América Móvil, S.A.B. de C.V. (AMX) Q3 2017 Earnings Report, Transcript and Summary

Good morning and welcome to America Movil third quarter 2017 Conference Call and webcast. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead, ma'am.

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

Thanks, Daniela. Welcome, everyone. Thanks for being in the America Movil third quarter of 2017 report. Carlos is going to make us a summary of the results. Carlos. Carlos García Moreno: Perfect. Thank you, Daniel. Good morning, everyone. Well, the summer holidays came abruptly to an end as a number of natural disasters hit Mexico, the Caribbean and the US. At the same time, and after a period of relative calm in financial markets, information on the likely acceleration of wage inflation in the US earlier this month revived talk of future inflationary pressures, with the Fed signaling it will continue raising rates, which has brought about renewed volatility in emerging market currencies. Net subscriber additions for the third quarter came in at 330,000. On postpaid, we added 1.4 million subs, including nearly 700,000 in Brazil and 200,000 in Mexico. On the fixed-line platform, we gained 345,000 broadband clients in the quarter, most of them in Brazil of 162,000, followed by Central America with 95,000 and Colombia. Our asset growth was concentrated on our mobile postpaid and fixed broadband clients, with 6% and 5% rate of growth respectively. Other segments raised net disconnections, particularly mobile prepaid, down 1.4%. Our PayTV subscribers were down 1.4% annually. Our third quarter revenues totaled 244 billion pesos, with service revenues coming in at 210 billion pesos. They were down 2.2% and 1.9% respectively in Mexican peso terms, but at constant exchange rates, service revenues actually posted a 1.5% year-on-year increase. Our adjusted EBITDA, resulting from the arbitrage ruling in Colombia, which is considered to be an operating expense, came in at 66.3 billion pesos, down 2.1% in Mexican peso terms, in line with the decline in total revenues. At constant exchange rates, it was up 1.3% in the quarter. Revenue and EBITDA growth rate reflect the impact of lost revenues in Mexico on Puerto Rico, on account of the earth quakes and hurricane Maria. In Puerto Rico we provided bonuses to our prepaid clients and credited monthly fees to our postpaid clients. In Mexico, Telcel and Telmex opened their networks at no cost to their clients for five days, following the earthquakes on September 19th. Consolidated service revenue growth reflects also the normalization of the annual base of comparison in the US, since in the third quarter of 2016, we incorporated certain T-Mobile's subscribers, including their revenues and EBITDA. In addition, in Puerto Rico, our expenditures have been affected by the need to clean up and to keep our networks operating on diesel, given the lack of electric power. Excluding Puerto Rico, where service revenues collapsed 17.4%, and the US, revenue trends in our other operations remained very much in line with those seen through the second quarter as you can see in the charts. So I think the chart, service revenues excluding again for platform in Puerto Rico, practically identical both in terms of revenues and EBITDA than what you have seen in the second quarter. So we have effectively the same kind of rate of growth, adjusting for Puerto Rico and the change of rates in the US. Mobile data revenues led the way across our operations, maintaining a rate of growth of close to 20% followed by fixed broadband revenues, growing 5.5% and PayTV at 1.6%. In Latin America overall, mobile data revenues was 24.3% increase. In our European operations, mobile data revenues were expanding 8%, with PayTV revenues growing 22%. The South American block posted the fastest rate of service revenue growth, 3.4%, followed by Europe, Central America and Mexico. In Mexico, mobile service revenues continued to post a strong recovery even in spite of the earthquakes. They were up 8.5% in the quarter, with mobile data revenues expanding 21.3%. In Brazil, mobile service revenues rose 3.5% on the back of 33.6% mobile data growth. Our EBITDA margin came down slightly, prior quarter, it was roughly flat quarter over quarter, particularly adjusting for Puerto Rico, 27.1%. EBITDA margins have risen substantially in substantially all of our operations with over 2 points improvement in Mexico and Brazil, 4 points in Chile, 7 points in Peru from the year earlier quarter. In South America, EBITDA is growing at a nearly 9% pace, followed by Central America with 6%, Mexico at slightly below 1% posted its first increase in 11 quarters. After comprehensive financing costs of 22.9 billion pesos, half of which arose from foreign exchange losses mostly incurred as a result of the depreciation of the peso versus the dollar and the euro, we posted a net loss of 9.5 billion pesos in the quarter, principally on account of the Columbian ruling that we mentioned before. In the absence of such ruling, we would have had a net profit of 2.5 million pesos. After a 5 billion in CapEx, our gross cash flow, that is EBITDA minus CapEx, stood at 123 million pesos. The Columbian ruling reduced that amount by 19 million pesos to 104 million pesos. So that is the gross free cash flow that we have had in the nine months through September. And this cash flow allowed us to acquire equity interest and pay down pension obligations in the amount of 4 billion pesos and 6.2 billion pesos effectively and we distributed to our shareholders 5.3 billion pesos of which 4.3 billion took the form of cash dividends. We were able to reduce also this cash flow that I mentioned by 18 billion pesos, our net debt in flow terms, so that is correcting for all the effects of valuations of currencies. In flow terms, we actually paid down 18 billion pesos of that. So, at the end of the quarter, we had 575 billion pesos of debt, down from 629 billion at the end of last year. The debt at the end of September was equivalent to 2.0 times the adjusted EBITDA of the last 12 months. So that means that even after the Columbian ruling, the leverage rates have stayed roughly flat, relative to where we were in the second quarter. So with that, I would like to give the floor back to Daniel so that we can have a Q&A session. Thank you all.

