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Edited Transcript of AMXL.MX earnings conference call or presentation 26-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 America Movil SAB de CV Earnings Call

Mexico, D.F. May 21, 2017 (Thomson StreetEvents) -- Edited Transcript of America Movil SAB de CV earnings conference call or presentation Wednesday, April 26, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Fernando Robles Miaja

Teléfonos de México, S.A.B. de C.V. - Chief Financial and Administrative Officer

* 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 and Director

* Daniela Lecuona Torras

* Oscar Von Hauske Solís

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

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Conference Call Participants

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* Alejandro Gallostra

Grupo Financiero BBVA Bancomer, S.A. de C.V., Research Division - Research Analyst

* Amir Rozwadowski

Barclays PLC, Research Division - Director and Senior Research Analyst

* Barbara Virginia Halberstadt

BofA Merrill Lynch, Research Division - Associate

* Carlos Antonio de Legarreta Diaz

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

* Diego M. Aragão

Morgan Stanley, Research Division - Equity Analyst

* Maria Leonidovna Kahn

Deutsche Bank AG, Research Division - Research Analyst

* Maria Tereza Azevedo

UBS Investment Bank, Research Division - Director and Research Analyst

* Mauricio Fernandes

BofA Merrill Lynch, Research Division - MD and Head of Latin America Equity Research

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

* Walter Paul Piecyk

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

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Presentation

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Operator [1]

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Good morning, and welcome to the América Móvil First Quarter 2017 Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Daniela Lecuona, Head of Investor Relationships. Please go ahead.

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Daniela Lecuona Torras, [2]

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Thank you. Good morning, everyone. Thank you for joining us in this call. We have on the line, Mr. Daniel Hajj, our CEO; Mr. Carlos García Moreno, CFO; Mr. Oscar Von Hauske, COO; and also, Mr. Carlos Robles, CFO of Telmex.

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

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Okay. Thank you, Daniela. Welcome, everyone. Carlos is going to make a summary of the first quarter results.

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

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Thank you, Daniel. Good morning, everyone. Following the first quarter of 2017, economic activity remained sluggish in Brazil but appeared to be strengthening across the region. This included Mexico, that resumed its expansion after a rocky start of the year in the wake of the U.S. election as increased uncertainty about NAFTA's prospects impacted consumer sentiment and pummeled the peso. By the end of the quarter, retail sales were surging and the peso versus the dollar had risen to its best level since the U.S. elections. It was the top-performing currency in the period.

First quarter revenues of MXN 264 billion were 18.5% higher than those of the year-earlier quarter, with EBITDA of MXN 72 billion rising 15.8% year-on-year. The EBITDA margin, 27% -- 27.1% was nearly flat in the period, having declined 0.6 percentage points. The significant peso increases reflect the year-on-year depreciation of the peso versus Southern-Latin currencies and the dollar with the peso declining 28% versus the real, 20% versus the Colombian peso, and 8% versus the dollar with respect to the prior year.

Consolidated service revenues continued their comeback led by Mexico and Colombia. At constant exchange rates, they were up 3.1% year-on-year compared to 0.7% the prior quarters and minus 0.2% in the third quarter.

Most regions experienced sequential improvements in service revenue growth. As service revenue growth accelerated, EBITDA continued to improve with a significant swing from an 8.1% year-on-year decrease in the fourth quarter to an increase of 1.5% in the first quarter, the first increase in 8 quarters. Mexico, Brazil, Colombia and Peru were all important contributors to this sequential improvement with the latter experiencing an important turnaround and Mexico recovering rapidly.

To some extent, the acceleration in revenue growth can be credited back to the important and sustained increases in broadband accesses and postpaid subscribers, with the former increasing 6.4% and the latter posting a 5.1% year-on-year increase. Postpaid net adds totaled 632,000 subs in the quarter, including 177,000 in Mexico, and 205,000 in Brazil.

Every single business line presented sequential improvements in the first quarter at constant exchange rates, most notably mobile data revenues, whose rate of growth shot up from 11.7% in the fourth quarter to 16.5%. Voice revenues recovered sequentially on both platforms, particularly on the fixed-one, although are still posting negative rates of growth.

Over the last year, the contribution of mobile voice call revenues declined 3.9 percentage points and was, for the most part, substituted for by the contribution of mobile data revenues, which increased 2.8 percent points to 50.5%, and that of PayTV revenues reached 10.4%, which is 1.6 percentage points more than a year before.

