber IT project is going and when we should able to get to sort of full IP or full MPLS.

I think in Latin America we have had a very solid platform. I think we have much better shape than anyone in Latin America. We have investing not last year -- last year we have investments of around $9.7 billion, but we have been investing for the last 10 years, and I think we still want to invest for a couple of years because the demand on data is coming. We're growing a lot on data and we want to have all the platforms in place for all this growth. We want to take the advantage of the growth that is coming. Where we are growing? Óscar can tell us mainly where are the places where we are growing. Óscar Von Hauske Solís: Yes. Well as you know, as Daniel mentioned, we are an integrated telecommunication company. So we have the wireline business. We are expanding our reach in the wirelines. We are building home passes in some of the countries, mainly in Brazil. We are building new home passes. And as you know, data is growing pretty rapidly, not only in wireline, as well in wireless. Talking about wireless, we need to get closer the network. We need to get close with the fiber to our customers. So we are extending the wireless network in all the countries. Mainly in Brazil and Mexico we are doing a lot we call D notes, that is to extend the reach of the wireless network to improve the data connectivity. I think that we are negotiating in all the countries doing this extension. We will see that by second quarter, we will have 50% of the radio stations already connected with fiber that will allow us to deliver a very good quality and increasing our value from what we started. Another thing is that as you mentioned we are integrated the networks to just a single IP network. So we are going to handle all the traffic there through this unified IP backbone that will include broadband wireless, wireline, pay TV and voice in a unified and seamless network. We are working on that. The major integration that we have to make is in Brazil. As you know, we have ladder network, net network, and then Brazil network. We have [employees] [ph] that we are monitoring constantly to improve that. And it will take like one year to have a full integrated network in the case of Brazil. Carlos García Moreno Elizondo: And I think, Tomás, all these things that were doing at the short term, we're going to have a little bit more of expenses. But I think in the long term it's going to help us a lot to have lots more revenue. Óscar Von Hauske Solís: And better costs. Carlos García Moreno Elizondo: And better costs, better quality. Tomás Lajous: Great, thank you very much, gentlemen. I think that with that we can probably move on to the open Q&A. So Sean, if you want to start the questions.

Absolutely, thank you. I have a question from Michel Morin with Morgan Stanley. Please go ahead.

Good morning, everyone. Carlos, maybe I should know the answer, but just for the benefit of everyone else on the phone, could you explain to us the reasons why the country-by-country EBITDA has changed? When you look at the last year numbers specifically in some countries there were very significant restatements to the EBITDA that you reported a year ago, 8% or 9% changes in Brazil and other countries. If you can walk us through the methodology for that, that would be very helpful. And then secondly, you've addressed on the margin front some of the issues that are impacting margin. And you've mentioned now the construction portion of the CapEx. And I was hoping that you might be able to give us a little bit more color about how significant that is, at least in rough terms so that we can better analyze that impact. Thank you. Carlos García Moreno Elizondo: Well, Michel thanks for the questions. We set a full set of our statements to keep to the Mexican Bolsa so that you can look at all the exact numbers there. You can see the full continuation there. Net-net for the group as a whole it leads to an increase of 1.9% in EBITDA, that being higher last year than what was actually reported. And net-net it means that the level of the overall net income, it was essentially unchanged. So it didn't really have any impact, there was no impact at the level of net profit and a 1.9% increase in EBITDA. I do not have here the breakdown by country, but I can tell you that the most important change had to do with Colombia, because in Colombia we had posted a net interconnection revenue as opposed to the gross interconnection revenues and the gross interconnect costs. So we basically had to adjust for that. So it's basically something that has to do with the presentation of the figures, not really with the substance of the [indiscernible]. But I will be happy to walk you through all the numbers country by country after the call so that you can put these in your book. The second question was what exactly, Michel?

