América Móvil, S.A.B. de C.V. (AMX) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the América Móvil Second Quarter Conference Call and Webcast. My name is Marie, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to Daniela Lecuona, IR Officer. Please proceed, ma'am.

Good morning, everyone. Thank you for joining us today. With us on the call is Daniel Hajj, Chief Executive Officer; Carlos Garcia Moreno, Chief Financial Officer; Oscar Von Hauske, Chief Operating Officer; and Carlos Robles, Chief Financial Officer of Telmex. I wanted to remind -- I want to remind you that this morning, our webcast is going to be supported by slides, you can access the presentation on our website.

Good morning, everybody. Thank you for the América Móvil second quarter of 2013 financial and operating report. And Carlos is going to give us a presentation of the results. Carlos José García Moreno Elizondo: Thank you. Good morning, everyone. With the U.S. economy seemingly on better footing, economic activity in Latin America appeared to pick up in the second quarter, underpinning stronger top line growth throughout the region. As part of the financial volatility that we saw is from the Fed's statement in May, they would likely start calling back on its bond purchases before the end of the year, given the resilience of the U.S. economy. This volatility led to major swings in exchange rates. And for the most part, we saw a significant strengthening of the U.S. dollar vis-à-vis other currencies, with the Mexican peso depreciating 6.7%; the Brazilian real, 10.1%; the Colombian peso, 4.9%; the Peruvian sol, 7.5%; and the Chilean peso, 6.6% versus the U.S. dollar. We ended the quarter with 329 million accesses, 5% more than a year before. Our fixed-line RGUs increased 9.1% and our wireless subscriber base, 4.1%, after 2.5 million subscribers were disconnected in the quarter due to changes in our churn policy. Most of the disconnections, 1.9 million, took place in Peru. PayTV and broadband accesses continued to grow rapidly, by 18% and 13%, respectively. Triple-play bundles remained popular, accounting for over half of the net RGU additions. On the wireless front, we kept on making progress in developing our postpaid base. It was up 12% year-on-year, the subscribers -- postpaid subscribers increasing 12% year-on-year. Consolidated revenues were up 1.6% from the year-earlier quarter to MXN 194.8 billion, bringing to MXN 387.8 billion the total for the year. However, the increase in peso terms underestimates the real revenue growth, given the noise generated by the currency movements. In constant peso terms, service revenue growth shot up to 7.8% year-on-year from 4.6% the prior quarter, and total revenues were up 10% compared to 6.1% the prior quarter. The acceleration on service revenue growth was particularly strong in Mexico and the South American block, rising from minus 1.6% to 1.0% in Mexico and from 5.0% to 8.5% in South America. In the latter block, the pace of growth picked up very noticeably in Brazil, Chile and Ecuador, gaining nearly 5 points in Brazil and almost 4 points in Ecuador relative to the first quarter. Data revenues in both platforms continued to gain share of revenues, as the PayTV revenues have now account for 9% of the total. Mobile data services led the way in service revenues with 27%, followed by PayTV at 21%. Fixed data revenues are accelerating. The acceleration of service revenue growth in the second quarter was mostly driven by the voice segment, with mobile voice recovering sharply from the downturn it observed the prior 2 quarters of Mexico, Brazil, Chile, Ecuador and Colombia. All posted significantly better growth figures than they had the prior quarter. Fixed-line voice revenues continued their steady recovery in Brazil. The U.S. led the way in terms of service revenue growth with 35.6%. This pace of growth has risen each one of the last 4 quarters. Our service revenue growth was also in the double digits in Argentina, Uruguay, Paraguay, in Ecuador and in Peru. Second quarter EBITDA, MXN 65 billion, was slightly lower than that of the year-earlier quarter in peso terms, minus 2%. At constant exchange rates, however, consolidated EBITDA swung from minus 2.4% in the first quarter to 5.0% in the second one, supported by the strong top line performance. The EBITDA margin stood at 33.4%, compared to 34.6% a year before. We obtained an operating profit of MXN 40.6 billion in the quarter, that brought to MXN 79.2 billion, the total for the first 6 months. At constant exchange rates, it was up 7.3%. So here, to sum it up, you can see here in the slide, we have total revenue growth of 10% year-on-year. We have service revenue growth of 7.8% year-on-year. We have EBITDA growth of 5% and operating profit growth of 7.3% year-on-year, all of these at constant exchange rates. Our comprehensive financing cost totaled MXN 20.8 billion and was 13% higher than that of the year-earlier quarter. As they had the prior year, foreign exchange losses made up most of the cost, reflecting the depreciation of the peso versus the U.S. dollar and the euro. Depreciation of the various currencies against the dollar took place at the time when 27% of the company's net debt was exposed to hard currencies, with the rest, ultimately, denominated in local currencies, mostly in Mexican pesos. Second quarter net income of MXN 13.6 billion was 3.7% higher than that of a year before. It was equivalent to MXN 0.19 per share or $0.31 per ADR. Net income per share was up 12% from the year-earlier quarter, whereas earnings per ADR rose 21.7%. It's important, if you can take a look at the slide, you will see that in the year from June of 2012 to June of 2013, we have retired 4 billion shares. We have bought back in the market 4 billion shares, which is roughly 5.2% of the total that was outstanding a year ago. Our net debt, end of June, at MXN 426.9 billion. It was up MXN 54.7 billion in the first 6 months of the year, contributing to the financing of capital expenditures in the amount of MXN 49 billion, share buybacks of MXN 46.2 billion and the acquisition of ownership interest in various companies totaling MXN 16.7 billion. As you can see, total capital outlays in the second quarter -- total capital outlays, I mean, this is in the first half of the year, stood at MXN 112 billion, and approximately half of that was financed through the issuance of debt. We are very much on track to end the year -- to complete our 10-year investment program for the year. So we can see in the slide the amount of our CapEx that we had through the first 6 months of the year. We've seen that to -- we had last year. And so, as I said, we are very much on track to completing our third investment plan of 10 years -- annual investment plan of a period of 10 years, in the last 3 years. This is the third, in 3 years, investment plan of $10 billion per year. So one last thing, we have an investment plan which we continue to deploy 4G. Aggressively, we have now 11 cities in Mexico covered with 4G. We are now in Brazil with 18 cities. We have the service already in Puerto Rico and in Chile. And we have recently acquired the spectrum to start providing the service also in Colombia. So just as we very successfully built a 3G, a common platform in Latin America in 2008, 2009, I think that we are going to be building a common 4G platform also in Latin America very soon. This is a very ambitious and very comprehensive investment plan. And I want to remind you that this investment plan is not only about the electronics that have to do with 4G, but it's about building the underlying platform, fiber platform, that is required to be able to transport all of the data that will be consumed to different types of devices with 4G. So it's a very ambitious, very comprehensive plan. And it's mostly, although the whole system [ph] is in the early stages, in the larger countries, Mexico and Brazil. So with that, I would like to open the floor for questions. And here's -- Daniel and I will be fielding your questions right away. Thank you very much.

