América Móvil, S.A.B. de C.V.
Q1 2018 Earnings Call Transcript

Published: 25 Apr 2018

[Operator:]

Good morning, and welcome to the América Móvil First Quarter 2018 Conference Call and Webcast. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Daniela Lecuona, Head of Investor Relations. Please go ahead.

[Daniela Lecuona Torras:]

Thank you. Good morning, everyone. Thank you for joining us on our first quarter conference call. We have today on the line Mr. Daniel Hajj, our CEO; Mr. Carlos García Moreno, CFO; Mr. Óscar Von Hauske, COO; and also from Telmex, Mr. Carlos Robles.

[Daniel Hajj Aboumrad:]

Thank you, Daniela. Welcome to this first quarter 2018 financial and operating report. And Carlos is going to make us a summary.

[Carlos José García Moreno Elizondo:]

Okay. Thank you, Daniel. Good morning, everyone. Well, in the first quarter of 2018, with world economic growth improving steadily and most regions posting solid growth, volatility returned to U.S. financial markets as inflation fears resurfaced in the face of tight labor markets and what appeared to be an acceleration of wage increases. U.S. long-term interest rates rose to levels not seen in over four years as the market focused again on inflation risks. In Latin America, exchange rates were not affected by the increase in U.S. interest rates, and in fact, the Mexican peso became one of the best performing currencies following its depreciation in the fourth quarter of 2017. We added in the first quarter 1.4 million postpaid wireless subscribers, twice as many as a year before including 935,000 in Brazil and 181,000 in Mexico. We also gained 427,000 fixed-broadband clients to finish March with 28.6 million accesses, which is 152,000 coming from Brazil and 110,000 coming from Mexico. Our postpaid subscriber base was up 7.4% year-on-year and our fixed-broadband access base was up 4.8%, with PayTV accesses down 2.4%, mostly DTH clients in Brazil. We'll continue to disconnect mobile prepaid clients (02

[Daniel Hajj Aboumrad:]

All right. Thank you, Carlos. I think we can start with the Q&A. Hello?

[Operator:]

Sorry. We will now begin the question-and-answer session. And the first question comes from Fred Mendes from Bradesco. Please go ahead.

[Fred Mendes:]

Good morning, everyone, and thanks for the call. We are seeing – I have two questions actually. We are seeing a stronger mobile performance in Brazil and in Mexico, but also both of the countries they are showing a weak fixed business line also impacted by long distance calls in the corporate segment. My question is when you should see a reversal of this negative trend and what do you think could be the drivers for the recovery? And then, I can follow up with the second question. Thank you.

[Daniel Hajj Aboumrad:]

Well, good morning. Talking a little bit about Mexico, wireless in Mexico, I think we have a very good quarter. ARPU is growing, revenue is growing, EBITDA is growing. And I think what we have been doing in the last year I think is very important. I think in Mexico all the customers have preference for our network, the quality, the speed, we just launched 4.5G network. So, the perception of our coverage, quality and speed is very good. Also, we are working very hard on – and other projects and to give a better service to all of our customers. So, we are changing our customer care centers. We're changing and transforming all to digital. So, we're moving on that direction. And I think we're gaining the preference of the customers in Mexico. I think that's mainly what is happening. Other things – I don't hear you very well, but the other things that you said that are not doing very good is, let's say, long distance in – yes, in Brazil, while long distance is not doing good, I think long distance at the end of the day is going to disappear. So, national long distance, so – or we know that all these minutes, long distance minutes are going to disappear, but I don't know if Óscar wants to – or Carlos wants to tell us...

[Carlos José García Moreno Elizondo:]

Only one point here. And before I also comment on this, but as long distance revenues, as Daniel says, they are basically condemned to disappear (10

[Óscar Von Hauske Solís:]

Well, I will add to that, if you look at the minutes, the long distance is still steady. What is happening in the market is a big (11

[Fred Mendes:]

No. Thank you for your color and I think it's very clear. Just a follow-up on the same question. Especially, on the mobile segment in Brazil that you're growing like 8%, the other competitors is growing at 3.5% and expect the other one to go something like 6%. And of course, I mean, you should most likely – we would probably have the highest growth in this quarter. What is the main driver for this? I mean, are you getting clients from competition that's basically – of course, our ARPU is increasing, but also you clean up your base? I mean just trying to understand this strong improvement in your mobile growth and the drivers for that. Thank you.

[Daniel Hajj Aboumrad:]

In Brazil, now, you are talking in Brazil?

[Fred Mendes:]

In Brazil, yes. Perfect.