It was related to trying to quantify the impact on EBITDA from the construction costs that you expensed. Carlos García Moreno Elizondo: Well, I think what initially what we're doing is we're investing a lot. And when we invest we put a lot of infrastructure. This infrastructure that we are putting is, let's say cable, networks, fiber, home passes, fiber to the node, satellite. All these have some cost expenses and maintenance. And when you start to fulfill the capacity of all those things then the revenues are going to grow and you are going to still have the same maintenance and the same expenses that you have. So when you grow a network your expenses grow, but when you start to have the revenue and penetrate that network you're going to have the benefits of what we are doing. I think that's mainly the reason. The other big reason is that we are really growing a lot on the postpaid subscribers, postpaid subscribers' need for smartphones, more expensive, you need to subsidize more, but the revenues are growing 30% in Latin America, and I think we're going to grow at the same pace this year.

And is there also the effect that you had in the U.S. at Verizon and AT&T, where you're also upgrading handsets for some of your existing postpaid subscribers and the cost of those upgrades has gone up? Carlos García Moreno Elizondo: No, what we're doing is we have a lot of postpaid subscribers, and when we finish their contract, their postpaid, this customer came and if they have -- they always act -- almost all of them want a better handset, they want better services, they want more applications, so they came, they renewed their contract for some time, 12 months, 18 months, 24 months, depending what they want, and they get a new handset. So that's mainly what people are doing. We are not -- we only saw a few customers who want to renew their handsets and they didn't finish their contract. I think the customers are waiting until the contract finish and then they are changing it. They want to do it before, then they have to pay that operator of the handset.

Right, okay, thank you. And Carlos, just one follow-up on the first question, it does look like the changes in Brazil was like 9% negative, Chile negative 10%, Peru negative 8%, Central America negative 8%. So very big EBITDA downward revisions to last year's fourth quarter and yet Mexico and Columbia are up slightly. So I struggle a little bit to see how on a consolidated basis it was up 1 point. I think you said 1.9%, which is also what I saw. So I definitely would like to follow up after the call. Carlos García Moreno Elizondo: Yes, happy to do that.

Thank you. Carlos García Moreno Elizondo: Thank you.

Our next question comes from Ric Prentiss with Raymond James. Please go ahead.

Thanks, a couple questions. First, on Mexico, when you cleaned up the subscriber base, was this just a one-time effect or do you expect further cleanups as it goes on? And what will be the effect be on ARPU as we think through 2012 on the subscriber cleanup? Carlos García Moreno Elizondo: Well, I think when we do clean up the base, well, it's not a cleanup, it's a change of methodology.

Sure. Carlos García Moreno Elizondo: Because what we do is if these subscribers are starting to consume again we are going to react as I said immediately, so we are not cutting the subscribers from the network. So we are only changing the methodology of accounting the churn. So that's mainly what we are doing. I don't know, I'm not so sure if we are going to do it again. We don't have plans right now to do it, but I don't know if we can do it again. That means that less subscribers, better revenue, it's better ARPU. So that's what is happening. But at the end of the day everything is accounting because these subscribers are consuming or are not consuming, so there's nothing unless changing our methodology that doesn't change anything on your real revenue, no?

And then on 2012, do you have specific targets or budgets goals you'd like to share with us as far as net adds or CapEx in 2012? Carlos García Moreno Elizondo: Well, the CapEx is going to be around $8.5 billion to $9 billion; it's what we're going to invest. We want to take advantage of 2012 and put in play capacity, put in play the best platforms, quality, end-to-end customers. We're going to invest a lot on customer care to give the best service to all of our customers, as well as invest in networks, in data. So that's mainly where we are in IT, a lot, we have a big project for América Móvil in IT to datacenters, cloud computing. So all those areas is where we're going to invest in 2010, and I think we're going to spend around $8.5 billion to $9 billion on CapEx is our budget.

And as far as net adds in 2012? Carlos García Moreno Elizondo: Net adds in 2012; well, I think in mobile maybe 14 million to 15 million subscribers, 14 million, maybe 14 million is more accurate to say.