[Operator Instructions] And our first question comes from the line of Andrew Campbell from Crédit Suisse.

I was wondering if you could just give us a little more color on the strong increase in equipment revenues in the quarter. I know that you mentioned the very strong growth in service revenue, in constant peso terms, but the handset revenues looks like also increased even stronger and also on a sequential basis. So I was wondering if that reflects kind of a mix issue or is it because of exchange rate passing through higher prices? Or is this a -- were there actually higher unit sales in the quarter? Any additional color. Carlos José García Moreno Elizondo: I saw your note, Andy, this morning. So I knew that was the question. No, as I mentioned here, we are seeing service revenue growth of 7.8% and total revenue growth of 10%. So you're right, our handset revenue was strong. You have to remember 2 things. One is, May is typically a very strong month, from the point of view of sales because that's Mother's Day, most everywhere. So it's a seasonally strong quarter because of Mother's Day. And as you know, we're now much more active in distributing smartphones. I mean, that's the new thing. So the type of handset that is being sold now is a little bit higher-cost handsets than what we used to have before. But as we are saying here, all of the calculations have been drawn at constant exchange rates, so we are not picking up the effect of the higher -- of the depreciated currencies in this calculation. I think that was not part of the question.

I think, Andy, also that in prepaid, people are also starting to use more data. So they are starting to buy better smartphones, better handsets and using the data. So I think in postpaid, 90% of the new customers getting into postpaid are contracts that have that data plan. So that's really the reason, Carlos explained, that May is a very important month. And also prepaid is starting to use more and more data, and the phones are higher priced, that is better phones, that people are choosing.

And our next question comes from the line of Mauricio Fernandes from Merrill Lynch.

