U.S. Markets closed

Edited Transcript of TLEVISACPO.MX earnings conference call or presentation 27-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Grupo Televisa SAB Earnings Call

Mexico May 18, 2017 (Thomson StreetEvents) -- Edited Transcript of Grupo Televisa SAB earnings conference call or presentation Thursday, April 27, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Adolfo Lagos Espinosa

Grupo Televisa, S.A.B. - Corporate VP of Telecom

* Alexandre Moreira Penna da Silva

Grupo Televisa, S.A.B. - Chairman of the Board of Managers for Corporacion Novavision and CEO of Corporacion Novavision

* Alfonso de Angoitia Noriega

Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director

* Isaac Lee

Grupo Televisa, S.A.B. - Chief Content Officer

* Salvi Rafael Folch Viadero

Grupo Televisa, S.A.B. - CFO

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

Conference Call Participants

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

* David Carl Joyce

Evercore ISI, Research Division - MD and Senior Fundamental Research Analyst

* Richard Martin Dineen

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst

* Rodrigo Villanueva

BofA Merrill Lynch, Research Division - VP

* Soomit Datta

New Street Research LLP - Founding Partner

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

Presentation

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

Operator [1]

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

Good morning, everyone, and welcome to Grupo Televisa's First Quarter 2017 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything we discuss in today's call and in the earnings release. I will now turn the call over to Mr. Alfonso de Angoitia, Executive Vice President of Grupo Televisa. Please go ahead, sir.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [2]

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

Thank you, Elsa. Good morning, everyone, and thanks for joining us today. With me are Salvi Folch, Chief Financial Officer of Grupo Televisa; Isaac Lee, Chief Content Officer; Adolfo Lagos, CEO of Cable; and Alex Penna, CEO of Sky.

During the first quarter of the year, consolidated revenues grew 2%, and operating segment income grew 2.4%. Growth was unusually slow, mainly as a result of two factors: First, the economy was soft during the quarter, and this affected disposable income. Also, the uncertainty created by the result of the U.S. elections continued to have an impact on consumer confidence; second, a number of important strategic actions we took affected our businesses, including the restructuring of our advertising sales operation and our continuing discipline with our new rate card, the termination of the Megacable affiliation agreement and of the Netflix licensing agreement and the decisions we've taken in our cable businesses to improve the quality of our customer base in an effort to reduce churn.

Now moving on to each of our main businesses. Let me first address the final results in the content. Then I will turn it over to Isaac for a discussion of the progress made in our new content strategy. After content, we will follow with a discussion of our other segments. And at the end, we'll be happy to take your questions.

During the quarter, content revenue was lower than last year by 3.1%. The decline in advertising revenues by 7.8% was the main reason for the drop in this segment's total revenues. As you may recall, from the fourth quarter earnings call, we expected revenues to be volatile this year. The decline in revenues is mainly explained by two reasons: First, certain companies in the banking, telecommunications and high caloric product industries invested less in television advertising during the quarter; second, two customers that depend heavily on high-frequency and low-cost advertising took a portion of their budgets to competitors who offered discounts and promotions. Our sales force has been in contact with our advertising clients, and based on those conversations, it believes that the first quarter of the year is not representative of the likely outcome of the balance of the year, as it has happened in previous years.

Our Licensing and Syndication business posted a growth of 7.6%. The royalties from Univision reached $72.6 million, equivalent to a year-over-year growth of 2.7%.

Finally, network subscription revenue dropped by 3.3% in the quarter, and that is mostly explained by the carriage dispute with Megacable.

As a result of the factors mentioned above, operating segment income in our content division declined by 1.4% during the quarter. However, costs and expenses were down by 4.1% in spite of the effect of the peso depreciation, and thanks to our strong focus and discipline in this respect. We will continue to protect our margins throughout the year and reiterate our guidance of an operating segment income margin of approximately 40% for our content business for 2017.

I will now turn it over to Isaac for a discussion of the progress we have made with respect to the recent operational changes in this division.