Great, thank you. Carlos García Moreno Elizondo: Thank you.

Our next question comes from Vera Rossi with Barclays. Please go ahead with your question.

Thank you. My question is about Brazil. In your press release you mentioned that you have almost 10 million clients in pay TV. However, when we look at the Anatel information, the Net Services and Embratel have combined approximately $7 million. What is the type of access you consider pay TV in Brazil to get to the 10 million subscribers? Thank you. Carlos García Moreno Elizondo: As you know, in the case of mix they account the analog and as well the digital. The return is the digital pay TV that we have in mix, initially the release of net, we're taking in account as an RGUs, the digital part of net as well.

Okay, thank you. And in terms of the impact in margins of the pay TV content, what will be the breakeven point in terms of number of pay TV subscribers in which the content costs stops negatively impacting the EBITDA margin? Carlos García Moreno Elizondo: Well, I don't think there's a break point; I think it's like economy of the scale now in content. As your grow more, then your content goes down. So I don't think we have a point where content -- still we don't see a point where content is not coming down. And the breakeven, I think in almost all of our operations we are positive in the TV segment, we are winning money. We are net -- you can see net-net is having --

30%. Carlos García Moreno Elizondo: 30% EBITDA and we have a positive EBITDA. But the EBITDA is lower than let's say the wireless, okay. Where I think that it's coming, we grow -- we slow the growth and we have more subscribers, this EBITDA is going to come up, okay. I don't know if you want to --

We have in some of the countries that the cost of the content will be reduced with the volume. So it will represent the cost of the content less than revenue. So our plan is to review the cost against the revenue sales, as you mentioned in the CapEx, in the counting as well. And another impact that will have in the content is on the countries that exchange in dollars. So on the last quarter we have an impact of the exchange rate that now is coming down. So it's another impact on the content as well.

Okay. And do you still have the target to get to 20 million BTZ users in Latin America in the next three to four years?

Yes, for sure. Carlos García Moreno Elizondo: We grow from 10 million to 13.5 million. So we grow around 3.5 million TV subscribers. And of course we think we can get 20 million. I don't know if it's going to be in two years or it's going to be in four years, but of course we're going to go to 20 million.

Yeah. Basically, penetration in some of the countries is still very low, so we think there is room to grow.

Okay. And my last question is in terms of uses of cash. Assuming that you already acquired most of the free float of AMX subsidiaries, what do you expect to do with your free cash flow in 2012? Carlos García Moreno Elizondo: Vera, CapEx hit a high point I think last year, both in absolute terms, and secondly we're up into revenues. You should expect CapEx to sales to come down from this point and that with whatever impact it has on cash flow. The target that we've had for a long time as you will know is that we'd like to manage the company to maintain a net-debt-to-EBITDA ratio of around one. We are a little bit in excess of that today, but I think after the consolidation of Net we are going to be very similar, very close to our target. So unless we engage in any more applications, there are really not much more to buy of Telmex stock. It's less than 5% outstanding. Not much more to buy of Telmex Internacional stock. It's probably about less than 2% outstanding --

6%. Carlos García Moreno Elizondo: And there's only 6% of net outstanding that could possibly be bought. So in terms of credit purchases of our -- talk of these companies, it's really very diminished. So unless we were to do any other applications, we basically don't really have any other use for the cash than to return it back to the shareholders, again the share buybacks or dividends. So I would say that we are a company that is managing to sustain a fairly good, fairly solid set of goals, revenues. I think it's a company that is deploying very well its infrastructure that will provide us with a good base to continue to grow revenues. And I think that goal on cash flow from CapEx is going to be diminished and therefore we will have more bonds available for other uses. If it is not for acquisitions, it will definitely be to return money to our shareholders.

Okay, thank you, very nice. Carlos García Moreno Elizondo: Thank you, Vera.