So I have a question on KPN and, more specifically, on Telmex. You announced on Telmex, I think a couple weeks ago, the spinoff of some assets. And I would like to know which are these assets, how relevant they are and what's the strategy? Secondly, on KPN, specifically the transaction between Telefonica and E-Plus, I'm not sure if you can comment or will comment, how you think about it and what are the next steps there, please?

Well, first on -- Mauricio, thanks for the question. First on Telmex, this is a corporate decision in order to spin off some assets that are not directly related to the telecommunication services. These are businesses that are focused more on real estate and leasing, so the spinoff that we're going to do is to consolidate all the real estate and leasing companies inside América Móvil, and not to have a lot of real estate companies inside of América Móvil. I feel it's not -- this proposal is not connected with the telecom business of Telmex, okay? So that's on Telmex. And the second, on KPN. I think the only thing that I can say is that, we will evaluate the terms and conditions of the transaction announced by KPN regarding its subsidiary in Germany, E-Plus. And when those are presented to KPN shareholders, and we'll make a determination at that point in time. I think that's the only thing that we are doing at this moment.

Okay. And on Telmex, if I may, Daniel, what's the size of it? So that we have an idea of what kind of value we're talking about in this spinoff? Carlos José García Moreno Elizondo: If you want, I can answer you that. At this moment we are not certain, because that circumstance has not happened, it's going to happen the next Tuesday, the exact size of the assets and liabilities then will be transferred to the new company. All I can tell you is that in terms of revenue it's less than 50% of the revenues of the revenues of Telmex. So that gives you a little bit of the size of business.

Okay. And sorry, another follow-up on KPN. So strategically speaking, there's a potential for the deal to happen or not to happen, obviously. And if it does happen, basically KPN becomes the Netherlands and Belgium, but obviously, mostly the Netherlands. What's -- how does that change, if the deal happens? It's approved, how does change the strategy or the rationale, or the strategic rationale behind being in Europe?

Well, that's exactly -- it's what we're evaluating. We're evaluating the terms and conditions for the transaction and we are going to take the decision on that time. I think it's difficult to answer other questions at this moment, no? Of course, it makes -- yes?

Our next question comes from the line of Andres Medina-Mora from GBM. Andrés Medina-Mora: What is your perspective on Brazil going forward, in terms of economic terms, and particularly profitability, and the integration of América Móvil there? And also, in terms of Mexico, how you are looking at the competition for -- particularly 2014 and going forward?

Well, talking about competition, I think we have a very strong competition in Brazil. We have strong competition in Mexico, in Brazil, particularly. Brazil, we see a little bit of slowdown in the economy, we hope that it's starting to get better. I think the last 2 years, we have been making good investments, big investments in the TV company Net Servicos, in Embratel, in Claro, of course, and that is making us -- to grow and to develop the company. We are having good results on everything that we do in the last 3 years -- 2 years, and we hope that, that will continue, no? That's mainly what I can tell you in Brazil. And in Mexico, the strong competition, the reform is working, the reform is coming. We need to be more flexible to understand what is coming and to do what we need to do in Mexico. Andrés Medina-Mora: , Just one more question, if I could. We've seen AMX being much more active in terms of acquisitions of digital media companies and the stake in HSM. What should we expect on this side going forward?

Well, we bought the company, TMI, that is an advertising company. I think we have a lot of prospects in Mexico and in all Latin America that would be very good for selling advertising, and I think that's a part of the strategy that we have. We are also doing some acquisitions, some content and in this type of company like Shazam. But we are starting to do these types of things in América Móvil. I think that they are going to be more relevant and more important. Like -- you know that, maybe 2 years ago, 1.5 years ago, we bought a company called DLA in Miami. We're starting to do services like Clarovideo. It's a streaming company. Oscar can talk to you a little bit about this type of services that we are doing all around and with good success in Latin America, I would say. Oscar Von Hauske Solís: Yes, as we mentioned, we are constantly amazed that this company has streaming platforms to serve video over the Internet, an over-the-top platform. We recently started in Mexico. We already have 7,000 [indiscernible] fully digitalized, in the Internet. We are selling this product at MXN 59 in Mexico. We have a roll-over plan to go to other countries [ph] with streaming platform over the top.

All, overall, we are now selling integrated communications solutions that are going to be -- that are going to include voice, data, video and all other products. So that's the main strategy of América Móvil, to go to our end customer and give all the solutions that we have, no?

And our next question comes from the line of Walter Piecyk from BTIG.

