U.S. Markets closed

Edited Transcript of AMXL.MX earnings conference call or presentation 30-Apr-19 2:00pm GMT

Q1 2019 America Movil SAB de CV Earnings Call

Mexico, D.F. May 4, 2019 (Thomson StreetEvents) -- Edited Transcript of America Movil SAB de CV earnings conference call or presentation Tuesday, April 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carlos José García Moreno Elizondo

América Móvil, S.A.B. de C.V. - CFO

* Daniel Hajj Aboumrad

América Móvil, S.A.B. de C.V. - CEO & Director

* Daniela Lecuona Torras

América Móvil, S.A.B. de C.V. - Head of Investor Relation

* Oscar Von Hauske Solis

América Móvil, S.A.B. de C.V. - Chief Fixed Line Operations Officer & Director

================================================================================

Conference Call Participants

================================================================================

* Carlos Antonio de Legarreta Diaz

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst

* Diego M. Aragão

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Ernesto Gonzalez

Morgan Stanley, Research Division - Research Associate

* Maria Tereza Azevedo

UBS Investment Bank, Research Division - Director and Research Analyst

* Matthew Niknam

Deutsche Bank AG, Research Division - Director

* Richard Hamilton Prentiss

Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

* Valder Nogueira

Santander Investment Securities Inc., Research Division - Head of Telecom, Media and Technology

* Walter Paul Piecyk

BTIG, LLC, Research Division - Co-Head of Research and MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the América Móvil First Quarter 2019 Conference Call and Webcast. (Operator Instructions) Thank you. I will now turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. You may begin your conference.

--------------------------------------------------------------------------------

Daniela Lecuona Torras, América Móvil, S.A.B. de C.V. - Head of Investor Relation [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. Thank you for joining us today to discuss our first quarter 2019 financial and operating report. We have today on the line, Mr. Daniel Hajj, our CEO; Mr. Carlos García Moreno, our CFO; and Mr. Oscar Von Hauske, our COO.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [3]

--------------------------------------------------------------------------------

Good morning. Carlos is going to make a summary of the results. Carlos?

--------------------------------------------------------------------------------

Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Daniel. Good morning, everyone.

Before going into the summary of the quarter, I'd just like to make sure that we are all on the same page in terms of the accounting changes that have been enacted and have been implemented in this quarter. So one that is completely new is the IFRS 16 that we will talk a little bit more about it throughout the presentation, which has been implemented beginning on January 1. The other one that is present all throughout the report, although not always mentioned, is the IFRS 15. This is the standard that was implemented regarding mostly service revenues -- the allocation between service and equipment revenues. And this we were presenting on a consolidated basis all of last year, but beginning this year, we are presenting it on a per country basis as well. So all of these numbers, all of the figures are comparable from the point of view of revenues in 2019 to 2018. This is relevant for things like ARPUs. Okay, you cannot consider anymore the ARPU figures that we've had in the past, but for changes and the new levels you have to look at the present numbers of this report.

Anyway, the first quarter of 2019 ended up with a reduction in U.S. long-term interest rates, as it became apparent that the Federal Reserve would not be able to continue increasing interest rates throughout the year as it had signaled late in 2018 and in the first months of 2019. The world economy appeared to be slowing down. During this period, the value of the U.S. dollar versus the main Latin American countries were fairly stable, not too different at the end of the quarter than it had been at its beginning.

Our wireless subscriber base ended March with 277.4 million subscribers, including 1.4 million that came from the acquisition of Telefónica Guatemala. We added in the quarter 1.3 million postpaid subscribers organically, with also 159,000 through the acquisition of Telefónica's asset. Growth was particularly strong in Brazil, where we added 972,000 subs; then came Mexico with 201,000 and Austria with 96,000.

In Brazil, we have consistently given to [Epic], being the main operator in [the Gulf] in the postpaid part of the market.

On the fixed platform, we connected 487,000 (sic) [463,000] broadband accesses, including 74,000 in Brazil, bringing the total to 30.2 million, which is 5.6% more than a year before. PayTV units, 21,400, were down 0.9%, affected by disconnections of DTH services in Brazil.

Mobile postpaid and fixed-broadband were the main drivers of access growth at 6.4% and 5.6% year-on-year, respectively, with mobile prepaid declining 4.1% (sic) [3.4%], mostly in Brazil -- we had disconnections in Brazil -- and both fixed-voice and PayTV almost flat from a year before.