[Daniel Hajj Aboumrad:]

Look, we have been working a lot in our coverage, again in our capacity, in our quality. We have been investing a lot of the last two years. And I think we have a very competitive network today. The – we are the only ones who have 4.5G sort of speeds that we're giving in Brazil are good, are important. So, in that sense, we're working good. And I think we are moving in the right direction. Brazil is 100% penetration, so if you're going to get – or more than 100% penetration, so if you're going to get that customer, is this going to be a customer from other companies or if it's in postpaid coming from prepaid. So, those are the two places where you can get customers, coming from prepaid to postpaid or from other carrier. So, well, that's where we are. And in Brazil, people – they are aiming for very good quality. And I think we're giving good quality at this moment. So, we are preparing, we want to give the best possible quality. Our mobile data is growing a lot, so we're moving a lot subscribers from 2G to 3G to 4G to 4.5G. So, all these subscribers are going to use more and more data. And also, that's something that is helping us to increase the revenues.

[Fred Mendes:]

Perfect. Thank you very much.

[Daniel Hajj Aboumrad:]

Thank you.

[Operator:]

And our next question comes from Andre Baggio of JPMorgan. Please go ahead.

[Andre Baggio:]

Hi. Good morning, everyone. So, I want to know a little bit more about the best improvements in the revenues in Mexico. You can comment a little bit more on the pricing strategy and the other levers that you have been using that may continue in the future.

[Daniel Hajj Aboumrad:]

I don't hear you very well, can you repeat the question?

[Andre Baggio:]

Oh, I'm sorry. Talk about the improvement in the ARPU and the growth in the Mexican mobile, and then what's the leverage for that?

[Daniel Hajj Aboumrad:]

I think ARPUs are growing. But remember that two years ago when we started with unlimited plan, ARPU gets down, people will get unlimited minutes, so people start to use a lot of minutes, start to spend less money. The prices were very competitive. And today what is happening is prices are still very competitive. There are people who's using more and more data. So, more and more data, more and more minutes and that is what is making our ARPU grow. In Mexico, megabytes of use are growing around 100%. So, those growths – because we have a good base today, so the 100% growth in megabytes of usage is very good growth.

[Carlos José García Moreno Elizondo:]

And actually – I think one thing that is important is, it's growing data, but it's also growing voice. If you look at voice, minutes of use in Mexico are all very nearly (16

[Andre Baggio:]

And can you talk a little bit about the structure of the Brazilian cable that because it used to be growing very well in net services and now it's together with fixed-line and voice but – and with the long distance. But can you talk a little bit about the performance of cable in Brazil, how is it going, and what – how we should expect about the cable in Brazil?

[Carlos José García Moreno Elizondo:]

Well, clearly yes, we've been building a lot of home passes in Brazil. I think we have a great correlation with a great technology in Brazil. And you see that we've been working in triple-play environment, have been working through a year. Right now, we are focused as well in broadband with a very good speed. And I think that we have a very compelling offering in the market. Well, as you know, voice, voice is coming down. When you look at the breakdown of the revenues in net, SafeLink is growing – voice is decreasing like 12%. When you look at broadband, it's growing 10% revenues. And PayTV, that was decreasing a little bit. What we saw in the last quarter that in cable, it's improving PayTV as well. So, we expect that the – with the recovery of the economy, we will see different figures in net. In addition to that, we need to complement that offering. We are focused as well in a small business through cable companies. And as well, we are adding new services of cloud in the offering in order to improve the ARPUs on the cable side.

[Daniel Hajj Aboumrad:]

Yes. Yeah. Next question?

[Operator:]

And the next question comes from Alejandro Gallostra from BBVA. Please go ahead.

[Alejandro Gallostra:]

Hi, good morning. Thank you very much for taking my question. I'd like to know what your thoughts are on the wireless broadband service that some of your competitors are using. Do you think that the technology is ready to be competitive in the mass market or – and then, if this is something that you plan to do in the future or if you would wait until you deploy 5G? What are your thoughts on the wireless broadband service overall?

[Daniel Hajj Aboumrad:]

Well, I think what they are giving is, I think the wireless – the broadband wireless service is competitive when you don't have big service. If you have fiber, I don't think it's going to be same as with the broadband service, but there is still a lot of places where we don't have fiber or competition who doesn't have fiber or there's no fiber in some places. So, I think in those places, that will be interesting to give wireless broadband services.

[Alejandro Gallostra:]

Do you think that maybe once you deploy 5G, then the wireless broadband service could be more competitive and you would make it available to the mass market?

[Daniel Hajj Aboumrad:]

Yes, 5G, but also with 4.5G. With 4.5G, we can give a very good speed. So, we have 4.5G, I think we can give a good – a very good service, wireless broadband service in the house. In Austria – in Austria, we're giving – we have a lot of customers with broadband service. They are using around 30...

[Carlos José García Moreno Elizondo:]

30 megs.

[Daniel Hajj Aboumrad:]

...30 megs of capacity. I think it's good. It's easy to move. People can take to from one address to the other one. Just move it from an apartment to another one. So, it's good. It's good. I think it's going to be a good service in the future as well.