Carlos, just the first question on the leverage. You looked up above 1.5x. But the share repurchase activity, I think, was pretty steady even after the quarter closed. Can you just kind of talk through what your thoughts are on where you want leverage and how that may impact, if at all, your share repurchase activity? Carlos José García Moreno Elizondo: Thanks for the question. Well, I ask -- we are not very different from approximately 1.6x net-debt-to-EBITDA. I think that's fairly consistent with the rating that we have, with the 3 ratings that we have today. So I think that we are likely going to continue with the share buybacks as we continue to generate cash flow throughout the year. I think the cash flow has sometimes certain seasonalities, particularly because of the component that has to do with CapEx. But even with those seasonality, the fact of the matter is that we have a significant cash flow that we can rely on, to be able to continue our program of distributions to the shareholders, including the share buybacks. I'd just like to mention, if you correct a little for this volatility in FX, we very much ended the quarter, if we just eliminate these notes, at about 1.5x EBITDA, so that's pretty good. As far as the fact that [ph] I think that we're not -- we're going to base our continued distributions with the cash that the company generates. We may be diluting it, in the short term, by short-term financing. But we basically want to stick to the expected cash that we will have for the remainder of the year as a means of buying back stock.

And then Daniel, just a question on your AT&T relationship. I mean, they had sold some shares to keep their ownership under 10%. When I talked to Randall Stephenson about it, he mentioned that you guys are always in communication prior to actions. And there were some reports on the press about them showing an interest in purchasing Telefonica. I'm just trying understand, if you knew about the Telefonica, how exactly does that work? I mean, would they be coming in as a competitor? Or since, I guess, historically, you've had a close relationship, how do think regulators would even -- I'm just -- I guess, I'm just looking for a general kind of update on your relationship with AT&T, and why we're seeing a lot of recent activities that suggest that maybe you guys are going to be more competitive in each other's markets.

What I can tell you about AT&T, I think we have a very good relations with Randall. We have very good relations with John, with all group of AT&T. And they tell us about that they are going to sell the shares of América Móvil below 10%. When they take the decision to sell that, we don't know exactly what percentage of they want to do and what they want to do. But we are in communication with them. We don't know nothing about the Telefonica deal. It was -- I saw that in the news. We don't talk about those type of things, but we have a very good relation. They are very good partners. They help in some issues here in América Móvil and that's what we appreciate and that's what we do with them. So that's mainly what we have, no? We have around 20 years of relation with AT&T. They have been very good partners, and I hope that they stay for the next 20 years with us. So that's what I can tell you about AT&T.

And our next question comes from the line of Rick Prentiss from Raymond James.

Want to go back to the equipment revenue being quite strong. Can you update us as far as what percent of your base of postpaid customers have smartphones now? And also, what are you seeing, as far as the ARPU difference, when someone is on 3G plan versus a 2G plan?

Stay with me, ladies and gentlemen, we seem to have lost our presenters. They will be with us shortly. Our presenters have just disconnected but they will be with us shortly. [Technical Difficulty]

Rick Prentiss. I have 2 questions related to the equipment revenue being quite strong. One, can you update us as far as what percent of your postpaid base now have smartphones? And also, on the ARPU side, what are you seeing as far as ARPU on a 3G service versus a 2G service?

Well, I don't know exactly. If you can talk with Daniela and tell you more or less what are the percentage of smartphones that we have. I think a lot of them are having data plans and people are starting to use. And the ARPU between 2G and 3G, I don't know of the gap. But everybody I think, everybody, as we saw the last year that, in postpaid, everybody is choosing a smartphone and a data plan. We're starting to see that in the prepaid business. So also in prepaid, people are starting to use a lot of social networks and all those type of services. So I think, data, it's becoming strong, and strong in prepaid also.

And you mentioned fiber being needed for 4G deployment. Where are you at as far as getting fiber to all the cell sites?

I think, very good. We have been starting, for the last 3 years, putting fiber to the nodes. And I can tell you that, I don't know exactly, but we have more than maybe 50% of our nodes or radio bases have already fiber, no? So it's easy to deploy 4G, because we are deploying 4G within, more or less, in the cities and in the cell sites that have fiber. So we have -- and in the metropolitan rings also.

And our next question comes from the line of Kevin Smithen from Macquarie.

You've got a very strong 110 basis point sequential increase in service gross margins. Wanted to know what is driving this? In the U.S., we saw, when LTE was turned up, a fall in cost of service. Is this LTE related? Or have you been able to reduce roaming or other transport cost?