Our revenues totaled MXN 246 billion in the quarter and were 3.1% lower than a year before in Mexican peso terms, reflecting the depreciation of most of our operating currencies versus the Mexican peso, with the U.S. dollar being the main exception.

On average, the Brazilian real fell 11.7%, the Chilean peso 7.5%; the Colombian peso 6.6% and the euro 5.3% versus the Mexican peso in the first quarter. This is the first quarter of '19 vis-à-vis first quarter of '18. So this basically means that most of the international operations for América Móvil, when expressed in peso terms, ended up showing a decline. Again, the currencies of both our operations declined in value vis-à-vis the Mexican peso.

EBITDA came in at MXN 75 billion in the quarter under the new IFRS 16 standard, by which most lease payments are not deducted anymore from the operating cash flow and instead are capitalized as new debt coupled with rights of use of assets. Under this accounting convention, the EBITDA margin for the quarter was 30.6%. Under the prior reporting methodology, EBITDA would have declined 5.6% year-on-year in Mexican peso terms. And again, as with the case of the revenues, it's mostly to do with the change of value of the currency vis-à-vis the Mexican peso.

At constant exchange rates, service revenues were up 2.5%, in line with the trend of first half of last year, and EBITDA 2.6%, which represents a deceleration from the levels in the last quarters.

In this deceleration of EBITDA, 2 factors are important, and I think it's important to highlight them. One is restructuring costs in Telekom Austria associated with plans to incentivize earlier retirement of employees and that represent onetime compensation costs. They were important, and in this particular quarter, they amounted to roughly MXN 500 million. And we also had one-off charges in Telmex, mostly to do with the loss of a dispute with another operator and the payment of a fine to the regulator. Again, all of this together, the Telekom Austria and Telmex, we are talking about roughly MXN 1 billion in one-off charges.

In Telekom Austria, by the way, and in reflection of Telekom Austria and the reporting of the company, it is very clearly highlighted what these so-called restructuring costs are. We will continue to see them from time-to-time. The company, Telekom Austria, has a line item that is adjusted EBITDA in their EBITDA adjusted for these restructuring costs.

Mobile service revenues continued very much along their trend, and fixed service revenues, although down from the prior quarter, appeared to be improving.

Worldwide fixed-broadband revenues that were up 9.9% and postpaid mobile revenues that increased 6.8%.

Fixed-broadband revenues have accelerated significantly and are outpacing all other revenue units, including postpaid mobile.

Only PayTV revenues declined, minus 3%, continuing the trend seen throughout most of the last 2 years.

In the South American block, service revenue growth 3.8% remained in line with that of the prior quarter; whereas in Central America, it rose from 0.5% in the fourth quarter to 4.2% in the first one, basically to do with the incorporation of Telefónica's former operation in Guatemala, from February 2019. Service revenue growth decelerated in both Mexico and the U.S., to 1.6% in Mexico and to 0.6% in the U.S.

Now our operations in Europe, Austria and Eastern European countries. The service revenue growth picked up to 2.9% from minus 1.1% in the prior quarter.

In Mexico, service revenue growth was favorable in both postpaid and fixed-broadband at 6.9% and 1.0%, decelerating in prepaid to 4.7%.

Fixed service revenues continued their trend lower, declining 8.2% year-on-year, which includes, as I mentioned before, some one-off charges that are appearing in this quarter.

In Brazil, service revenue growth was also stable in postpaid and fixed-broadband at 9.2% and 14.5%, respectively, and improving in prepaid that was almost flat year-on-year.

Fixed-voice and PayTV revenues continued their decline at roughly the same pace they have for the last few quarters.

With comparable figures, the consolidated EBITDA margin was slightly down at 0.3% from the year earlier quarter. EBITDA margin was up 2.9% in the Caribbean and broadly 1% in Peru, Colombia and Brazil, with Ecuador improving 0.5 percentage points and declining slightly in Mexico, 0.3 percentage points, and Central America.

Our operating profit reached MXN 35 billion under the same IFRS 16 standard, while our comprehensive financing cost totaled MXN 1.2 billion. Both the line items reflect changes under the new methodology, including the allocation of the former rental payments greater depreciation costs coming from the new rights of use that were created as assets in the balance sheet and greater interest costs, that is, the interest component associated with the former rental payments.

We obtained a net profit of MXN 19 billion in the quarter, which was 3.6% higher than the one of the year-earlier quarter.

Our net debt ended March at MXN 703 billion, which includes now our current MXN 116 billion in former lease payments that were capitalized under IFRS 16 as you can see in the chart.