Our next question comes from Walt Piecyk with BTIG. Please go ahead with your question.

All right, thanks, and thanks for that answer on cash flow. That was great. I wanted to talk about the ARPU in Mexico and the dynamics there. Obviously this year's ARPU was impacted by the termination rate cuts. But now with this new policy on prepaid and obviously your success in postpaid, should we expect some moderation in the declines of ARPU? Hello?

It looks like we lost the other speaker line -- they're connecting right now. The other speaker line is reconnecting. One moment please. Welcome back.

Sorry, Tomás. Carlos pushed the wrong button.

(Operator Instructions)

Thank you. Yes, I think Walter's question was on ARPU given the changes in accounting and where we should expect ARPU to go in particular in Mexico. Óscar Von Hauske Solís: I think the ARPU -- I think we're going to maintain the ARPU in Mexico growth a little bit depending on the new methodology of the disconnections. But what's happening in Mexico, the prices are going down really fast. But in the other side we're selling more smartphones, we're selling data, and we're selling applications. So that means that revenues are going on top. The prices going down, more services to our customers, that means more or less that we're going to maintain that. And in the other side also we still are growing in the prepaid subscribers, the prepaid are in the rural areas, prepaid are consuming a very low ARPU. So you need to -- and also the interconnection rates are down like $0.84, $0.74 to last year. So I hope that we can sustain the ARPU this year; I don't think there's going to be a big move in the ARPU. I think we can sustain what we have in ARPU in Mexico.

Okay, can you hear me now? Óscar Von Hauske Solís: Yes.

Oh, great. Okay, thanks. And then on Brazil, I assume that since you made these kind of changes in policies in Mexico and Colombia, I was surprised I guess I didn't see any type of reduction in Brazil given you had to pay the Fistel tax at CMV. Are you satisfied with where your customer base is as far as your policies and what you count as a customer after a lack of payment for a certain amount of time? Óscar Von Hauske Solís: Yes. What we have been doing in Brazil is we have been very conservative because of that, exactly because of the payment of Fistel that is very costly. So we have been really conservative in Brazil. So in Brazil we're following the policies of what the government is saying, because then already in Brazil you have to pay the Fistel. So that's what we are doing in Brazil. I don't think we need to do any change in Brazil.

Okay, and then just the last question on LTE. Can you just kind of walk us through what your thought process is on LTE investment? I know Carlos talked about CapEx going down as a percent of revenue. Is it possible that there is an LTE investment in 2013 or 2014 that will reverse the kind of the moderation in CapEx that's happening this year? Thanks. Carlos García Moreno Elizondo: No, I think -- and it's very important to understand how LTE works. I think LTE is that -- we have licenses in Mexico and in Puerto Rico and I think there's coming the auctions in the rest of Latin America. But to LTE, if you want to put LTE what you need to do is what Óscar just said. You need to put fiber to the node, you need to put IP, you need to make more strong all the backbone, the backhaul, everything. And LTE is coming more or less on the radio, okay. So we are doing the investments today to put LTE in the rest of Latin America. So there are not going be huge investments on LTE because we are doing the investments today. Let's say in Mexico we're going to launch maybe in the second quarter a couple of big cities with LTE, and in Puerto Rico also we can do something in the second or third quarter. So that's the calendar that we have.

So Daniel, when do you think LTE will be available broadly in kind of all the major cities in Latin America? Is that an end of 2013 event or earlier?

Maybe -- yes, I think so, maybe in 2013. It depends on the speed of the auctions in the countries, but we are ready. We already tested the technology. We know how to do it. We're selecting our suppliers. So we are really advanced on that. And as they starting to auction that, we are going to start to put the technology. And it's going to be maybe 2013. And as I said, we have been doing a lot of the investments already to put LTE, because LTE is only the radio, but you have to put all the backbone, the backhaul and everything is what we have been investing last year and it's what we're going to invest this year.

Great, thank you very much.