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

Isaac Lee, Grupo Televisa, S.A.B. - Chief Content Officer [3]

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

Thank you, Alfonso. Good morning to everyone. In terms of our content strategy, we are still in the initial phase of our efforts to revamp this division. But I'm happy to say that we have made solid progress operationally during this first quarter, and we're making great progress on our forward-looking strategies.

In the first 3 months on the job, operationally, we quickly made strides toward our most immediate priorities. First and broadly speaking, we've done a lot of work strengthening the management team, with new leadership across our three main operational areas: content and production, programming and marketing, and strategy and operations. Two of these three new leaders are coming from other major media companies, and the other one is a homegrown Televisa talent, which was promoted from within. In just a few weeks, they have assembled their core teams and have just few other positions to fill. I feel very good about the speed and assertiveness of the team in executing the strategy.

Second, as we build our team, we are continuing to optimize and energize the organization. We are rethinking our operations across our portfolio to be more streamlined and better able to respond to shifts in the marketplace. We are in the middle of a complete process of reengineering, which will be completed by June and will allow us to operate more efficiently, freeing up resources that will be reinvested in content. This will allow us to create more and better content while keeping discipline in the operating segment income margin at around 40%, as Alfonso just mentioned.

Third, our main broadcast network, Las Estrellas, has been a key area of focus where we are already making great progress. The new team is working quickly to stabilize the grid, which is starting to show benefits in ratings growth. At the same time, we are strengthening the foundations from which to launch new series as we continue to improve and fill the development pipeline and work closely with our Univision counterparts to create successes across both countries. When I laid out my plan back in January, fixing prime time was an immediate priority since it is the main source of audience and revenue for the division. I'm happy to see the ratings posted of quarter-over-quarter growth on the 4:00 p.m. to 10:00 p.m. time period in the low 20s.

Additionally, my initial focus was to bring a more data-driven approach to the operation and processes, so we launched a few different research projects to learn more about the audience, its habits, content preferences and our competitive performance. After having completed some of these research projects, we have decided to cancel some productions that were already in development and greenlighted others that we feel are more in tune with our audience's wants and are making content and production decisions that we believe will have important positive results in the medium term when they are ready to air.

As we strengthen our team and address our immediate priorities, we're also laying a path for an overall forward strategy for Televisa, a strategy that captures the opportunities we see to better harness the power of our collective brands, enhance our ability to create great content and grow into new forms of distribution to get us back into a solid path of growth.

Finally, we continue to explore opportunities for Televisa and Univision to collaborate in a more coordinated fashion, pursuing the development of content that will be attractive to both markets, seeking efficiencies between the two companies in the production of content and making sure that we turn these efforts into relevant improvements in the performance of both businesses.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [4]

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

Thank you, Isaac. Now let me turn the call over to Adolfo Lagos, CEO of our Cable division.

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

Adolfo Lagos Espinosa, Grupo Televisa, S.A.B. - Corporate VP of Telecom [5]

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

Thank you, Alfonso. Let me start by saying that as part of the integration of all our cable assets under the new telecom systems platform, we have now standardized the methodology for accounting for RGU using the most conservative standard. Unlike the four other companies, TVI had a different system and is now following the same stricter criteria as our cable companies. Under this criteria, customers with invoices that are past due by 18 days are no longer counted as customers. As a result, TVI's reported RGUs were affected by this measure, which resulted in a onetime adjustment of 207,000 RGUs, is about 2% of the total RGUs in our cable segment. This measure does not have any impact on any financial metric.

During the quarter, revenue expanded by 6.2%. The margin was 42%, slightly higher than the same quarter last year and a record for a first quarter. As a result, growth in operating segment income was 7.8%. Excluding our enterprise business, the margin expanded by 100 basis points, reaching 43.1%. Organically, RGUs were down by 20,000 during the quarter, mainly explained by the loss of video customers. Broadband RGU growth, however, was 45,000, which compares favorably versus the results posted by the incumbent. Voice RGU growth was marginal at 3,000 but also better than the incumbent who who had a negative quarter. Our growth in data customers and the resilience in our voice customers was possible in spite of the external and internal factors, as we discussed last quarter, are impacting our business.