In the first quarter, our capital expenditures totaled MXN 20 billion -- MXN 28 billion and were partly funded by new debt. We paid MXN 6.3 billion for Telefónica's operation in Guatemala and contributed MXN 5.9 billion to our pension funds.

The main changes in our income statement brought about by the introduction of IFRS 16 are summarized in the following table. There are now -- new depreciation -- as you can see, the amount of constant expense is reduced by MXN 7.1 billion. We have now greater EBITDA by the same amount, and there are now new depreciation charges of MXN 5.9 billion, an incremental financing cost of MXN 2.1 billion, all of which result in a reduction of net income of MXN 782 million. So clearly the bridge between the prior methodology, which is IAS 17 to the new accounting standard, which is IFRS 16. Okay. So this is summarized in the table for you.

The new leverage metrics would be 2.27% -- sorry, 2.27x, which is if we were to annualize the first quarter EBITDA, which is the only one that we have under IFRS 16, or it would be 2.08x if a new metric is introduced, which is one that is now utilized very much in the industry, which is called EBITDA-AL, EBITDA after leases, which means that the change in accounting standard results in increasing the leverage metric of approximately 0.2x. Using our previous methodology and considering the EBITDA of the prior 12 months -- not only this quarter annualized but the last 12 months -- the metric was 1.95x as shown in the chart.

Okay, so we increased slightly from 1.88x at the end last year to 1.95x in the first quarter, basically to do with the seasonality of our cash flow, which tends to require more working capital in the first quarter and which tends to give it back in the next quarters and particularly in the fourth quarter. Okay. So using the prior methodology, as you can see, the net debt-to-EBITDA ended at March at 1.95x.

So with this, I would like to give the floor back to Daniel and maybe we can begin the question -- the Q&A session. Thank you, all.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [5]

--------------------------------------------------------------------------------

Thank you, Carlos.

--------------------------------------------------------------------------------

Daniela Lecuona Torras, América Móvil, S.A.B. de C.V. - Head of Investor Relation [6]

--------------------------------------------------------------------------------

We're ready to take the first question.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Rodrigo Villanueva with Merrill Lynch.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [2]

--------------------------------------------------------------------------------

My first question is related to wireless projects in Mexico. I was wondering now that AT&T decided to raise prices in a significant way from the second quarter of this year, you would be in a position to do the same? And if so, if you could please quantify the potential increase and when would it be effective?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [3]

--------------------------------------------------------------------------------

Rodrigo, I think Mexico is, in the wireless side, is becoming a little bit more rational. Prices were very low in the last years, a lot of promotions. And I think competitors last year stabilized a little bit some prices and the promotions, and our competitor increased prices in April. We increased also prices in the prepaid segment. We reduced the duration of the card -- of the MXN 100 card. It's a very important card for us. We reduced from 17 to 15. And also we increased our low-end plans around 4%, 3% to 4%. So we start from that, and we're going to see how the market behaves. And of course, we're open to do more things, but what we want to see how the market is behaving and the demand is having.

What I can tell you also in Mexico, that usage is going up still. We're growing in that usage. We're putting the network. Our network is giving very good speeds, very good quality. We are very good also in number portability. So we're gaining in number portability. Our ARPUs are still growing. So I think all overall, our wireless segment in Mexico is doing very good. So we are willing to increase prices as we do it, and we want to see how the market is behaving.

--------------------------------------------------------------------------------

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [4]

--------------------------------------------------------------------------------

Understood. And my second question is related to the recent acquisition of Nextel Brazil. Could you please give us an update on the potential date for the transaction to close? And also if you could please help us quantify potential synergies, that would be very helpful.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [5]

--------------------------------------------------------------------------------

Well, I think the process is going. I think that we can close the deal in the fourth quarter of this year -- end of third quarter or fourth quarter of this year. What we do -- I think it's very important it's an in market consolidation; we are not looking for acquisitions, but this acquisition as the Nextel acquisition is giving us good subscribers in the main cities in Brazil, in Rio de Janeiro, in São Paulo give us a lot of spectrum, so we can have a better network savings on CapEx with more spectrum. They have good people. And I think all overall, it's very important for the market to consolidate and thus not catfight and instead of having 5 competitors to have 4 competitors. So I think all overall is good. We don't -- I don't have the numbers specifically on what is going to be the synergies, but the synergies are very important in terms of spectrum and the subscribers, that we have very good subscribers in (inaudible).