The significant currency movements over the last few quarters, particularly with the Mexican peso, led to a marked change in our revenue structure by currency. In the first quarter, real-denominated service revenues accounted for 25% of the total, followed by Mexican-peso-denominated ones with 22%. Dollar-based revenue represents 21.6% of our revenues but that percentage increased to 27.3%, if those countries whose currencies have practically pegged to the U.S. dollar, particularly Guatemala and Dominican Republic are also considered a dollar based.

Within the currency, local currency terms show very positive trends in Mexico and several South American countries. We have the growth rates trending up.

EBITDA responded strongly to higher recurring growth, particularly in Mexico, Columbia, Brazil and Peru.

Our operating profit growth of 8.3% from the year-earlier quarter to MXN 30.4 billion, and together with financial income in the amount of MXN 30.3 billion, helped us attain a net quarterly profit of MXN 35.9 billion.

Financial income stemmed from foreign exchange gains of MXN 37 billion, that resulted for the most part from the appreciation of the Mexican peso versus the dollar and the euro in the period, at least in the quarter.

Our net profit was equivalent to MXN 0.55 per share and $0.53 per ADR.

Capital expenditures totaled MXN 29 billion in the quarter. We invested an additional MXN 3.7 billion in the acquisition of ownership interests in Olo, in Peru, where we basically have spectrum, and Metronet in Croacia, and effected share buybacks in the amount of MXN 448 million (sic) [MXN 444 million]. Substantially, all of these outlays were covered by our cash flow, the remainder financed by MXN 2 billion in net borrowings from the market.

Notwithstanding our net borrowings, in peso terms, our net debt came down to MXN 584 billion from MXN 630 billion in December as a consequence of the appreciation of the currency. As of March, our net debt-to-EBITDA, last 12 months, ratio stands at 2.1x, which is roughly flat with the -- within 3 months -- the entire quarter.

So with this, I would like to pass the floor back to Daniel and we can start the Q&A session right now. Thank you.

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

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Thank you, Carlos.

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Daniela Lecuona Torras, [6]

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Thank you. We can take the first question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Amir Rozwadowski from Barclays.

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Amir Rozwadowski, Barclays PLC, Research Division - Director and Senior Research Analyst [2]

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A couple of questions, if I may. I was wondering if we could touch a bit on the competitive landscape in Mexico at the moment. It does seem as though based on the commentary that you provided and some of the comments in the release, you are seeing a bit of an easing of the pricing pressure that was experienced over the course of last year. I was wondering if you could talk a bit more about the trajectory at which you expect pricing to unfold through the course of this year and what you're seeing from a competitive landscape? And then secondly, we've seen some of the order or the color from the regulatory agencies about the expectations for local loop unbundling. How do you think about the potential impact on some of the segmentation or a color that they have provided could have on the business on a going-forward basis?

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

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Thank you, Amir. Well, starting with the Mexico landscape, I think it's still -- Mexican market is still very competitive. I think it's more stable. I have to say that it's more stable, but very competitive. So the prices and the promotions that we have in the market are still there. We are not giving extra promotions for reducing more of the prices, but it's stable right now. For the -- you're asking also how we see the year on that, it's very difficult. We don't know exactly what our competitors are going to do, but what we are sure is that we still have a very, very competitive network with a very good quality, capacity and have a lot of distribution points there. So I feel -- and I still feel that we are very competitive in Mexico, that our network, by far, is the best. And it's what is giving us what we have today. People is not looking only for prices, looking also for quality, capacity, speed, data, so there's still a lot of things that people is looking. So I'm happy the way our network is developing. And I still think that the market for the rest of the year is going to be more stable. I don't see much higher promotions. Those are in the plans on -- when you see some [CDs], some handsets and other things, depends a lot on the exchange rate. You know that we value all the handsets in dollars, so it's going to depend a lot -- we used to have exchange rate of 20 or 21 at the beginning of the year. Today, it's at 19. So it's changing a lot, and that's what will change a lot the prices of the handsets. What I'm feeling and my view is that we can see more stable promotions for the rest of the year. On the regulatory side, I'm going to make you a summary of what has been happening. As on March 8, the IFT notified us in U.S. metric measures as part of the second year review process of the measures in pulls back in March of '14. In essence, the IFT extend the review process to 3 years. As we have said before, América Móvil has complied with all the measures imposed by the IFT. Nonetheless, IFT decided impose additional measures both on peaks and mobile. We do not believe the IFT resolution considers the deep changes that the telecom sector has had in the last 3 years. In our view, the new measures are neither reasonable nor proportionate from a regulatory or economic perspective. On the mobile side, most of the measures are focused on strengthening the access and replicability to MVNOs with respect on our current commercial offer. On the peak side, most of the measures are focused on strengthening the assets to the local loop unbundling and passive infrastructure we own. Such services has been heavily regulated [present] to terms and conditions, including prices imposed by the IFT in 2014. Nonetheless, without sound data, IFT has ordered the legal separation of such services into a newly-formed entity that will have certain degree of operational independence from us. The legal separation is subject to a proposal prepared by us, it's very important. It's prepared by us and to be approved by the IFT. We're currently working on that proposal and on the details of the separation. It's more or less what we have and in the stage where we are right now.