Thank you. We can start with the first question please.

[Operator Instructions] Our first question comes from Amir Rozwadowsky with Barclays.

Thank you very much and good morning folks and thank you for taking the questions. I was wondering in regards to the recent natural disasters, is there any way to quantify the impact of the natural disasters on both your top line and EBITDA for the quarter? Specifically, I was wondering how to think about the size and scope of the potential impact to your Mexico business. You had mentioned that costs were disproportionately impacted, yet still delivered regional EBITDA growth, what would those metrics have looked like had we not had this impact?

Well, in Mexico, as you know, we had the earthquake in September 19 and what we do is we open the networks for the next five days, so that people can talk and use data as they wish, as they needed and that's why we do it. We don't have too many, in terms of costs in Mexico, our infrastructure was okay. We don't have any big problem with our infrastructure, some towers that we have some problems with, but we are - so in terms of cost, there was not a big issue in Mexico. It was only the, let's say, the revenues that we don't get for these five days, difficult to say a number, but that's what we have. And in Puerto Rico, it's different. In Puerto Rico, we have Hurricane Maria and it was a very - it's a big disaster in Puerto Rico. We have our external plant with some problems. We have some difficulties with a lot of our sales, energy in the island, still, we have a very small amount, small percentage of energy in the island, so we're putting diesel. So I think that Puerto Rican telecom business, all the Puerto Rican economy is not going to be doing well for the next, maybe two quarter, for the first quarter of next year. We have to - we're in the process of recovering everything. So I don't know exactly what's going to be that cost, we're still reviewing what are the problems and the infrastructure that was damaged and we're having like a project to recover everything. What we already do is we give like one month credit to all our postpaid customers and $30 to all the prepaid customers. Still, we're going to need some credits of course to some of the fixed lines that are not working and still we don't have all of our network working, so maybe we're going to need to give to some or to other ones all the credit in the postpaid business. We still don't know, depending on the recovery, but the Puerto Rican disaster was huge, it's big what we have in Puerto Rico.

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

Well, I'm going to give you the way I see things, okay. I think prices in Mexico are very low right now. So they are low, so I don't think we have a lot of room to go, worst not to go down. So, that's why you see more stable, competition is stopped in Mexico, but prices are still very stable for the last six months. Let's see what's going to happen on the holidays on November. December. It's going to be important and well, I think everybody needs to win money, so our competitors also need to make money and the prices and the way they are doing things maybe, it's to the promotional side, too aggressive sometimes. So, I don't see that prices are going to go down. It's my perception, but well, you never know, no. Prices are still very, very aggressive in Mexico. As I said last time, in the US, they're very aggressive and we are at much lower than them. There may be, I don't know the comparison exactly, but maybe 25% to 30% lower than the US at this moment, with all the competitive pricing that you are seeing in the US. So I don't see much prices going down, so in Mexico.

Thank you very much and one last -

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

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

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

Our next question comes from Leonardo Olmos with Santander.

Very specific question on Brazil. You mentioned in the release that you are reducing and disconnected DTH clients, we just want to know what's the strategy on PayTV and overall fixed in Brazil. And if the disconnections are in, I don't know, what percentage of competition and when are we going, we could be seeing service revenues in fixed going up again in Brazil. Thank you. Carlos García Moreno: Yes. When you look at the DTH market in Brazil, the decline in the total market and what we've been seeing is that the disconnection mainly is in the lower end of the [Technical Difficulty] So we are trying to cancel those customers in order to become more profitable in that business. But if you look at the total revenues or the PayTV business, satellite and cable, we are growing a little bit - we believe that we are winning a little bit of market share in revenues. So we are really focused in increasing the ARPU of the customers and to improve profitability in that segment. I don't know if that answers your question.

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

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

Our next question comes from Walter Piecyk with BTIG.