On OpEx, of course, we can reduce the big part of the operating OpEx on -- we have the same towers, we can reduce the number of towers. We can reduce a lot of savings, energy. There's a lot of things that we can reduce in the operating side. So makes a lot of sense for América Móvil to do that. We have been doing very good in the wireless side also in Brazil, growing, growing faster than our competitors, growing ARPU, minutes of use, data. So our network is the best network in Brazil. So I think it makes a lot of sense to do the Nextel deal.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Your next question comes from Matthew Niknam with Deutsche Bank.

--------------------------------------------------------------------------------

Matthew Niknam, Deutsche Bank AG, Research Division - Director [7]

--------------------------------------------------------------------------------

Just two if I could. Maybe to go back to the last question and maybe just expand on the margin opportunity, both in Mexico and Brazil. I think Mexico obviously, Carlos, you called out some onetime items. But maybe if we sort of look past that, how should we think about the pacing of margin expansion on a comparable basis this year, both in Mexico and Brazil? And then secondly, just in terms of leverage, you mentioned sort of you're at 1.95x under the sort of prior methodology. How should we think about leverage targets and where you'd like to get to? Any updates there that you can provide.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [8]

--------------------------------------------------------------------------------

Well, in Mexico, we said that we want to increase our margin like 1 to 2 points this year, and we are on target. As Carlos said, we have -- in Mexico specifically, we have some things on the revenue side. We are -- as we talk a little bit about the wireless segment, in the fixed we are increasing speeds. We're giving unlimited voice in the fixed side, so it's been more competitive and more aggressive, this market. And we're putting lot more network, more fiber to the home. So we're investing a lot in the fixed side. And I think we're going to get more revenue in the broadband side -- in the fixed-broadband side in Mexico.

We have some one-offs, like some fines and -- that we have one fine that we have with the IFT that we paid -- some legal disputes that we have and other ones that we have that -- the one-off that we have. And of course, some costs that are increasing. Energy in Mexico is increasing a lot. So despite of the costs that we have been increasing, but all overall, I think in the mobile side, we are doing very good and looks like for this year is going to be better. And in the fixed side, I think it's going to be a little bit more aggressive, and we're looking for good customers, so for more fixed-broadband customers. We're investing a lot on fiber to the home and that's more or less how we see the market in Mexico.

--------------------------------------------------------------------------------

Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [9]

--------------------------------------------------------------------------------

I think for the leverage metrics, I think we can continue to look at the old numbers, the old net debt-to-EBITDA. We will continue to post the EBITDA under the old methodology and the debt under the old methodology, so that we can keep it very clear, very simple. We're not changing our targets of 1.5x net debt-to-EBITDA under the prior methodology.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

Your next question comes from the line of Walter Piecyk with BTIG.

--------------------------------------------------------------------------------

Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [11]

--------------------------------------------------------------------------------

My first question is for Carlos. I think the CapEx expectation is MXN 8.5 billion for the year. I wonder if that's on target and if you could comment on, as a result, incremental free cash flow, thought process on share repurchase and/or dividends over the course of the year. And then for Daniel, in the U.S. market, your margins were down in 2018 and looks like a down again in the first quarter.

When you think about the U.S. strategically, if there's an opportunity to add scale and buy an existing large prepaid customer base to add to TracFone? I mean, I'm specifically thinking of if Sprint T-Mobile is required to divest their Boost business for prepaid. Is that something that would be of interest to you? Or alternatively, if you could get a sale of that to like T-Mobile or AT&T at a decent EBITDA multiple, which way strategically do you think makes more sense for América Móvil going forward?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [12]

--------------------------------------------------------------------------------

Well, I'm going to start on the U.S. Just to let you know, you said that we reduced our margin this year against last year and last year against '17. Just on what we do on '18, we start to grow. So '17, what we decided is to check on the growth of the company and the subscribers and that's the reason why we have a very good EBITDA margin. In '18, we start to grow, and in '19, we start growing very good. We had a soft first quarter because of the tax. It was softer than expected, the tax return season, so that's why we don't grow more.

But I think in April, we're growing more. But we have a budget on EBITDA in U.S. that is a little bit higher than $600 million, and we are on target on that. We feel that we'll accomplish that. And this EBITDA is with more growth than what we had the last year. So I think in TracFone we're doing good. We are developing the market. Prepaid is doing also -- we are better than some of our bigger carriers in the U.S. They've released the numbers and in TracFone we're doing good the first quarter. So we are good. You said about the remedies on T-Mobile and Sprint. We are open to see what would be the alternatives, and we're happy with this company and how platform is evolving.