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Operator [4]

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Your next question comes from Alejandro Gallostra from BBVA.

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Alejandro Gallostra, Grupo Financiero BBVA Bancomer, S.A. de C.V., Research Division - Research Analyst [5]

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I like to better understand what's the impact we should expect from the legal separation of Telmex. I mean, should it be a (inaudible) Mexico or a one-off expense and if you could quantify it?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [6]

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Yes, it's very difficult to see, to tell you right now as to what are going to be the -- is the -- what is going to be the impact on Telmex because still we don't know what is going to be the resolutions, so it's going to be very important to understand. We are on talks with the IFT. We already present our proposal and they are -- the stage where we are today is that they are reviewing that proposal, and we are having talks with them on that. Very difficult to tell you the impact on Telmex because we don't know exactly what are -- what's going to be the final resolution.

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Alejandro Gallostra, Grupo Financiero BBVA Bancomer, S.A. de C.V., Research Division - Research Analyst [7]

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Okay, I understand. And my second question is regarding pricing in Mexico. In an environment where pricing competition in wireless is easing, but especially where inflation is picking up, and we are seeing some of your competitors increasing prices in some of the telecom services, on especially in PayTV, which you do not offer at the moment in Mexico but also in broadband. Do you plan to increase prices in Mexico? Or reducing the expiration date in your prepaid products will be the only response to inflation at the moment?

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

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Well, we have been having that. We have been reducing our due dates of the cards, but we don't feel that right now makes sense to increase prices. Of course, we will love to increase prices, but it doesn't make any sense to increase prices. I understand that there are other products like the TV that it's increasing prices. But in broadband, we are not increasing prices and in wireless, we are not increasing prices. It's the other side, in 2016, we have reduced the price. If you review between the volumes that we grow on volumes and the price that we -- the price reduction that we have, maybe we have 60% to 70% price reduction on the price in wireless. So it's huge what we have been doing. Today looks more stable, the prices looks more stable. I think for the rest of the year, I don't think there's going to be more promotions because if you compare the prices in Mexico and you compare, let's say, against the U.S., even that the U.S. is starting to be more competitive, prices in Mexico are maybe half of the prices of the United States. So we don't see higher promotions. And just to tell you, Telmex hasn't increased prices, maybe for the last 10 years. So it's -- in anything, we have been increasing prices for the last 10 years.

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Operator [9]

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Next question comes from Walter Piecyk from BTIG.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research [10]

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Daniel, the ARPU performance in a lot of markets seem better than expected. I mean, Brazil is up 8%, the declines in Mexico and Colombia seem to have improved, I guess, in the first quarter. Is there any commonality for why this is happening? Are you doing something different across your markets? And on a related question, can you give us an update on what you're thinking about capital investments in 2017 versus last year?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [11]

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What we're focusing on -- really, what is happening is that the people is using more wireless data, and that's why ARPU started increasing. So the data is growing, people is starting to use more. As they are moving from a 3G to a 4G, they are using more data. And we have in some markets, really crazy promotions that maybe they are due and we are not renewing some promotions. We are focusing a lot on the postpaid market. Postpaids have been very important. You could see that in Colombia, we're starting to grow again. Good growth on the postpaid side. Brazil, we're growing very good on postpaid. Mexico, we are growing also on postpaid. So -- and these subscribers are really consuming, so we -- smartphones are driving data everyday higher and higher. So that's mainly what is happening. It's a -- not different than what we have been doing. Other thing that is helping us is we feel that in some countries, the economic side of the country is doing better, and we feel that the rest of the year is going to be also good as in the economic side. So people is going to consume more. So if you see, you can talk to the Daniela, the trends of the data usage is growing very, very fast. So it's a good news for us. We are well prepared that in our networks, we have a capacity. We have been doing all the modernization of the networks. So we -- megabytes are maybe growing 75% per user year-over-year, so people is using more and more data in Mexico and in Latin America. On the CapEx side, we said around MXN 7 billion what we have. It could be a little bit higher, 10% higher or less, and we're still in that -- with that number and I think we are okay with that. We don't feel that's good news to investor...