Our next question comes from Richard Dineen with HSBC. Please go ahead.

Thanks very much. Maybe just a clarification, if possible, on the subscriber accounting change in the methodology. You mentioned inactivity over a given period. I'm just wondering if you can share with us what that might be, if it's sort of three months or six months, just to get a sense of how strict that is. And secondly, maybe just a question on leverage and guidance to that. Now, it's around 1.3 times net debt trailing 12-months EBITDA, thereabouts. Is that kind of where we should expect it to stay or do you think over the medium and longer term you'd take that down to more or like sort of one times, where you were before the Telmex minority buy-in? Color on either of these -- well, on these questions would be great. Thanks.

The first question is what we do in Mexico. I think we reduced the methodology to half more or less. And in Colombia a little bit more than half because we have a longer period, okay? So that's what we do in this change on the methodology. And as we say we don't know if we are going to go further or not, but it's what we do until now. The second question, I don't get all the question. Can you repeat it? Carlos García Moreno Elizondo: Net debt to EBTIDA.

Net debt to EBITDA, again, can you repeat that?

Yes, sorry. Just that obviously now you've increased borrowing, increased net debt, by I think it was 55% or so up. Are you planning to take that level of gearing down over the longer term back down to sort of one time or so? And what sort of period could we expect that if indeed that's the case?

It will happen I think fairly quickly. I think, yes, we intend to aim for one by the end of the year. Again on a consolidated basis we will be including now Net Services. And there's some issues that probably we've had which have to do with the base at which we have paid taxes. Last year was a bit faster than was normal on account of various things, but the fact is that in terms of cash flow, part of the money that we ended up spending last year, we're going to be recouping this year. So that should have an important effect in terms of helping or reducing that debt, okay. So part of this is basically temporary and it's something that we think is going to be corrected fairly quickly.

Okay, thanks very much, guys.

Thank you.

Our next question comes from [Fernando Remis with GB Global] [ph].

Good morning, Daniel, Carlos and Óscar. Thanks for taking my question. If I'm correct, traditionally postpaid ARPUs have been four or five times the ARPUs of prepaid subs, and my question is if in the postpaid subs you've added more recently, say this last quarter, you're seeing the same levels of postpaid ARPUs or a bit lower and if so by how much? Thanks a lot. Carlos García Moreno Elizondo: Well, as you get more and more subscribers, the subscribers that you are getting are not the high end subscribers and you are getting subscribers that doesn't have the same income than the old subscribers, that means that they are not having the same -- they are not consuming or they are not spending what the other ones are spending. But I think they are spending more because we are giving them not only voice, we're giving them also data applications and they are not as the old ones, but they are good spending, well for us good spending subscribers.

Okay, great, thanks a lot.

Our next question comes from Stanley Martinez with Legal & General Investment.

Thanks very much. Just first a couple of quick questions on cash flow. To return to the cash tax points, Carlos, could you dimension exactly how much that cash tax delta would be in 2012 versus 2011? And also on CapEx, does the $8.5 billion to $9 billion guidance there for 2012 contemplate a video license at Telmex? And if not, how much of an additional factor might that be either for pay TV customer premise equipment or to harden the network for video? Carlos García Moreno Elizondo: Well, in terms of the cash flow impact of taxes, we think it could be around $1 billion. And in terms of the CapEx, the new number, as Daniel mentioned, already includes the CapEx of net. So you're seeing already a fairly big reduction in the CapEx of the América Móvil. So they are now moving to $49 billion of CapEx including again as I said Net. But this number is -- which we've always mentioned the CapEx is basically plant and equipment and it doesn't include any acquisitions of spectrum or licenses or anything like that.