--------------------------------------------------------------------------------

Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [13]

--------------------------------------------------------------------------------

On the CapEx, we are sticking to our MXN 8.5 billion CapEx for the year. That's the budget. The dividend that was approved by the shareholders assembly in the last several weeks is MXN 0.35 per share, so that's already been redefined. And I think that other than the M&A transactions that we have discussed so far with Telefónica and Nextel, I think the intent is basically to keep on reducing debt, okay? So we are very -- the feeling is going to be tracking our goal of 1.5x net debt-to-EBITDA continues to be a priority. We discussed this with the rating agencies. We discussed with our fixed income investors in the context of our placing a coupon issued in the market a few days ago. So I think we are very much intent on continuing to bring our leverage down.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [14]

--------------------------------------------------------------------------------

And just to finish with the platform EBITDA, I think -- margins, I think that this year we're going to have around the same EBITDA of last year with a better growth than what we had last year. So I think we're improving and this year is going to be an improve on TracFone against last year.

--------------------------------------------------------------------------------

Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [15]

--------------------------------------------------------------------------------

Understood, Daniel. Can I just have one quick follow-up on that. Does it ever make sense to be a network owner in Mexico or are you happy just remaining as an MVNO?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [16]

--------------------------------------------------------------------------------

In Mexico?

--------------------------------------------------------------------------------

Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [17]

--------------------------------------------------------------------------------

I'm sorry, in the U.S., in the U.S.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [18]

--------------------------------------------------------------------------------

No, no, it makes -- it doesn't make sense for us to be -- it's -- we're happy to be an MVNO. We are -- the company is doing very good and we still want to be an MVNO. Of course, if there's a possibility of buying more subscribers, not a network, subscribers, would be good, and we are open to think about it or capacity. No, but we don't want to own a network in the U.S.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Your next question comes from the line of Diego Aragão with Goldman Sachs.

--------------------------------------------------------------------------------

Diego M. Aragão, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

--------------------------------------------------------------------------------

First, about Mexico, you mentioned on the release that you had some onetime items impacting EBITDA this quarter. So I was wondering if you can quantify the total amount of these items, so we can properly calculate the business performance in Mexico. And separately, if you can comment about the overall business performance in the country, as the numbers in the first quarter imply some deceleration on a sequential basis. This is my first question.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [21]

--------------------------------------------------------------------------------

Yes, the one-offs that we had, we calculated around MXN 400 million is what we had in Mexico. The one-offs that we have in Mexico are around MXN 400 million is what we have. And as -- to talk a little bit about the develop of the Mexican market, as I said, in the wireless side, looks good. I think it looks more rational, the competition. You never know with the competitors, no, but looks like everybody wants to be a little bit more rational and some price increases of our competition, some price increases from us. So things are going in the right direction. And we still are having a good data usage going on, good network in the wireless side, a lot of postpaid. I think we're going to be the leaders by far in adding postpaid customers in Mexico. So things are going very good in the wireless side in the Mexican markets.

On the fixed, we think there is a good room to grow. There is still a lot of broadband that we have still to grow in the market. In the TV side, prices are too high, so I think there's still room to do something in the PayTV market. And we're investing in our networks, not only on the wireless, also on the fixed fiber to the home. So I think these things are not one day to the other one, but we are investing, and we're doing good things in the market. So we can see in the future a better result in the fixed-broadband market. I think also in the fixed side, we have a big reduction on the voice. On voice, we have -- but the voice is still going down and down, so there's no more room to go down in voice, so this is finished. So that's also some good news. Now we have voice is going down, and down for long distance. We don't have any more long distance. So things that are -- don't -- things are not going good in the right direction are disappearing, so -- and in the other side, we have a very good room in the fixed-broadband side. So that's how I see the Mexican market.

--------------------------------------------------------------------------------

Diego M. Aragão, Goldman Sachs Group Inc., Research Division - Equity Analyst [22]

--------------------------------------------------------------------------------

That's excellent. Just to clarify, the MXN 400 million is the net impact on EBITDA, right?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [23]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Diego M. Aragão, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

--------------------------------------------------------------------------------

Okay. Perfect. So just -- and second, just a follow-up on the recent deals you've done, I mean, your pair of assets from Telefónica and Central America and also the deal to buy Nextel in Brazil, and I understand that you do not want to disclose some synergies numbers, but I was wondering if you can just share what will be the timing for you to reach, let's say, a real rate of the expected synergies for those deals above, let's say, of 100%? Also, would you consider further acquisitions in the LatAm region?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [25]