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research [12]

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(inaudible) does that have the daily growth that's not driving higher capital investment?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [13]

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No, no. We already have invest a lot. We have the latest technology and the CapEx that we have planned is what -- we can handle all the traffic that is -- that we're growing, that our subscribers are using. It's bigger amounts of data that they are using.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research [14]

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Okay. I just want to ask a question I've asked many times before, but just wanted to see if there is anything's changed, which is in Brazil as we all know, there is – [Oi] is going through its process and AT&T, there might be an opportunity for them to sell that asset in Brazil. Has your interest improved given some of the comments that you made about -- the positive comments that you made about Brazil in your prepared remarks?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [15]

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Well, I don't think there's nothing right now in the market. It's my view. I think everything is the same as it was 1 year ago. So I don't think nothing has been changed. And it's my feeling, so we're focusing a lot in -- we -- I think in Brazil we have a very good platform. We are very good on cable. We have a wireless broadband, peaks, so our platform in Brazil is very good and we still have very good opportunity in Brazil for the next 3 or 4 years. And Brazil is going to be in a very good position or much better position than what it was before. So we are investing in our company, and we're happy in the position where we are in Brazil right now.

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Operator [16]

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(Operator Instructions) Next question comes from Richard Dineen from UBS.

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Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [17]

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This is Maria Tereza on behalf of Richard. Our question is on the competitive landscape in Brazil mobile. Should we expect a change in strategy with the new COO, perhaps a more aggressive focus towards market share gains in line with the recently announced offers with unlimited voice?

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

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I think we don't change any strategy. I think the person that arise to Claro is a excellent person. We're very happy with [Paolo]. And there's no -- we always want to get more market share. We always want to be very competitive and nothing on that is going to change. So no big changes. Yesterday, we launched a big campaign of all our products of focusing on wireless. So we are executing the strategy that we have, and I think that [Pablo] is going to help us to execute the plan that we have. In Brazil, we have a very good infrastructure. We have been investing for a long time. And I think we are ahead of our competitors in the platform, in the infrastructure in Brazil.

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Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [19]

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Perfect. And just as a follow-up question. You mentioned about the MVNO and is there any way we can measure the -- what's going to be the impact from the cost-based wholesale capacity in terms of pricing for a medium- or long-term view. I mean, would you do a cost analysis in that margin? Will the price be regulated? How might that compare with your current retail prices?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [20]

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You're talking about Mexico?

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Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [21]

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Yes. Sorry.

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [22]

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Well, it's very difficult to say anything on that because we are just discussing with the IFT some of this...

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Unidentified Company Representative, [23]

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MVNOs.

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [24]

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With the MVNOs, it's a -- we have right now in Mexico, 5 MVNOs working. Of course, when you have a market so competitive for the MVNOs, it's more difficult to succeed because the market, it's so competitive, that the margins for everyone are at the more reduced. But we are open. We want the MVNOs, and we are giving, I think, for 5 or 6 MVNOs, we're working today in Mexico. We are an MVNO in U.S., the TracFone, we know what those MVNOs needs and want. And we want to support our MVNOs here in Mexico.

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Operator [25]

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Next question comes from Diego Aragão from Morgan Stanley.

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Diego M. Aragão, Morgan Stanley, Research Division - Equity Analyst [26]

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Just want to follow up on the competitive landscape in Mexico. Apparently, you've continue to add more postpaid and peers. You're still a net gainer in mobile number portability. So my question is, how do you see your competitors at this point, and what are you doing to accelerate volume-based migration, given these should help you to reduce interconnection costs?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [27]

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Well, I think people is using a lot more data, as I told you, maybe 75% year-over-year. And all the investments that we have been doing for the last 10 years, well, are giving us that. Now still, we are gainers in number portability, that's right. We have a big distribution network. We have the best quality, the best coverage, the best capacity, very good speed. So we are very competitive in Mexico. What does my competition is doing? Well, we have good competitors, we know Telefónica, we know AT&T, they are good competitors, and we need to improve everyday, to compete against them and to be ahead of them so that's what we're doing today. So competition is good. And that's what we're doing here in Mexico, no?