Again, the question, again, please?

Yes. Your services gross margin increased, by our calculations, 110 basis points sequentially. And we're curious, what is driving that?

I think the growth in revenue is mainly in -- with a good growth on the voice, also. Voice has been growing. We have been decreasing in the first quarter. In second, starting to be better. So voice has been going in much better shape, voice in wireless and voice in fixed also. And the data in wireless has been also very strong. Also TV and broadband have been good engines for our growth in service revenues. Carlos José García Moreno Elizondo: I think, as we saw in the presentation, mobile voice recovered very significantly, and this was very evident in Mexico, but generally, all of South America. As we mentioned, there's several countries that had a significant improvement. And we saw in the slide, the swing, in terms of those revenue growth, mobile voice revenue growth, between the first quarter and the second quarter was 4 points. It was a very, very big swing in revenue growth that was the single most important, I think, factor. But overly -- we're also seeing fixed broadband data continue to accelerate. And the swing in fixed broadband, from quarter-to-quarter, was 2.5 points. So that's, I think, the main increments in terms of service revenue growth and margin growth, already from -- on a sequential basis.

My next question is related to TracFone. You have, by our estimates, about $3 billion per year in network traffic that you're spreading out among the 4 U.S. wireless carriers. There's a lot of capacity being added, particularly at Sprint and T-Mo. Would you consider consolidating your traffic, if you got a good network deal with one of those 2 operators with one vendor, try to improve EBITDA margins at TracFone?

Well, I think we are happy to do what is the best for TracFone. I don't know if it's only a matter of price. It's also matter of coverage. It's a matter of all the things that we have. But, of course, we are reviewing all the alternatives with all the carriers in the U.S., and we're taking the best decisions for TracFone. So that's what we can tell you at this point.

And our next question comes from the line of Michel Morin from Morgan Stanley.

I was wondering if you can comment a little bit on your handset subsidies. It does look like you've reduced the amount of subsidies that you've been giving on handsets, and I was wondering if that's generalized or if it's specific or concentrated in just a few key markets.

I think what we're trying to do is to try to rationalize all the subsidies all around Latin America. So you could see that we're doing that all around the region. And at the higher handset price, higher prices of handsets, we're trying to reduce the subsidy on those. So that's more or less a strategy that we have and we don't do it in specific countries, we do it all around Latin America. Carlos José García Moreno Elizondo: And something that ties with Andy Campbell's question earlier on, one thing that was important about the strong handset sales is also the part that we are gaining so much ground terms of postpaid. And that's where we are deploying more smartphones today. So if you looked at the numbers, we had a 12% increase in the postpaid base, and that means, that in a gross add basis, we are really increasing significantly our unit sales of smartphones, and as Daniel said, in a way that is very sensible because we're not really subsidizing that.

But Carlos, on that point, if I look at your postpaid net adds this quarter, they were actually softer than recent quarters, just the absolute, not the year-on-year growth rates, but just the absolute number of postpaid net adds. I think they were soft in Columbia and Mexico, in particular. So is it that somehow -- are we seeing a little bit of deceleration in postpaid growth because of a less aggressive subsidy policy? Carlos José García Moreno Elizondo: No, I don't think so. I think -- what we need to see is what's happening in the market. When we know the market, then we're going to see if we are decelerating or the market is a little bit decelerating also. So let's wait for the numbers and see what is happening.

Okay. Let me ask another quick one. On Mexico, in the fixed line, you had much better revenue growth there. I mean, it's still not positive, but it's a significant improvement from recent trends. Was there anything unique this quarter? Carlos José García Moreno Elizondo: No, I think it's -- maybe the economy, that it's getting better. I think that's what you could see in the fixed -- in Telmex in the fixed line. Nothing new.

And our next question comes from the line of Will Milner from Arete Research.