--------------------------------------------------------------------------------

I think the -- what we do is we were not -- as I said, we were not looking to grow from acquisitions. But these 3 acquisitions that we do, specifically Guatemala, El Salvador and Nextel in Brazil are in-market consolidations, give us a lot of spectrum in all the 3 acquisitions, and good customers. And I think to do all the synergies, well, it takes around 18 months to 2 years -- 24 months. So that's more or less the time that takes you to do all the synergies in each of the countries. Guatemala, we already closed in February. So we're in the process of doing that. Everything is going well. And we hope that El Salvador, we close the deal at the beginning of third quarter. I think we can do that. And as I said, in Nextel could be in the fourth quarter. So that's more or less what we have to do, and the time that takes is more or less 18 to 24 months, the time to do -- really to do the synergies that we need to do.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Your next question comes from the line of Maria Azevedo with UBS.

--------------------------------------------------------------------------------

Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [27]

--------------------------------------------------------------------------------

My first question would be on your convergence strategy in Brazil. Following the Nextel acquisition, do you see room to raise prices in that market as well now that you have a higher postpaid market share? Or do you think you can still leverage on your network and spectrum advantage and be a little bit more aggressive to increase data usage and even get a higher postpaid market share?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [28]

--------------------------------------------------------------------------------

Well, I don't understand when you talk a little bit about our convergence strategy. What our convergence strategy is very clear. We are going to do all the synergies between the fixed and the mobile. We have been doing that for the last 3 years. It's been network, commercial, we have packages, the combo package that we have in Brazil, so all of these things we will start. And as with the new spectrum that we could get with the Nextel acquisition, of course, we can have more data and more speed.

And also we can save some money in CapEx now because if you have more spectrum then you don't have to put so much CapEx. So there's a lot of things that we could do and -- but we have our convergence strategy going forward and doing very good in Brazil and also what we can have it -- with more spectrum, of course, you get better quality, more speed. And I think in Brazil, still data is going to grow a lot. In all Latin America, data is going to grow a lot. So spectrum, it's important too.

--------------------------------------------------------------------------------

Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [29]

--------------------------------------------------------------------------------

Perfect. As a follow-up question, I would like to touch a bit on 5G. Can you please comment on what are your expectations in terms of 5G auctions expected to happen in 2019? And if your CapEx budget is already considering 5G investments for the coming years?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [30]

--------------------------------------------------------------------------------

Well, I think 5G is not -- it's not -- the CapEx that we're putting this year in 2019 has part of 5G. We are doing the fiber to the node. We're doing the [individualization] of the networks. We are buying some spectrum in some countries. So all of that we are doing through this year. I think we're going to do some testings in some countries this year. But I think 5G in América Móvil is going to start to be in 2020, it's not going to be in 2019. So some opportunities are on the spectrum for 5G could be in Argentina, Chile, Guatemala, Honduras, Panama, Paraguay, Peru and Austria that we just closed the auction. I think it was on February or March we closed the auction on Austria. So Austria is going forward. I think the country that it's more advanced in 5G is going to be Austria, and I think we can get some countries, some cities in Austria by the end of 2019 in 5G. So that's more or less where we are, so...

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Your next question comes from the line of Carlos Legarreta with GBM.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

Just two very brief questions. The first one on the first quarter, you mentioned a fine of MXN 2.5 billion, I believe, was disclosed. I want to know what the status of that is, please.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [33]

--------------------------------------------------------------------------------

No. What we said is that we have one-offs in Mexico of around MXN 400 million, okay? Not -- it's MXN 400 million one-offs in Mexico, okay, for the first quarter.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [34]

--------------------------------------------------------------------------------

No. I'm sorry. That's very clear. But on the fourth quarter, there was a disclosure of a fine that was imposed of around MXN 2.5 billion, if I recall correctly. I understand it hasn't been paid, you guys are still computing it, but I would like to know...

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [35]

--------------------------------------------------------------------------------

It's being contested in court. Yes. It's what we had in the fourth quarter and it's a fine and it's being contested in court. So that's nothing to do -- nothing related to this.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [36]

--------------------------------------------------------------------------------

Okay. That's very clear. And just the follow-up if I may. Just in Mexico, I'm still trying to make sense of the slowdown in service -- in wireless service revenue growth. I mean you guys are like you said, still growing ARPU, improving the mix postpaid versus prepaid. So I want to how can we understand what's making or explain this deceleration?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [37]

--------------------------------------------------------------------------------

Well, remember that we -- I think in 2016, we had a big reduction on revenue because of the big promotions that we have, and every year, we have been growing. So we cannot grow at the same pace to the last year because we came from another base of revenues. This base is 2018, we had a good growth and still '19 is higher than what we had in '18. Also if you are comparing against fourth quarter, remember that the Christmas promotions are very important. So the growth in revenues, people have more money and people spend more. But what I can tell you is that people is using data is still consuming more and more, and as promotions get more stable and we don't have to do big promotions in the market, I think revenues can grow faster.