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Diego M. Aragão, Morgan Stanley, Research Division - Equity Analyst [28]

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Is it fair to assume that you have like the incentive to accelerate this data migration in order to reduce this interconnection cost?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [29]

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Well, interconnection is in voice, okay. And I think people is going to start -- is going to use voice always. They are using less voice because, of course, they are using more data. Well, they are going to use voice always. What is important and what's we're doing is that we're moving all our 2G to 3G subscribers and a lot of the 3G to 4G subscribers. And that is giving them a very good speed, quality. People is very happy with our 4G network. And, of course, in the future, we're going to prepare with LTE advance and we're doing that to be competitive and to be prepared for what is coming, no?

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Diego M. Aragão, Morgan Stanley, Research Division - Equity Analyst [30]

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Okay, perfect. And just a follow-up question on Colombia, actually, can you provide more details on your results in that country? I mean, it -- apparently, it was very strong. So just want to understand how you get to those results in Colombia?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [31]

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Well, I think the results of this quarter is work of the last 3 or 4 quarters that we have been doing. I -- we changed the management, as I told you some time ago, and we are focusing much more on the market. We're cutting costs, cutting expenses. We have a good plan and we're executing that plan. In the peak side, we are growing also very good and TV, we're very competitive. So also our company there in broadband, in PayTV, in peaks and in wireless, we're doing very good. People is really focused on what they need to do, and it's what we're doing. So that's really -- we don't start from last quarter, and we have the result this quarter, so company has been improving and this has been a very good quarter because all the execution that we have in the last year, no?

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Operator [32]

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Next question comes from Mauricio Fernandes from Merrill Lynch.

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Mauricio Fernandes, BofA Merrill Lynch, Research Division - MD and Head of Latin America Equity Research [33]

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One question still on Mexico and kind of the competitive landscape and the revenue trends. ARPU was still down despite prices being up. I know some of that has been addressed already, but in ARPU tends to be tricky, given it depends on subscribers, they're in and out, versus the pricing environment. Just wanted to understand whether you think the decline, not only in ARPU, but the revenue -- the wireless -- service wireless revenue was coming up little by little in last couple of quarters and now it's down a bit. Is there -- how much of that is seasonal in the first quarter versus the fourth quarter or third? Or how much is that a matter of the mix of subscribers? You might have lost good subscribers and one less good subscribers.

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [34]

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I'm going to start with your last comment. So we are not losing good subscribers and adding back subscribers. What -- it's happening a little bit in postpaid is because of the aggressiveness of the plans and the rates and the promotions. People sometimes, not always, is renewing with us in a lower plan than what they already have. It's because with a lot of data that we are doing and because of the competition that we're doing a lot more data, then they don't need to stay in the plan where they are, and they do one step down to stay in the plan. So that's more or less what you could see in the postpaid side. Remember, Mauricio, that we have all these big promotions start in January, February last year. So January, February, we start the promotions. But when these amount of subscribers moved to these promotions in the prepaid side, they are maybe in April, May and June, we have a big amount. So it's where you're going to see the decline of the ARPU in those months of the last year is where our ARPU declined a lot. So today is recovering. We are seeing good recover. It's -- the trend is good. I cannot tell you that we are, right now, where we want to be. No, still very competitive the market. But I think it's a little bit more rational, a little bit more stable, the market. And I think the prices are very, very competitive. And what -- in my view, it's just my view, if you are going to see movement on the pricing, I think the movement on the pricing, on the promotions are going to be moving on the -- moving up than moving more down, okay, because the prices today in Mexico are really, I think, one of the cheapest in the world. So our base is up in the postpaid side. Our base is up 7%. And there's a lot of subscribers joining our postpaid base. So, of course, I cannot tell you that in Mexico, everything is finished and that's where we want to be, no. In Mexico, the trends are good. I think they are going to be still good for the next quarters. But there's still a lot more things that we need to do in Mexico, competition is there. Nothing -- now, Telefónica and AT&T, they are not disappeared from Mexico. They are still there and very aggressive. So -- and also, one thing is our prepaid ARPU is up quarter-on-quarter, and remember that the fourth quarter is -- the ARPU fall was because Christmas are higher, people spending a little bit more than other months. So the trends are good, Mauricio. I can tell you that I'm feeling much more comfortable in the Mexican markets right now. A lot of our -- the other comment that I want to tell you, yes, all the subscribers that want or should join -- switch to the new promotions, I think, they are in the new promotions right now. So we don't expect big volumes of subscribers moving to the new promotions. So everything that we have, we already we have it, okay. So the next things should be good news for us. Now I think in the prepaid side, I am seeing that people is spending a little bit more day by day. So -- but all these things are trends. I cannot tell you that we are where we want to be.