Okay, thanks. And if I could just ask one other question, specific to collateral in Brazil, and wondering whether the investment cycle that we talked about a few quarters ago in terms of customer care, call center and distribution, whether that's largely completed now in the first quarter of `12. And having made those investments do you expect to now be able to improve your share of net additions from the 20% level that we've seen this quarter and the last more towards where you've traditionally indexed? And if not, maybe you could talk broadly about your ambitions for revenue, market share or operating income growth that -- collateral in Brazil. Carlos García Moreno Elizondo: I think what we have been saying all along this call and as we say in the report is that there's been a clear strategy by América Móvil of gaining more in the postpaid segment and that's been the strategy that we are having in other countries, including Brazil. So it's not the big numbers that we are after in the tally; I think that we are after the good clients. The good clients are in postpaid. We are gaining market share in postpaid everywhere, Brazil, again, if not for the [recession] [ph]. And in the case of prepaid, because of the question that was posted a little while ago regarding the Fistel taxes and so on, I think we have been fairly cautious as I just mentioned in terms of very conservative in terms of our goals in prepaid. We do not like to engage in SIM card games and we've been very mindful of just going after good prepaid clients. So I think that's why we are not doing any major revision in the field and we again continue to gain in postpaid. We have very good data capabilities and very good coverage, which is increasingly important for both the clients, and on top of that we have not gone into the country numbers of the SIM cards, but simply we have been more conservatively going after the prepaid clients.

And other thing that I want to add that Carlos is saying is Brazil is really competitive, and still we do a lot of things the past two years and still we're going to do more things in terms of distribution, in terms of marketing, in terms of customer care centers, more stores. So we are investing a lot on that. All the results are not coming in one month, I think I'm happy how we are evolving in Brazil and we're still going to be very cautious on the churn. Also, we are not going to maintain customers that they are not consuming. In Brazil a lot of that, they have two SIMS, they then consume one or two months with you and then they go with the other one and then they return with you. So we're going to be under the policy of what the government wants in terms of what we sell, but we are going to be really conservative in postpaid and in prepaid in Brazil. But all the investments in distribution, in marketing, in customer care, in customer call centers, everything, we are still going to invest a lot this year.

Is it fair to say that, Daniel, that prepaid growth as a proportion of your net adds, that we should just expect to see more variability with respect to service margins, not just in Brazil, but across the group in the quarters where you have high customer activity, like Q4 and Q2?

What you should see is more on the revenue side, on the growth of revenues, okay? And it's where we want to be really focused. No, we don't want customers that they are not consuming. We want customers that they are consuming and we want customers that they consume. If they consume not too much, we want them because they are consuming, but we want to be really focused on revenue, on new revenues, on new lines of revenues. And all of that is where we want to be focused. So I think the measure for us is going to be on the revenue side, not under the number of subscribers, is where I'm measuring the countries no? Tomás Lajous: Maybe we can move on to the next question.

Thank you. Carlos García Moreno Elizondo: Thank you.

Our next question comes from James Ratzer with New Street Research. Please go ahead.

Yes, thanks very much. I've got two questions please, both actually relating to your Telmex. In Telmex's results statement it seems there's been a strong boost in data revenues and it mentions that this is related to a security project. I was wondering if you could just talk a little bit more about that. Is that a one-off item? How much did that boost revenues by, please, and also EBITDA in Telmex? And then secondly, I was wondering if you could let us know what you're doing with your fixed to mobile tariffs within Telmex. Are you planning to fully pass on the interconnection rate cut to your customers in Mexico? Thank you. Carlos García Moreno Elizondo: I will ask Carlos Robles from Telmex. He will be answering the first question.

Sure, regarding your first question of the security, this is a project that has been going on for the last three years. And during this quarter there was an important delivery of the product and of the services. Therefore the impact on the data revenues, if you take apart this project from the data revenues, the increase would be up 8.4% in the quarter, on a yearly basis up 7.6%. So that is kind of the impact that you might see. So therefore in the quarter the impact was of around 15% of the revenues of the data. Then regarding your second question of the fixed to mobile rate, we have been mentioning that we are passing through all the benefits of the reduction in the interconnection tariffs to the customers. Therefore we are reducing the rate from 1.35 pesos per minute to 0.71 pesos. And what we would expect is to see an increase in the traffic due to these rate reductions. Yes?