--------------------------------------------------------------------------------

Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [38]

--------------------------------------------------------------------------------

I think there's something to look at, Carlos, about changing the accounting standard to IFRS 15, and this is -- it becomes difficult to look at year-on-year comparisons because then you have a different basis. So I think that maybe could (inaudible). We have the numbers, so we can look at the actual trends on a common basis of absolute numbers, but looking at growth rates we can't (inaudible). So maybe we can later share with you what it looks like in absolute terms, so that we can have a better idea of the real trends that we're having.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [39]

--------------------------------------------------------------------------------

And I think a lot of the prepaid subscribers are going to use more and more available data and convert to a postpaid or use more in the prepaid side. So still in Mexico and in the rest of Latin American countries, I think we still have a lot to do in that. So people is going to use more data and if we're available to charge for that data with reasonable promotions, revenues has to go up. The ARPU has to go up. So still there is lot -- as I said before, still broadband -- fixed-broadband is still a long way to go. There is still a lot of subscribers that needs that fixed-broadband service. Still I think that a lot of the prepaid subscribers are going to need more and more data. And if we have these reasonable promotions, then it's going to -- we have a good revenue growth.

--------------------------------------------------------------------------------

Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [40]

--------------------------------------------------------------------------------

And just very quickly, given that there is more money in the pockets of some citizens in Mexico, have you seen an increase in the take-up or the recharge, the average recharge in prepaid?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [41]

--------------------------------------------------------------------------------

I don't have the numbers here, but, yes, I think there's going to be more money in Mexico. It's going to be -- really impact our -- eventually, it's going to impact our prepaid subscribers, no? They're talking a lot about giving money to the old people, to the young people and that, and I think that will make more spending in the prepaid side. So I'm sure that eventually we could have more people using and spending more in the prepaid side.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Your next question comes from the line of Ernesto Gonzalez with Morgan Stanley.

--------------------------------------------------------------------------------

Ernesto Gonzalez, Morgan Stanley, Research Division - Research Associate [43]

--------------------------------------------------------------------------------

I just have two quick questions. The first one is, a moment ago, you mentioned that this year's EBITDA in the U.S. should be similar to last year but with higher growth. The similar EBITDA, do you mean EBITDA margins, or is it in absolute terms?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [44]

--------------------------------------------------------------------------------

No. I'm talking about absolute terms. Our budget is to grow more -- to have a little bit more than $600 million in EBITDA. And I think we are going to have that EBITDA this year. I'm sure that we're going to grow more than what we had in the last -- to have better numbers in terms of customers this year than last year.

--------------------------------------------------------------------------------

Ernesto Gonzalez, Morgan Stanley, Research Division - Research Associate [45]

--------------------------------------------------------------------------------

Great. And just my second question. If we could talk about mobile service revenue trends in Brazil. We've seen slowdown in year-over-year growth. Could you please tell us what you're seeing in the market?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [46]

--------------------------------------------------------------------------------

Well, if we talk a little bit about Brazil, I think the economic situation in Brazil is going a little bit more slow than what everybody's expecting. So the recovery in Brazil is taking a little bit more time on what everybody's expecting and that's also related to this, no? So, as we're strong -- I think we are being the leaders in net adds, the leaders in the service revenue in the wireless segment. And I think we have a very good network. We have good promotions. I think our brand is getting better, and very good image in our brands.

So I think all the work that we have been doing for the last 3 years is getting better. We are doing good investments in the network, in 4G, in 4.5G. We have the best speeds in the market. So we are very competitive, not only in price, we're competitive in everything there. So also we have a very good fixed network, so the convergences is going well. Our combos are doing excellent. So in Brazil, I think this year, we can have a very good year. I don't know exactly how fast is going to be the recovery in Brazil, but as the recovery is going good, we're going to take advantage of that recovery.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

Your next question comes from the line of Ric Prentiss with Raymond James.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [48]

--------------------------------------------------------------------------------

I want to come back to the U.S. if I could for a moment. When you mentioned better customers in 2019 than 2018, do you expect to have net adds positive for the year, or just less of a loss?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [49]

--------------------------------------------------------------------------------

We separate the Straight Talk and the SafeLink. I think in SafeLink, that are the customers that are the Lifeline customers that we have, I think we're going to have much less -- negative adds. So much less than what we have last year. And in the other ones -- all the other ones, I think we're going to have positive this year and much better than last year.