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

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

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

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

The next question comes from Andre Baggio with JP Morgan.

So, first question I have is in Brazil. You have done some progress of improving the margin, but there's still a good gap for [indiscernible] you can do in order to bridge this gap or is it, the cost of the PayTV that you have that could weigh down to close the gap.

Well, I think I'm not going to compare against Vivo, I'm going to compare against us and I think we're doing a very good cost program in Brazil. It is not something that we're going to do this year. We're going to do it also next year, it's a program for three years and I think it's going to give us very good results. We have different cost structure in Vivo. I don't know how they account things, but we have more PayTV, we have more broadband. So it's the parent company. But I think if you could see really what's happening in Brazil, I think we have been, as we're saying, gaining market share, even that, we have disconnections in DTH, we're gaining market share in TV. We are gaining market share in broadband. Overall, in fixed, in revenues, we're gaining market share. I mean, postpaid, we're doing very good. So, I think the last thing that we need to fix is that prepaid. Prepaid has been difficult, but I think overall, we're doing very good. We have 699,000 postpaid ads in the quarter, so I think it was very good and I think we are very excited about what we can do next year. Still with the cost cutting plan that we have, it's becoming aggressive also for next year and for what we're going to be - we're starting to be a little bit more aggressive, intelligent, but more aggressively in prepaid and we want to - we think we could have a better 2018 than what we have in '17. So we are step by step, but we are doing much better in Brazil.

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

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

The next question comes from Daniel Federle with Credit Suisse.

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

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

Do you hear me?

Revenues on the fixed line.

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

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

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

That next question comes from Richard Dineen with UBS.

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

Yes, just to mention about unbundling, the segregation of services of Telmex began two years ago [Technical Difficulty].

Ladies and gentlemen, please hold.

Sorry, sorry, thank you. All the main operator are having asking us for services either the resale of products or the unbundling of the local loop. In terms of pricing, what I can tell you is that, yes, the price that we have in Mexico is much lower compared to that to other countries. If you compare Europe, Europe you have EUR9 and in Mexico you have only like EUR2, so it's a third what is happening. But at the end, this is one resolution of the IFT in which it will apply for this year and the next year. So we will see what will happen in the coming resolution of the - in the coming resolutions of the IFT.

Sorry, so just if I understand that correctly. The current rate of 68 pesos cent is supposed to - is expected to continue into 2018 as well, is that right?

Yes, for the moment, yes.

Maybe just a super quick clarification, I think it was Walt's question earlier, just to make sure. In Mexico just trying to figure out the impact of the five days free service. Is there any sort of subscription credit for postpaid mobile or fixed line customers for those five days in Mexico? The kind of thing that you did with the postpaid mobile customers in Puerto Rico or was that five days free.

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

Your next question comes from Julio Arciniegas with RBC.

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

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

The next question comes from Fred Mendes with Bradesco.

I have two questions and the first one is related to Argentina, how do you think that the competition evolve in that market for the next quarter considering the M&A between Cablevisión and Telecom. And also on this line, [indiscernible] seems to be not a relevant convergent player in that market at least yet, with the overall leverage decreasing if you see an opportunity for M&A move in that market. That's my first question thank you.

Which market you are talking about, sorry, we don't hear you?

Sorry, Daniel, we're talking about Argentina.

Argentina, okay. Well, in Argentina I think we're doing good, we're gaining market share. Revenues are doing okay. Our EBITDA is growing and what we have is a good challenge for next year because next year we're going to be allowed to give TV, so we're going to have a strategy to do some home passes and to start giving broadband and TV and fixed to some of our customers. So that's going to be the challenge in Argentina. We have the opportunity already do it, maybe it's not the resolution done, but maybe we're going to do also DirecTV, satellite TV. So we are in the process of making an analysis and strategy to give broadband and to give TV to some of our customers.

And then my second question just regarding the competition in Mexico. I had the impression that your competitors still decreasing the level of subsidies for the handsets for the equipment, but it seems that only [indiscernible] strategy and actually increased the subsidy. So just wondering if this reading is correct and if it is correct, there is any change you could also let's say change your strategy and be a little bit more aggressive. Thank you.

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

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

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

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

I'm adding something to Oscar, Mauricio, is that I think - I see DTH as a little bit as postpaid, you need to go to the customer, but to be profitable since the beginning. So if you're going to give everything for free then maybe they are not going to pay you never and also the churn charge and the churn is going to be very high. So you need to have a good strategy to go to DTH, to these segments of the market. And if you have a good strategy and you'll be profitable since the beginning then I think it may be a very good market and I think if the economy of Brazil recoveries I think there is a lot of people who's going to be interested in this product.

The next question comes from Cesar Medina with Morgan Stanley.