I joined the call late so these may have been asked. But my first question is on Mexican mobile, and I think -- I just heard you mentioned the driver for the faster mobile growth was the recovery in voice. But the level of network volumes, network minute volumes, obviously slowed the growth there. So it looks as though the improvement is much more to do with improved pricing trends. And I just wondered if you could talk to those in the context of the background of a regulator looking, over time, to reduce your market share, and you're clearly taking more share this quarter. So that's the first question. The second question I have is, we touched on it already, just on the -- from the comments you've made on the desire that you have to sort of continue share buybacks at a high -- higher level, which has resulted in your leverage being quite a bit higher than it has been, historically. I guess it leaves you with very little, certainly, debt capacity to acquire large assets, in the way that you've recently done with the diversification into Europe with KPN. And I just wonder, if you can just comment about that. Are you, overall, happy now with what you have in Europe? Is that the end of the diversification into Europe? Or would you, potentially, consider the alternative mechanisms of financing, investments into Europe, if you're not happy with what you have now? Carlos José García Moreno Elizondo: Before we get into these questions, only one comment to Michel Morin's prior question. The rate of growth of the postpaid base, March-to-March, was 11.6%. The rate of growth of the postpaid base, June-to-June, is 12.2%. So we are seeing, effectively, an acceleration in the growth of postpaid. Okay, so we are seeing greater, more rapid expansion of the postpaid base in the second quarter than what we have seen through the prior quarter. But having said that...

We are talking about Mexico a little bit, I can tell you that still, this year-on-year, that prices are 14% lower than what -- with prices reduced, 14% year-on-year. So we have good plans, most are going up. So in Mexico, we are have been working on that and people are starting to -- I think people are choosing our network. The network, the quality of the network, the coverage of the network, everything that we have in Mexico makes that -- people are choosing to be with Telcel because of the quality of the network. You could see number portability, what is happening. So number portability, we're still gaining that. And that's really what people are deciding, because that's where you can see that -- what's the decision of the people, where they want to be. So in the other -- I think Carlos gave already an explanation of the leverage, but you can tell them again. Carlos José García Moreno Elizondo: I think, in Europe, I think, let me just repeat, because we don't really have anything new to say, what we have said is that, number one, the move to in Europe was something that we thought helped us diversify...

And we seem to be having problems with our speakers once more. [Technical Difficulty] Carlos José García Moreno Elizondo: Sorry. On the question, we're saying that the move into Europe was, on the one hand, to allow us to diversify somewhat with revenues, as we have done when we expanded throughout Latin America. We have noted that there was really not more M&A to be done, of any significance, in Latin America. And that M&A, in the past, has been extremely important for us and our shareholders because it was a very significant part of the value creation that was done to America Movil. So I think that when we looked at these, we said we need to go in a different fashion, to Europe, than we've done in Latin America. We took some minority interest in a couple of companies, the intent was to learn from that market. We didn't know the competitive dynamics. We didn't know anything about the regulatory environment. We didn't know anything about of the types of marketing that is done in the market. And we wanted to get a good vantage point from which we could learn about the market without having all of the operational and financial responsibility on those. To be able to do this, we were very clear that we wanted to abide by the limitations that the rating agencies had put on us. And for us, this move was predicated on the basis that we would not risk the credit ratings that we have from the rating agencies and that, obviously, has not changed. So all I can do right now is saying that we have truly not had any change in terms of the policy that we defined to you and the market a year ago, and -- in terms of the limitations that we imposed on ourselves, in terms of the move to other markets.

And our next question comes from the line of Fabio Levy from BTG Pactual.

Just a question, going back to Brazil. When we see that -- we are seeing a strong competitor of you, Telefonica, reducing the loss of its fixed net debt, and in order to provide a better competitive edge against the players, and we saw that Net Servicos last year got a lot of share from Telefonica. Now we are seeing that company is protecting, with improving in the broadband side and also the PayTV, and since you have a very good performance in the second quarter, from net to growing, more close to 20% year-over-year. So I was wondering if you were seeing any risk of reduction of your competitive position gradually with this improvement coming from Telefonica. And the second question, it's related to Colombia, in terms of your improvement in the margins. So I just wanted to touch base, if it's going to be a regular pattern of having more close to 48% of EBITDA margin in that quarter. So I just wondered if that could be consistent, once going forward.