Okay, thank you very much.

Thank you. Carlos García Moreno Elizondo: Welcome.

Our next question comes from Gil Alexandre. Please go ahead.

Good morning. On your data transmission, could you give us an idea of the size of it and how fast it could grow in Mexico and Brazil over the next few years?

Sure. Well, let's talk about Mexico. We have the fields. If you take the broadband of Telmex, plus the data that the tele's handle, in the peak hour we have like 800-gigs of speed in the network. What we've been seeing is that every 12 months the traffic is duplicated in our network. That will give you a sense that how is growing the traffic and the size of the volume that we're handling through our web network. In the peak hour, I'll repeat, it's like 800 Gigs in the network. I don't know if this answers your question. Carlos García Moreno Elizondo: I think in terms of the potential, what we have said for some time now is we believe that we are going to be able to duplicate things in mobile penetration in the course of three or four years and that in the case of mobile broadband, where mobile broadband is today, and the postpaid clients basically, the prices of smartphones have fallen significantly over the last year, year and half. And that is allowing us to migrate more rapidly postpaid client to smartphones. That is something that we think will continue. We'll proceed, and probably within three years or so we will have migrated all our postpaid clients to smartphones. We believe that at some point prices of smartphones will come to be cheap enough, low enough, so that they are attractive to the mass market. And then we can have something as far as what we saw in the middle of the last decade, where the mass market will drive the growth of data revenues. So I think the next two, three years, we're going to see mostly adoption of smartphones on the part of postpaid. We will be migrating essentially all of them at no increased cost, because it's essentially we're relying on the price of these handsets to continue to decline, and when we expect that they will be low enough for them to be attractive to the market. That's something that is probably three years out. Secondly, the wireless HSBA class is now traveling the speed of data transmission. So the problem is not so much now with the electronics and the radios, as Daniel was pointing out. It's basically we need to have all the fiber support backbones and backhaul and so on to be able to transport all the data.

Next question; again, getting back to your EBITDA margins in Mexico, [indiscernible] bottomed out. Carlos García Moreno Elizondo: We don't hear you.

Excuse me. With reference to your EBITDA margins in Mexico, can one make the case that your EBITDA margins have basically bottomed out or is the negative trend going to continue for a while? Carlos García Moreno Elizondo: Well, I don't think we have a -- I think still that since the second quarter, we have the difference because in the mobile side we have high interconnection first and second quarter and this quarter of last year -- and this year, we are going to have the reduction in let's say 75% or 80% reduction in the interconnection rates in the mobile. So when you compare first and second quarter of last year to first and second quarter of this year, you are going to see that without that I think we can maintain the same EBITDA that we have been having.

And if you look at Brazil -- Carlos García Moreno Elizondo: I think in Brazil -- I don't hear you, but let me talk a little bit about Brazil. I think in Brazil we're really doing the integration of the networks really factored the investment. So I think Brazil we should see the same or a better EBITDA this year I hope and we're working to have better EBITDA this year, and increase --

Yes. Go ahead, please. Carlos García Moreno Elizondo: No. Next question, please.