I have two questions, one on Colombia. What does the arbitration payment that's to your carry over losses and the tax impact in the country as in what type of effective tax rate should we expect? And then the second one is, how should we think of the impact of currency movements on the Mexican peso on your overall debt, what percentage of the foreign denominated debt is hedged. Carlos García Moreno: On the part of the currencies as we've mentioned several times before, we manage our FX position, so that is not necessarily corresponding to the underlying debt. And the notion of hedging doesn't apply necessarily to bring everything into pesos because we do not generate all our [indiscernible] pesos. So that's what I would say. I think if you look at the structure of our revenues and EBITDA, 80% of our revenues coming for currencies, which are pesos, reals, euros and dollars. That's 8% of our revenues and 80% for EBITDA. So that's basically the currency that we need to be - we have to cover our exposure to irrespective of what the accounting FX that we might have in Mexico on account of this. To the Colombia situation, currently we don't have any tax losses in Colombia that we were carrying forward. So I think it's an issue that we need to be determine how things should be, what would be the impact of this measure, you know how it has been created, you have seen, you know, we have basically had to account for a new obligation that was established by the ruling of this arbitrage panel. It gave rise to a new application that has come up without anything in exchange for this. So it's an obligation that has to go against our network or the company or our equity and that's why it has had an impact on income statement by a way of compensating expense. That's how it has been called. So what effect it has in Colombia, well I don't know, we need to look at this coming next year.

Due to time constraint, we have time only for one more question. Our last question comes from Rodrigo Villanueva from Merrill Lynch.

My questions are related to two specific markets Peru and Telekom Austria. We saw significant improvement on a sequential basis with EBITDA increasing in Peru by around 11% and then Telekom Austria by around 14%. I was wondering if there's any one off that we should be aware of or if you could elaborate a little bit on the strong performance this quarter. Thank you.

On Peru, I think we're doing very good. The cost has been going down, we have been very careful on the cost and expenses in Peru. Even with their competition, the new competitor that is in the market for the last two, three years, we maintain our postpaid base with revenue. So we don't lose a lot of market share. So we're in a good position in the market and we are reducing cost, we're reducing expenses and that will allow us to increase our margins. So it's not a one-off of anything and we're doing good in Peru. So we're happy how the company is developing in the last two quarters. In Telekom Austria, I think Telekom Austria also good market, the eastern countries has been doing also very good. Also telecom market has been good, so we're growing in broadband, we're growing in postpaid in some markets, in PayTV we're also growing so that allow us to deliver better result.

I think generally Telekom Austria, we are having very strong performance, we've mentioned [indiscernible] fixed line platform. We have - fixed broadband is growing very fast. And now PayTV is also growing I think 22% year-on-year. So at the same time on the mobile side, I think that we have seen stronger revenue position than most everybody have expected on account of the phasing out of roaming charges, that were very important for Austria in particular. So it's been the end of the summer, roaming charges came down and it didn't really have much of an impact on our overall revenues. So that I think speaks a lot about the strength of the operation today in Telekom Austria. So very strong fixed, it has been good at managing this decline in roaming charges on the mobile side, and I think it has a good potential. Overall, the economy in Austria has been much stronger than everybody had expected at beginning of the year. I think it's growing closet to 3%. I think the expectation is it will be 1.5%. And the rest of the international footprint they have in Eastern Europe is also doing very well.

Remember that two three years ago, we don't have anything, with only mobile in all the Eastern Europe countries that we have. Today we have a fixed broadband TV in a lot of those countries. So that allow us to giving those good results and allowing us to grow in PayTV and broadband.

The conversion platform, which is what we've done in Latin America is what they're doing in the European operations and it's paying well.

Excuse me again.

Right, thank you very much. Yeah, one more question, yes.

Yeah we do have time for one more question. That comes from Carlos De Legarreta with GBM.

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

I don't understand your question.

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

Yes, of course remember that we're growing more on the postpaid side and that could be part of that reason why we are growing more on revenues than what we grow on EBITDA. Not everything that grows our revenue goes directly to the EBITDA because part of the revenues are also value added services and other things. But I think that's the reason there is good acquisition cost. Carlos García Moreno: But you say for instance, if you look at sequentially, service revenue went from growing 2.3% in the second quarter to going 3% in the third quarter, so that's an increase from 2.3% to 3% or 0.7%. But if you look at EBITDA, in the second quarter it was down 3.3% year-on-year and now in the third quarter it's up 0.9%. So the increase is 4.2%. So I think - I don't know that we can say too much more, other than the basis of comparison also have an impact.

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

I just thank everybody for being in the call and thank you. Carlos García Moreno: Thank you all, bye, bye.