Well, first in Brazil. What we can tell you is that, we have been investing for a long time in NET, and NET is doing good CapEx. It's more households passed and more cities passed. So that's what we're doing on that. We have a very good image in the market. We have a very good product. We have very good quality. I think that's really what you could see and what is doing NET in Brazil. So we have the best customer care, very good distribution, so I think we are starting to see what we have been talking in the other calls, that the consolidation and the convergence is taking place in Brazil. And I think it's working in our side. So that's mainly what I can tell you. I don't know exactly if they are Vivo -- Telefonica subscribers, or they are some new subscribers or they are other subscribers. What we can see is that everything that we're doing in Brazil is working at this moment. So I hope that the economy would get better and I think we're going to see good results. It's going depend a lot on the economy. I think we have the basis to grow and to improve in Brazil. In Colombia, well, we're always looking to have better margins. We have 48% this quarter, and we're looking to have -- we have to do a lot of investments. We're going to do LTE. We've just won the license of the 4G, so we are going to develop the LTE network. And that's going to be a little bit more costly because we're going to have a new network. But we're going to try to have the best EBIT and the best profit possible. Carlos José García Moreno Elizondo: A note on Brazil. Now that the numbers of our largest competitor are out, I think it's important, you have do note, that not all of the growth of América Móvil is activated to Net Servicos. It's already a very dynamic part with PayTV, but it's not the only part. What I can tell you, without going into all the detail, is that even if we were to exclude the PayTV services from our numbers, we will be growing faster, our service revenue growth, than our competitor, okay? And it's probably about a point faster than the competitor. So yes, we do have the benefit of PayTV that is going very fast, 20-something percent. But then, again, even excluding PayTV, looking at the regular telecom part of the business, we are growing faster, our service revenue growth, in the aggregate, than the competitor.

And our next question comes from the line of Ken Berlin from Legal and General Investments.

Just go back to the balance sheet one more time. I guess, from what I take from the last couple of questions, you are publicly confirming the 1.5x net balance sheet leverage target. And just so it's clear, and that includes sustaining the credit ratings at their current level. And expectations would be that you would manage the share buybacks within the context of cash flow. But just wanted to confirm those points, please. Carlos José García Moreno Elizondo: I can confirm those points. That's exactly what I said. We abide by the limitations imposed by the credit rating agencies and we intend to stay within those limitations.

And our next question comes from the line of Alejandro Gallostra from BBVA.

You -- going back to Columbia, you had a really good quarter there despite the symmetric regulation being implemented there. And I was wondering if you're doing something specific to offset this regulation in Colombia.

The what?

In Columbia.

The regulation? Well, the regulation in Colombia I think it started in February. And well, we implement our new plans. We do what we need to do in the commercial side and, still, people is preferring our network. So we're happy how we are developing there. We're putting a lot of money. We have the best coverage, we have the best quality in Colombia and we are investing a lot. So we are doing well in Colombia at this stage.

So basically, you haven't changed your strategy because of the -- since the regulators started applying this symmetry, right?

Well, we changed some things. We are more flexible in the commercial side. We need to do what the new rules apply to us and we do some changes to be inside these new rules and these new changes are being -- we have been doing good with all of these new changes that we're having in the regulation.

All right. And also about the margins in about Colombia which were pretty good, I was wondering if this is just -- that you're just being driven by lower handsets subsidies, or if there is something else, such as of the recovery of these corporate tax payments that you had in the first quarter and that you expected to recover in the next several months.

I think it's subsidies and also we are taking care about the costs. The fixed company is doing good. We are doing more convergence there. We are doing the first -- the 1-play, 2-play, and third-play there. And we are doing the conversion in the networks that are reducing the costs. So it's not only subsidies. We're working a lot on all of the infrastructure, all the engineering that we have and that has been working.

Now ladies and gentlemen, we have time for only one more question, and this comes from line of Jonathan Dann from Barclays.

There seems to have been a couple of spectrum auctions that you guys didn't win spectrum in. Can you just -- where are the next auctions coming? I think Telefonica were flagging 3 or 4. I mean, and is there any reason to think you'd be sort of blocked in any of those auctions?

No, I think we weren't blocked in any auction. I think the only one that we lost was in Peru, and we don't win it because it was a difficult auction. It's not because of money, it's a closed envelope and then you have to put a price. And well, we don't get that spectrum. We're looking for alternatives to do what we need to do in Peru. But we are aware of all of the new licenses that are going to be auctioned, and we are ready to be there. And I don't think -- nobody wants to block the auctions in Latin America. Everybody wants investment. I think all the governments around Latin America need investments and want investments. And América Móvil is doing that. So I don't know why they don't want to let us participate the new auctions.

Well, Thank you, ladies and gentlemen. That concludes our conference call for today. And now, I'd like to turn the call over to Daniel Hajj for closing remarks.

I think just want to thank everybody and for being in the call. Thank you.

Thank you, ladies and gentlemen. That concludes your conference for today. Thank you for joining us and you may now all disconnect.