Our next question comes from Andrés Medina Mora with GBM. Please go ahead. Andrés Medina Mora: Thank you, good morning. I was wondering where you would expect to see your data revenues as a percentage of service revenues going forward probably by the end of the year? And you were also mentioning the integration in Brazil; should we expect to see higher level of integration in between the Mexican companies? Thank you. Carlos García Moreno Elizondo: Yes, we're integrating in Brazil and we're integrating in Mexico, but Óscar can explain to you more or less what we're doing on let's say on the networks in Mexico. Óscar? Óscar Von Hauske Solís: Yes, well in Mexico as we mentioned before the data traffic is growing very fast. So Telmex in Mexico already has a huge cover as it data network, Sofitel, is using the data network of Telmex in order to don't duplicate interest to various investment. And we are using the same fibers in the data traffic, so we believe that we bring quality to our services and improve the cost to deliver the services. And we are doing the same situation all over the countries, as we mentioned before, to unify the networks to unify as we can the switching, and in some cases locations, which are -- in some cases when it's possible to do it. So I think that we are on the path to integrate the network to become just a single network and avoid all the duplications that would happen more in the data network. Carlos García Moreno Elizondo: And the integration is not only on the networks, we're having integrations on the distribution, in the customer care, support area. So we are -- Óscar Von Hauske Solís: IT. Carlos García Moreno Elizondo: IT. Óscar Von Hauske Solís: Datacenters. Carlos García Moreno Elizondo: Datacenters. We are doing the integration in a lot other areas. I think we are in some countries we're more advanced than in the other ones, but I think we're going to reach a point where all the countries and the companies are well integrated.

And just to give you an idea for the importance of data in revenues, I think that by the end of the year we'll probably be fairly close to one third of the revenues coming from data, from mobile data, the wireless side, and it is already more or less there on the fixed line side, if we consider also broadband, the copper networks, and this should also continue to increase. So probably on the mobile side more or less a third of service revenues, on the fixed line side probably between 35% and 40% of service revenues. Tomás Lajous: Okay. And Sean, maybe we can move on to the last question today.

Our final question comes from Jim Breen with William Blair. Please go ahead.

Thank you, just a couple of clarifying questions. On the CapEx side, $8.5 billion to $9 billion, can you talk about the proportion of that where you think you should be spending it in Brazil and Mexico? And then also as you talk about transitioning to data, can you first talk about what you think your smartphone penetration is right now amongst your postpaid customer base? And then where do you think the bottleneck is in terms of getting speeds for 3G and eventually LTE up and running? Carlos García Moreno Elizondo: On the CapEx, I don't have it here, I would not disclose how much we're going to be in Brazil and Mexico, but all overall is going to be between $8.5 billion and $9 billion on CapEx, including Net and including Telmex. So everything included is going to be around $9 billion, let's say. The penetration, I don't have it, that we can give it to you, I don't have the penetration on the smartphones. But what I can tell you is that the smartphones are -- the prices are coming down really fast. And as they are coming down, I think the customers are getting more and more and more smartphones and we're getting more and more revenue on the data side. I think we are also prepared to give more and more data; on the prepaid side I think a lot of our prepaid customers are starting to use. You could see that our prepaid customers are starting to use more and more data in their phones. So it is what we're going to focus this year, to get more smartphones and sell more data to all of our customers around Latin America.

And then, just one follow-up question with respect to the customer base cleanup. Generally speaking, you've been putting up strong net adds in Brazil and yet the reported numbers as a country, the penetration obviously is getting at that 100% level. As you look across your base and you think about what the real penetration is maybe in Brazil and Mexico, sort of what's your feeling there? Is penetration numbers, stated numbers overstated by 20% or 30%? Carlos García Moreno Elizondo: I don't know, in my numbers, no. I have a very clean rate in Brazil and we have been very conservative in Brazil and in Mexico. I can just tell you about what we got in América Móvil. I don't know exactly what the other companies have there. But if you talk about Brazil, Mexico, either Columbia or any place, I think we have been very conservative in our base. So I can tell you that our base is really generating revenues for us; all of our subscribers are generating revenues.

Great, thank you very much. Carlos García Moreno Elizondo: Thank you. Thank you, Tomás and thank you everyone for being in the call. Tomás Lajous: Thank you, Daniel. Thank you Carlos, Carlos, Óscar, Daniela, thank you everybody for being on the call. And I think that concludes our call for today. Carlos García Moreno Elizondo: Thank you.

Thank you. Bye-bye.

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the conference. You may now disconnect. Good day.