--------------------------------------------------------------------------------

Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [50]

--------------------------------------------------------------------------------

Makes sense. It seems to be that you're having quite a good success with the Straight Talk brand in the United States. How do you think that's being positioned, and is that really the strength of the growth?

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [51]

--------------------------------------------------------------------------------

Yes, Straight Talk is one of our main brands and it has been very competitive and very well positioned in the U.S. market. So as a prepaid brand it's doing very good, also we have other 2 or 3 brands. Simple Mobile is doing very good. Walmart Family Mobile is also doing very good. So these brands are going to do very good this year. I mean they're doing good -- and the SafeLink, that is the Lifeline program, it's going to have much less reductions than what we had last year. It's the way we're seeing the market.

--------------------------------------------------------------------------------

Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [52]

--------------------------------------------------------------------------------

ARPU has increased nearly 7% year-on-year in the U.S., which goes to show how well the company's positioned itself, particularly Straight Talk.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [53]

--------------------------------------------------------------------------------

Straight Talk has -- I think the main program that we have is around $40. So it's a very good program and [writing] we're having a new one of $50 unlimited. So it's a very good, very, very good program at the Straight Talk, and (inaudible)

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

Your last question comes from the line of Valder Nogueira with Santander.

--------------------------------------------------------------------------------

Valder Nogueira, Santander Investment Securities Inc., Research Division - Head of Telecom, Media and Technology [55]

--------------------------------------------------------------------------------

You have been doing a decent job in defending your market share in broadband and fixed-line broadband in Brazil. I believe part of it, of course, is the strength of your network, but also the bundling that you have put forward with all the features that the group has in Brazil. My question comes from the sense that part of the competition has come from the so-called regional players, some of them with radio, some of them with fiber, and the local ISPs. Do you guys intend to increase your CapEx in fiber or go through M&A including fiber assets? How do you plan to continue well defending this such important market share in Brazil?

--------------------------------------------------------------------------------

Oscar Von Hauske Solis, América Móvil, S.A.B. de C.V. - Chief Fixed Line Operations Officer & Director [56]

--------------------------------------------------------------------------------

Yes, you're totally right. What we've been seeing in the market is what they call the small players. They are taking share, very important share in fixed-broadband. I think they have like 20%, 21% of market share and they are really dispersed across all of Brazil. They are using microwaves in some cases, cable in other cases. We believe when you look at the market, in the cities that we have network we've been doing pretty well in market share and as well in ultrabroadband. I mean we're the leaders in ultrabroadband in Brazil. We believe that maybe get into the market, it could be with wireless proposal, more than go to fixed. That is real expensive to go all those [Reals]. So you're totally right, it's a market that they're growing. I think we have room to get there and to compete against these operators.

--------------------------------------------------------------------------------

Valder Nogueira, Santander Investment Securities Inc., Research Division - Head of Telecom, Media and Technology [57]

--------------------------------------------------------------------------------

Oscar, does it make sense for you to form partnerships with some of these players?

--------------------------------------------------------------------------------

Oscar Von Hauske Solis, América Móvil, S.A.B. de C.V. - Chief Fixed Line Operations Officer & Director [58]

--------------------------------------------------------------------------------

Yes. They have only the delivery of broadband. We've been talking with them to offer bundled packages, adding PayTV as mobile as well. It makes sense to do that as well, commercial agreement with them.

--------------------------------------------------------------------------------

Valder Nogueira, Santander Investment Securities Inc., Research Division - Head of Telecom, Media and Technology [59]

--------------------------------------------------------------------------------

Okay. Do you believe we should begin seeing numbers on this, or does this just...

--------------------------------------------------------------------------------

Oscar Von Hauske Solis, América Móvil, S.A.B. de C.V. - Chief Fixed Line Operations Officer & Director [60]

--------------------------------------------------------------------------------

No, no, we are in the initial phase of that, but you are totally right. We're getting closer to them to get at commercial agreements with some of them.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

I would now like to turn the call over to Mr. Daniel Hajj for final remarks.

--------------------------------------------------------------------------------

Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO & Director [62]

--------------------------------------------------------------------------------

Well, thank you, everybody, for being on the call, and thank you, Daniela and Carlos, Oscar. Thank you very much.

--------------------------------------------------------------------------------

Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [63]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

This concludes this conference call. You may now disconnect.