As Alfonso mentioned, declining disposable income has a very relevant effect on the services that we sell. To address this, we are continuously adapting our packages to offer the services that the market demands and that our customers can afford. For that reason, we recently launched a double-play video and Internet package that includes either 5 megabits or 10 megabits speed. These new packages seem to be getting good traction.

In terms of internal factors, we now have stricter credit filters, and these filters have had an impact on gross additions. We're bringing in customers at a slower pace with but with a lower risk of attrition. The full benefit of this particular measure will not be evident until the second half of the year. Please keep in mind that these factors will continue to play a role in the second quarter.

Operating-wise, we continue to make relevant improvements. We continue to eliminate the causes for service disruptions that we made reference to in our last earnings call. In addition, we're implementing various initiatives to improve the sales channel mix, strengthen training in our sales forces and drive growth.

We believe we're on the right track. We have already seen relevant reduction in churn. It is at its lowest level in 5 quarters. Our retention strategy is allowing us to maintain a larger percentage of customers every day, many more than in the fourth quarter of last year. The number of service calls has dropped materially, and the percentage of customers that pay on time is also growing. During March, that percentage reached its highest level in 12 months.

We have made good progress. We still have a lot of work in our hands, but the trends are favorable and the opportunity at hand is unique. Thanks to the extensive capital investments already on the ground, our cable assets are in a very unique position to take advantage of a highly concentrated, underserved and underpenetrated market, particularly in high-speed data.

Thank you, Alfonso.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [6]

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

Moving on to Sky, let me turn the call over to Alex.

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

Alexandre Moreira Penna da Silva, Grupo Televisa, S.A.B. - Chairman of the Board of Managers for Corporacion Novavision and CEO of Corporacion Novavision [7]

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

Thank you, Alfonso. First quarter revenue grew by 3.6%. We closed the quarter with over 8 million subs, a growth of 326,000 subscribers compared to the first quarter of 2016. As explained in the fourth quarter earnings call, the accelerated growth experienced in the first half of 2016 was the result of the transition from analog to digital transmission of broadcast signals that concluded in December 2015. Also as a result of the digital transition, during the first half of last year, the recharge rates was the highest on record and is now back at the bottom end of the historical range. As we mentioned, our prepaid customers account for about 40% of Sky's total revenue. So changes in the recharge rates have a very relevant impact on the top line.

As anticipated, these two effects result in a very difficult year-over-year comparison in terms of net additions and of the recharge rates in prepaid packages. The comparison is even more challenging when taking into consideration Mexico's current weak economic environment, as Alfonso mentioned, and also, our own price increases in our prepaid and postpaid programming packages. These factors impacted the first quarter and will continue to have an impact on our second quarter results this year. We are addressing this by launching a number of initiatives to increase retention, improve recharge rates and drive subscriber growth.

During the quarter, operating segment income growth was 2.4%, and the margin remained strong, reaching 44.5% or 50 basis points higher than in the fourth quarter last year. The margin achieved during the quarter is remarkable in light of the depreciation of the peso and the very relevant amount of content that we buy in foreign currency.

Finally, we continue to explore diligently the opportunity to launch triple play services using the infrastructure of the incumbent telecommunications company. Recent regulatory changes are very encouraging. Among them is the mandate for functional separation. As a result, the incumbent will have to create a new company to provide third parties with wholesale services in same terms and conditions as it does to the incumbent.

In addition, among the other measures, new wholesale terms, we allow third parties to replicate the incumbent's retail offers from both an economic and technical perspective. It is early to tell how soon we'll be to launch voice and data services, but we get closer every day.