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Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [35]

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Mauricio, just a reference point. In the second quarter, ARPUs in Mexico were falling 18%. In this first quarter, they are down 2%. So that's the kind of improvement that we have seen in only 3 quarters or 4. So the trends that Daniel is pointing out is very, very solid. It's a strong acceleration from falling minus 18% to go on -- to only being minus 2%. We are quite positive that may -- by next quarter, we are likely going to see some growth. And as Daniel said, even in absolute terms, if you look back, we may not be where we were 1 year ago, but we are better than where we were in the last few quarters.

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Mauricio Fernandes, BofA Merrill Lynch, Research Division - MD and Head of Latin America Equity Research [36]

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Got it. If I can still follow up on the topic of pricing. As Maria was asking, the new pricing plans for postpaid for Claro in Brazil, they include voice (inaudible) .

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

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I'm sorry, I don't hear you, they what?

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Mauricio Fernandes, BofA Merrill Lynch, Research Division - MD and Head of Latin America Equity Research [38]

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They include voice unlimited on the postpaid plans and the new postpaid plans. Is this something you plan to replicate to the rest of the region? Or is it something that is specific to Brazil, even though it looks like a trend for voice to be included in pricing plans?

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

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Mauricio, I think the unlimited voice plans are in Mexico, in Colombia. We have also big amounts on Chile. So there's all around -- in Peru, we're giving a lot. In Austria, we give also unlimited. So unlimited is coming and it's coming and it's going to stay, the unlimited plans on voice. In Brazil, our new plans are unlimited in the high end of the plans. We had a very good launch yesterday and, of course, we have capacity in Brazil. Our MOUs in Brazil are low. Our interconnection in Brazil is going down, now that permits to give unlimited voice and, well, that's what we're doing there. And I think you are going to see more and more on that all around Latin America.

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Operator [40]

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Next question comes from Carlos Antonio de Legarreta from GBM.

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Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [41]

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My first question regards Brazil again. It's a more specific questions, sorry. Look -- I'm looking at the operating profitability and that's growing by 91% year-over-year. I was wondering what's happening here?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [42]

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Well, what we're (inaudible) is we have a -- I think we're having a very good reduction on costs. When we merge all the 3 companies, we worked very hard and it's still giving us good cost savings, and I think that's part of what we're having. The other thing is we're being very careful not to sell, let's say, in DTH, we're being very careful to sell very good subscribers. We don't want to sell in prepaid. We want to sell subscribers that consume and, well, that is giving us a better margin. And that's really what is happening in Brazil. Also, a little bit of growth in the service revenue. So all -- all overall is giving us a good increment in our operating profit.

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Carlos Antonio de Legarreta Diaz, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [43]

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Right. And if I go -- if I may go back to Mexico, and I understand it's too soon to talk about impacts of functional separation. However, I was reading the Annual Report that you guys filed recently and you guys mentioned a 2-year period to implement this. Is that defined by the IFT? Is that already defined? I didn't have that on the radar, so if you could just confirm that at your end?

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

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What we'll put in this file is that, and it's what the IFETEL released is that we have up to 2 years to implement all these things. So that does not mean that it's going to take 2 years to implement. So what I'm saying today is we already returned with a proposal. The IFETEL is right now, studying that proposal, is going to discuss with us that proposal. I think they have 65 to 70 days, I don't know exactly -- 2 to 3 months to discuss that. And then they are going to take a decision, and then, well, but in all these steps, you can have a little bit more days, if you ask for more days. So we don't exactly that, but what you're saying is right, they said they have up to 2 months -- 2 years, to implement all these measures.

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Operator [45]

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Next question comes from Marcia [sic] [Maria] Kahn from Deutsche Bank.