[Alejandro Gallostra:]

Good, thank you. And my second question is a follow-up on the Telmex expectations beyond the long distance revenue discussion. Are you ready to give us more color on the impact that you think that the functional and legal separation would happen on this business in the long term?

[Daniel Hajj Aboumrad:]

Yes. Let Carlos – Carlos can talk a little bit about that.

[Carlos Robles Miaja:]

Yes. Actually, what we have at this moment, it's the – in March, we received – the IFT issued the resolution and the terms and conditions for the supervision of Telmex. In this resolution, it establishes that Telmex and Telnor will have two years to implement the separation order. The resolution establishes a calendar and obligations to deliver information and to make – and to take some steps regarding the separation. We don't agree with the separation. Therefore, we will be – it will be challenged in accordance with the applicable laws. And – but given that its compliance is mandatory and therefore, Telmex and Telnor will start to take the separation process pursuant to the terms and conditions powered by the IFT. That's what we have at this moment.

[Daniel Hajj Aboumrad:]

Thank you, Carlos.

[Alejandro Gallostra:]

Okay. Thank you.

[Daniel Hajj Aboumrad:]

Okay.

[Alejandro Gallostra:]

Thank you so much.

[Operator:]

And the next question comes from Leonardo Omos from Santander. Please go ahead.

[Leonardo Olmos:]

Good morning, guys. My first question is regarding CapEx. What will be the main CapEx uses in the future in the coming years in terms of geography or in terms of infrastructure that you're seeing?

[Daniel Hajj Aboumrad:]

In terms of geography, I think it's difficult to say. I think we're putting CapEx where we needed. The big countries are the ones that are using more CapEx than the other ones, let's say, Brazil, Mexico, Colombia is another one. But, we're putting CapEx all around in Latin America. Even in Central America, we're putting CapEx and it's working very good. We are growing very good with our fixed-line business over there. So, we are doing – we're putting our budget. Today, our budget is MXN 8 billion. I think we are going to accomplish that budget. And I think with all this investment, I think we are going to be ahead of our competition and we can be very competitive in all the countries.

[Leonardo Olmos:]

Great. Thank you. And my next question is regarding content, what type of content acquisition would make sense for América Móvil, in a very general way I'm asking? And eventually should we see more movements on content for the company like we saw in Olympics or something like that?

[Daniel Hajj Aboumrad:]

We don't have right now any company that we are reviewing on content that makes sense. What we're doing is, you know that we have Claro Musica, we got Claro Video. We have some channels in Colombia, some things in internet here. So, we're developing some content. So, I think we are developing some content more than buying content. Other content that we could buy is that – and we're buying for all the cable companies...

[Carlos José García Moreno Elizondo:]

PayTV.

[Daniel Hajj Aboumrad:]

There's a PayTV, HBOs, Fox, Turner, all of that. So, I think we are in that idea, not into buy any company.

[Leonardo Olmos:]

Okay. Thank you very much.

[Daniel Hajj Aboumrad:]

Thank you.

[Operator:]

And the next question comes from Amir Rozwadowski from Barclays. Please go ahead.

[Amir Rozwadowski:]

Thank you very much and good morning, folks. I wondered if we could touch base on the Mexico wireless market once again. It seems like the benefit that you guys are seeing from an ARPU perspective is increased data usage versus any sort of change in pricing concessions that are taking place in the market. Is that a reasonable assumption? And then, the question I have following is if we think that that's the case and given where data usage is going, how do you see the propensity for ARPU to continue to improve off of current levels? Do you see some opportunity for it to continue to do so even if the competitive landscape remains the same? That would be helpful?

[Daniel Hajj Aboumrad:]

Well, it's a big question, a long question. So, what I can tell you in Mexico is that, as I said, we have – two years ago, we entered in a very dynamic market. We've reduced prices a lot between reduction on limited (26

[Amir Rozwadowski:]

That's very helpful. And a quick follow-up, if I may. If we go back to your Analyst Day last year, there was a lot of discussions around the potential opportunity for cost savings across the portfolio of geographies that you're seeing. Can you give us an update as to where you stand relative to your initiatives and what type of opportunities there might be for further cost savings across the board?

[Daniel Hajj Aboumrad:]

Yeah, we have big projects all around Latin America, that's why you are seeing that revenues are growing. But EBITDA is growing more than our revenues in mostly all of our countries is because we have – there is a lot of different projects in terms of cost. We have efficiencies, cost control, better technologies, digitalization. So, there's a lot of projects that we have all around Latin America and they are being successful. So, we can tell you that we're gaining and having the benefit of all these projects at this moment.

[Carlos José García Moreno Elizondo:]

(30

[Amir Rozwadowski:]

Thank you very much for the incremental color.