Given our brand reputation, operational scale and national reach, I have no doubt that subject to the successful implementation of new regulation, Sky can benefit from local loop unbundling like no other company.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [8]

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

Thank you, Alex. As you can see, we had a challenging quarter, and the first half of the year will also be complicated. But we will continue to take action where we can. Everyone in the company is working relentlessly to maintain a strict control of costs and expenses to protect margins and pushing forward with the strategic initiatives.

In advertising, we continue revamping our sales organization and maintaining pricing discipline. In our production of content, the restructuring of our operations is profound and well underway. In Sky, we are working very hard on the opportunity to launch triple play services by accessing the incumbent's network. And in cable, we continue to make progress, improving our service, reducing churn and deploying new competitive products.

Some of the strategic decisions we have taken in the past are already paying off. For example, the reduction of CapEx in our cable business in 2017 by about $400 million is dramatically improving the cash flow profile of the company. I shall remind everyone that the reduction is a result of the completion of the rebuilding of the main systems in our cable network and does not limit our ability to grow.

Finally, we will be presenting in our Annual Stockholders Meeting the recommendation to pay a dividend of MXN 0.35 per CPO payable in May, in the aggregate amount of approximately MXN 1.1 billion.

In closing, while we're not pleased, of course, with the results of the quarter, the outlook for the second half of the year is more positive. In addition, the long-term outlook for our businesses remains intact. We're the leading producer of Spanish-language content in the world. In broadcasting, our reach continues to be unmatched. The prime time viewership of our content in our broadcasting networks is 3x more than that of our closest competitor. We are also the main producer and distributor of content of pay television platforms, with the largest share of ratings in Mexico. In our distribution business, Sky is one of the largest and most profitable DTH operators in the world and a company with a unique brand recognition and scale in Mexico. And our cable assets reach 40% of the homes in the country, with a network of more than 32,000 kilometers of fiber and an additional 80,000 kilometers of coaxial cable. The very large majority of this network has been updated to industry standards.

I am confident that the assets that we hold and the steps that we have taken will continue to improve our competitive position as one of the few truly integrated media and telecommunications companies.

Thank you very much for your attention. And now, we're ready to take your questions.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) And your first question comes from the line of David Joyce from Evercore.

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

David Carl Joyce, Evercore ISI, Research Division - MD and Senior Fundamental Research Analyst [2]

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

A couple areas of clarification. The first on the pressures on the advertising growth in the first quarter. Granted, this is the smallest quarter of the year for advertising, but was it mostly the advertisers in the scatter market leading to the discounted rates? And was it roughly half of the -- just back of the envelope, it seems like maybe half of the scatter market was at risk. And then, secondly, on the video subscriber losses, excluding the new accounting methodology adjustment, were those -- how can we think about why those video subs declined, whereas broadband and voice increased? Was it something with cleaning the subscriber roles? We missed a little bit of the audio when I think there may have been some explanation.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [3]

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

David, yes, I'll ask Adolfo to answer your -- the second question, and then we'll get into the first question.

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

Adolfo Lagos Espinosa, Grupo Televisa, S.A.B. - Corporate VP of Telecom [4]

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

Yes. On the question of the video loss of growth, last quarter, we mentioned that we have implemented a lot of changes in 2016 which, in general, disrupted our services and incremented disconnect. We have now, in one hand, concluded most of those changes, but at the same time, we slowed as we've detected these trends, the pace of change, changed the protocols of change, and now, we have seen disconnects come down dramatically. As far as the video being a little bit more impacted than data and fixed lines, it's part of the strategy that we had at the start of the launch of EC because we needed to position our companies, our cable companies, as legitimate telecom companies. So we put a lot of emphasis on fixed lines and broadband. As this was finally evolved and we were positioned in the (inaudible) as a telecom company, then we began to look again into the video market. Just recently, we launched two new products, which are double play video and broadband. In the past, we did not have these packages. We have only fixed line and broadband. And we saw a trend in the market for customers who are not as excited with the fixed line product, and they would respond much better to double play broadband and video. And with that, we expect, again, to revitalize the growth of our video clients. So that's pretty much how I would explain the difference between what's happening in broadband and fixed telephony and video.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [5]

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

Thank you, Adolfo. David, Salvi will answer your first question.