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Maria Leonidovna Kahn, Deutsche Bank AG, Research Division - Research Analyst [46]

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I wanted to ask a couple of questions. One on the U.S. market that's getting a little bit more competitive. Is that affecting your MVNO business at all? I mean, we haven 't seen that in the results, but is that a risk, if you could comment on that? And second question is about fixed-line investments. I noticed that you're investing more aggressively in PayTV and cable across Latin America. Can you just talk a little bit about your investment plans on the fixed-line and then what countries you're going to invest more?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [47]

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You're talking about -- the first question you were talking about TracFone, and I can tell you that, yes, the market in U.S. is every day more competitive. Everybody is -- they already, the big companies, are already launching their results and it looks like the market is more competitive. And in TracFone, we are taking care about the cost, the expenses. We want to be more competitive in the market. We want to play a big role in the prepaid market in the U.S. And that's where we are preparing. Then losses that we have, they are mostly in SafeLink. They are customers that don't qualify with the new rules, and that's why we're disconnecting all these customers. But in the other branch, we are trying to be aggressive, and we want to play a good role in the U.S. Your second question, I don't understand what you said. Is it you're talking about the...

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Maria Leonidovna Kahn, Deutsche Bank AG, Research Division - Research Analyst [48]

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Fixed-line and cable investments, yes, you invested a lot in cable in Colombia. I noticed in some other markets you're putting more into cable and TV and also creating your own content. If you could just give a little bit more color on fixed-line investments?

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Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [49]

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Maria, I think the intent is to deploy the capital, particularly, in those countries, those regions where we can provide triple-play bundles because that's basically where the return on the capital is there. I think Oscar can give us a bit more color on this. Another big part of the CapEx, we're always building to things for satellite like the set-top boxes. To the extent that we are growing in distribution, in accesses then you will also have an associated part of CapEx. But Oscar will be elaborating on this.

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Oscar Von Hauske Solís, América Móvil, S.A.B. de C.V. - Chief Fixed Line Operations Officer, Executive Director of Fixed Line Operations and Director [50]

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Yes. I refer to what Daniel mentioned about the data growth, it's happening in mobile as well in fixed. Broadband is growing 70% every year. It's flat implied that we need to invest CapEx on the backbone in order to attain this growth in traffic. And the other part of the CapEx, you said more revenue driven CapEx. These are different kinds of set-top boxes for triple play, double-play, satellite TV. But that will depend how we see the market, how we see the growth in the market. So you have these 2 buckets. One is the growth and the platform for data products, and the second one is the net gain that we have on units, on the different programs that we are addressing in the markets.

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Maria Leonidovna Kahn, Deutsche Bank AG, Research Division - Research Analyst [51]

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I guess, I was curious how important quad-play was for you. You said you're launching quad-play bundles and combining wireless and fixed-line. Is that overall a strategy and a trend or is it just country specific?

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Oscar Von Hauske Solís, América Móvil, S.A.B. de C.V. - Chief Fixed Line Operations Officer, Executive Director of Fixed Line Operations and Director [52]

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We started with the Combo Multi in Brazil. The reaction with the market was pretty good. So we then delivering combo plays in most of the countries. So we are trying to bundle triple-play plus a wireless offering. And we believe that the market is well receptive to this kind of offering. And it's a, to be honest, a unique offering that we have in the different countries.

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

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But only to add something to Oscar's comment is that we are not only offering the quad-play as the offerings. We also do only broadband, only peaks, only TV. So of course, we are trying to bundle a lot of our products, but we are selling a lot of broadband alone. So we have all the promotions in all our products.

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Operator [54]

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Next question comes from Barbara Halberstadt from Bank of America.

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Barbara Virginia Halberstadt, BofA Merrill Lynch, Research Division - Associate [55]

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I just wanted just to follow up, I don't know if that was commented during the presentation. Just regarding the working capital needs in this quarter, it seemed like it increased quite a lot specifically on the suppliers line. So just wanted to have a little bit more color of the reason for that, is something seasonal or just -- or not?

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Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [56]

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The first thing to note is that the numbers in the financial statements, when they are expressed in pesos, they are subject to a lot of noise that is associated with the currency moves as I explained at the beginning, the early presentation. So, in particular, what you see is that, in peso terms, certain operations, in particular Brazil, Colombia, have come to have much more work in the financial statements so that basically leads to a certain impression of higher working capital. So it's important to understand that a number of things in the balance sheet can become much affected by the currency moves, and so that's one comment. And the other one is the working capital is very, very, very seasonal. And the first quarter of the year is always the one where we have more to put in terms of working capital, precisely because it comes after the last quarters where we have our greatest sales season. So a lot of the, for instance, handsets that are sold in the last quarter are basically paid for in the first quarter of the year. And there's also some things that have to do with CapEx. A lot of the CapEx accounts payable that you have -- from the CapEx of the prior year end up being paid at the beginning of the year. So typically, at least in our case, the first quarter is very, very seasonal, and that explains quarterly increase. At constant exchange rates, you wouldn't have had this in terms of capital.

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Operator [57]

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Our next question comes from Rodrigo Villanueva from Merrill Lynch.

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Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [58]

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I was wondering if you could give us more color in the measures that have been implemented to achieve cost-cutting across your different regions? And if you expect these measures to bring further efficiencies going forward? That will be my first question.

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [59]

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Rodrigo, I think, well, the measures are all around. It's every part of the company. We're doing measures on IT. We're doing in operations, in administration. They're all around. So we're looking, we're making like a big comparison of each of the countries where we are the best and we're trying to do in the places where we are the best, trying to do that in the other countries. And well, it's more an execution thing than a strategy, okay. Because well, you need to find where are the savings and then you need to execute all those savings. So sometimes it's not easy, sometimes some are taking you a little bit of time to implement that because that's not something that you need only to take it out and that's all or cancel. No, there are things that you need to do to change and to save some money. So that's something that we have from the last year. We're putting much more effort this year. I think it's important for us to be more and more productive, more efficient, and that's where we are right now.

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Carlos José García Moreno Elizondo, América Móvil, S.A.B. de C.V. - CFO [60]

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I think as you remember, we have accounted that we call our core EBITDA, which is basically the EBITDA margin before subscriber acquisition costs. So where sometimes some of the savings can come from subsidies, which is part of our acquisitions cost, we always focus on this core EBITDA, which is basically the structural cost. And those are the ones that we are trying to improve very substantially. This year, I think we're already looking the number of operations with very specific guidelines that we expect will attend some increases in EBITDA margins -- in core EBITDA margins by the end of the year. So it's an ongoing measures as Daniel pointed out, but there are some new ones that we are basically implementing this year in some operations.

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [61]

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And maybe there are going to be new ones in 3 or 4 months, so that's something that we're working every day. We have special people looking on that. And that's what we're going to do for the next 2, 3 years.

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Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [62]

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Understood, very clear. And my second question is regarding fixed broadband net additions in Mexico. It seems that they have accelerated very strongly over the last several months, while your peers have been facing trouble growing. So I was wondering if there is any reason -- particular reason for that to be happening now?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [63]

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I think Carlos can answer that. Carlos Robles is going to answer that. But in my view, the thing that we're doing in Mexico is putting more and more focus on the commercial side, on the distribution. What I can tell you is execution is more or less what we have. What Carlos Robles, I don't know if you could tell us something extra?

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Carlos Fernando Robles Miaja, Teléfonos de México, S.A.B. de C.V. - Chief Financial and Administrative Officer [64]

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Also what we're doing is basically we are -- basically, what we are doing is adapting our portfolio of products so that customers have new products to be access -- have access for them. And additionally, we're focusing in different areas as it has happened with other countries, we have deployed already technology, we have good technology. And we are -- we have good quality of service and also we are focusing on the commercial strategies in -- all around the nation, no?

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Operator [65]

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Next question comes from [Juan Carlo Alda] from Credit Suisse.

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Unidentified Analyst, [66]

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So my question is regarding your comment, as you mentioned that you have already presented a plan to IFT for cell separation in Mexico. My understanding is that this is a little bit ahead of the deadline that they established for you. And I'm just wondering, if you have any sort of interest in speeding the implementation? Or if you feel like you can reach a target a lot sooner?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [67]

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No, we don't do it because of that. We just prepare our plan and when it's finished, we send to them. And that's really the reason why we do it before our last day. And well, the next step, as I said, is to -- they are going to review this plan and we're going to sit down with them and discuss it. That's mainly the next step is -- and the next 60 to 70 days or something like that.

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Unidentified Analyst, [68]

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Okay. And my follow-up is if you see any sort of upside regarding cost-cutting initiatives that you could achieve through the functional separation, if you see any sort of advantage on that?

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [69]

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It's difficult. I cannot tell you anything until -- we don't know exactly what is going to be the end resolution of this separation. But as we said, we are not agree on that. And we think that IFT do not review really the changes in the market for the last 2 years. There had been big changes in the market for the last 3 years, and we don't agree with that.

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Operator [70]

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This concludes our question and answering session. I would now like to turn the conference back over to Daniel Hajj for any closing remarks.

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Daniel Hajj Aboumrad, América Móvil, S.A.B. de C.V. - CEO and Director [71]

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Just thank everyone for being in the call, and thank you. Bye-bye.

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Operator [72]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.