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

Salvi Rafael Folch Viadero, Grupo Televisa, S.A.B. - CFO [6]

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

Yes. David, regarding the sales of advertising during the quarter, you are absolutely right. Most of our sales came from the upfront. The scatter was softer than last year. As you know, we had a strong upfront in 2016. We ended up about 8.9% higher at the end of 2016 compared to 2015. If you look at our customer deposits at the end of the quarter, right, they're about flat for broadcasting, so it was mainly the scatter market, the one that was softer. And your estimate is correct, that about half of it was the impact of those clients that are high-volume, that we were very disciplined, and we decided not to take what they were offering.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [7]

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

Yes. So in addition to what Salvi is saying, and it has happened in other first quarters throughout our history basically and had to do -- the shortfall had to do with -- as Salvi mentioned, with these clients that are heavily dependent on high-frequency and volume. And basically, we decided not to give discounts and promotions to those, and they were -- and they went to competitors of ours that were willing to give those discounts. And as I mentioned before, it had to do basically with three particular industries that did not spend in advertising in the first quarter. And basically, those were financial or banking, more specifically, telecommunications and high caloric product industry.

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

Operator [8]

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

And your next question comes from the line of Richard Dineen from UBS.

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

Richard Martin Dineen, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst [9]

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

Two, if I may. Alfonso, can you update us on your thoughts on pay-TV saturation? Penetration is now in the high 60s. You previously suggested 65% to 70% could be a ceiling, but we've seen pay-TV levels above that in other LatAm markets, Argentina, Colombia and so forth. So just what is your thinking behind 70% perhaps as a ceiling in Mexico and why might not that be higher? Is it affordability, availability of free-to-air content and so forth. So some color on that will be helpful. And maybe just a quick follow-up for Adolfo. Can you give us a bit more detail on the new 5 MB double play package? What's the pricing? It seems like it's an entry-level package. I'm just wondering if there's something changing in the kind of competitive dynamic that make you introduce that. Is it a weak consumer that's demanding more price competitiveness over speed? So some color behind that would be really helpful.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [10]

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

Richard, yes, we see the ceiling of penetration closer to 75%. It all depends on the economy. It all depends on the growth of the emerging middle class and lower middle class. And -- but we see the ceiling closer to 75%. On the second part of your question, the introduction of that package, that double play with the 5 MB, it's really an adjustment to the soft economic conditions that we're traversing through. On that tier, the market in Mexico is really deep market, and there's a lot of opportunity. We launched two products, the 5 MB TV at $380, and then we have a 10 meg TV at $430. So we're letting customers choose what is most important for them, speed or price. But we are making sure that we have all the flexibility to really get competitive with the customers. So it's not anything related to the price or anything like that, but it's just us getting into another segment and responding to the soft economic environment. Increase in gasoline prices, inflation, peso depreciation, interest rates going up, all of that affects customers (inaudible) cash flow, daily cash flow. So this is a new option for them, at least for the time being. They can always upgrade to the higher fee.

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

Operator [11]

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

And your next question comes from the line of Rodrigo Villanueva from Merrill Lynch.

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

Rodrigo Villanueva, BofA Merrill Lynch, Research Division - VP [12]

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

My question is related to regulation. I was wondering if you have any sense on, what day, IFETEL is going to come up with specific obligations on pay-TV for Televisa. And also, if you could share with us any thoughts on which this potential measures could be.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [13]

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

Rodrigo, yes, let me go back a little as to the dominance resolution by IFETEL. As you may recall, back in 2015, IFETEL resolved that we did not have substantial power in the pay television market, and that was considering information as of September of 2015. Then on January 2017, as a result of a lawsuit filed by one of our competitors, a court instructed IFETEL to review its ruling. And basically, the court said that it had to limit its analysis to a period of time, and basically, that period of time was August of 2014. So as a result of that, March of 2000 -- of this year, IFETEL reversed its decision and declared us as an economic agent with substantial power in the pay television market. But this decision by IFETEL was as of August 2014. So we were declared dominant, in essence, as of August 2014 and with information and with an analysis of the market as of August 2014. So we believe that the reversal of IFETEL's original ruling is not constitutional, and therefore, we're pursuing all options in our defense. We have filed an [amparo], an injunction. We cannot speculate about the potential measures that IFETEL might or might not take. But if any are applied, I can say that those measures, under the law and under the decision of the court, have to be reasonable. They have to be relevant. And also, and very specifically, they have to be timely under current market conditions, which is a challenge for IFETEL since we were declared preponderant based on an analysis of the market as of August 2014, and we're now in 2017. So as a result of all that, it's challenging to determine measures in 2017 based on a market analysis of 2014. So that's what I -- I can say that. I mean, those measures, if they are applied, will have to be reasonable, relevant and timely.

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

Operator [14]

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

Your next question comes from the line of Soomit Datta from New Street Research.

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

Soomit Datta, New Street Research LLP - Founding Partner [15]

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

A couple of questions, please, one on bundling and one on content. On bundling, there's obviously a huge opportunity. I think you've been trialing a sort of resold product from Telmex at the moment, and that's the plan for the first half. I wondered if you could give a slight update there. And also, AMX disclosed, I think, in the 20th that they have a 2-year period once their proposal for functional separation is accepted. They have a 2-year period to put that in place, which means we could be looking at 2 years plus before there is functional separation in the market. Do you think unbundling can work before that process is in place? Or does it not necessarily need to be in place for that business to take off? Sorry, that was long-winded, but that was the first question. And then secondly, on content, I sort of understand all your points. I think the market is looking for revenue growth close to some real GDP for this year. Do you think that given the volatility in Q1, and it's a slightly anomalous quarter, do you think that's still a reasonable expectation the market has?

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [16]

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

Soomit, as to the unbundling, it can effectively take place before the functional separation of America Movil, but that depends on the enforcement of the regulations. So as we have seen in other parts of the world, it's not easy. And it's easier said than done. But we believe that in those regulations that IFETEL already took, already approved, are enforced, then there will be effective unbundling before the functional separation takes place. As to the precise offerings that we're having, let me turn the call to Alex, who can describe what we're doing and how effective that is being done.

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

Alexandre Moreira Penna da Silva, Grupo Televisa, S.A.B. - Chairman of the Board of Managers for Corporacion Novavision and CEO of Corporacion Novavision [17]

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

Thank you, Alfonso. Basically, what -- at the stage we are is we have (inaudible) done, friends and family, packages of voice and data. And we tested the results. So far, things are working somewhat smoothly. And we are in the process of working on the development of the local loop on bundling using a number of [centros] of Telmex, of the incumbents. And we are planning to, possibly in the second semester of this year, start trying, particularly in one of the areas of Mexico City, to offer these unbundled services.

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

Alfonso de Angoitia Noriega, Grupo Televisa, S.A.B. - EVP, Member of the Executive Office of the Chairman and Director [18]

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

Yes. As to your other question, I would like to say that it's very difficult to tell what it is going to happen (inaudible) for the balance of the year. We have experienced in other first quarters a situation that is similar to this month. Nowadays, we have limited visibility, and we think it's going to be tough because of the tough macroeconomic conditions. The good thing is that we have the product. That means that, as Isaac just mentioned, ratings are quarter-over-quarter (inaudible) [at north 20%],which is fantastic. And having the product, we'll be doing better. However, as I mentioned, just now (inaudible) lines and getting those conversations (inaudible) likely outcome for the balance of the year. So as I mentioned, it's going to be choppy, but we have the talent to go out and sell.

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

Operator [19]

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

And this concludes today's conference. You may now disconnect.