[Daniel Hajj Aboumrad:]

Thank you, Amir.

[Operator:]

And the next question comes from Julio Arciniegas from RBC. Please go ahead.

[Julio Arciniegas:]

Yes, good morning. Thank you for taking my question. My first question is regarding Brazil. We see that for example in Brazil, Telefónica, TIM Brasil Oy, all of them they are announcing for their STPH (31

[Daniel Hajj Aboumrad:]

The first one, mobile in Colombia, I think it's very competitive. This first quarter was a very competitive market there. And I think in prepaid and postpaid, in wireless, in fixed, we're doing very well. But I think things are getting stable. And I hope we can see a better market. What we need there is to – that people use more and more data, that we have more revenues because voice is going down in price and also in consumption. So, what we need is that data will move faster and people will try to continue on that. In Brazil about the fiber, Óscar, I don't know if you can...

[Óscar Von Hauske Solís:]

Well, our cable network is fully digitalized. So, what we've been doing is in the A segment, in the ultra band – ultrabroadband, we already deployed DOCSIS 3.1 that we believe that is a very competitive technology. And this year, maybe we will go to another series . And in that series, maybe we will use fiber in Brazil. But as you know, we have already turning 7 million home passes with cable that's fully digitized. So, we feel that we have a good technology there. And the expansions, we were analyzing if we use fiber or we use – still using copper.

[Julio Arciniegas:]

Can you give us some color on the scope, for example, of how many households would the company expects to – I don't know, to upgrade to fiber-to-the-home? I mean, is this fiber-to-the-home or is fiber-to-the-cabinet network the company is thinking about doing in Brazil?

[Daniel Hajj Aboumrad:]

Yeah. We expect to build 1 million home passes in the next 12 months. And it depends – depending how closer is the cable network, we will choose if we go all the way to fiber-to-the-home or we will go fiber-to-the-cabinet. But as you know, in cable companies, the DOCSIS 3.1, that fiber is pretty close to the households. So, moving that fiber from the node with household in the network is what – is going to be pretty easily for us because we already upgrade all the network in Brazil.

[Julio Arciniegas:]

Okay. Thank you. Thank you for your answer.

[Operator:]

And the next question comes from Walter Piecyk Walter from BTIG. Please go ahead.

[Walter Piecyk:]

Thanks a lot. Just a question on the supreme court ruling from last year that started to get you guys paid on those termination fees. How does that work in Mexico? Because there has been a report on Bloomberg that as part of NAFTA negotiations that AT&T was pushing the government to see if they can somehow circumvent that supreme court ruling, is that even possible in Mexico?

[Carlos José García Moreno Elizondo:]

I mean, well, that's been a demand on the part of our competitors. I think it might be the case, because that's something that is – of course, when supreme court ruling (35

[Daniel Hajj Aboumrad:]

It doesn't make any sense that your competitors doesn't pay for your net – network. But talking a little bit about the Bloomberg report, just to let you know that in Mexico, the growth in revenues that we have this quarter is mainly by other reasons, it's not because MTR. MTR is only 15% or 10% of the 12% growth that we have. So, the growth is because that people is using more data, we have more customers. They are using more minutes, share of market. I don't know what – there's no – there's the MTR is not the majority of the growth of Telcel this quarter.

[Walter Piecyk:]

Got it. Thank you. And then, just my second question is on capital investment I know, Daniel, in the last call you talked about investing MXN 8 billion for the year. If we look at the first quarter, it was down compared to last year. I assume that means you're going to – you're going to continue to ramp over the course of the year. But specifically, in Mexico as far as new cell site builds or when you look at the results of tele sites (37

[Daniel Hajj Aboumrad:]

We don't have any plan at this moment to do other ones. So, I'm not saying no, but we don't have any plan to do anything at the moment. We're not growing – we're growing towers, but we're not growing too many towers because with that, we do – remember that we bought a lot of spectrum last year under we're using that spectrum. So, if you have a spectrum, then you don't need to launch towers. We have 18,000 towers in Mexico. So, it's a lot of towers, that's what we have. So, what we're doing is putting new technologies. We're launching our 4.5G network. So, it's new technologies in the same tower that we have. Of course, we're still growing in coverage and we're going to put maybe 300 or 400 sites in new rural areas or extensions in the main cities. So, those are the places where we are growing, but we have a pretty good coverage in Mexico with what we have right now.

[Walter Piecyk:]

Thank you, Daniel.

[Daniel Hajj Aboumrad:]

Thank you.

[Operator:]

And the next question comes from Carlos Legarreta from GBM. Please go ahead.

[Carlos Antonio de Legarreta Diaz:]

Hi. Thank you. I know you already addressed the functional separation. But I don't think we've talked about the access to PayTV market. As I understand the March resolution from IFT, basically had a nice possibility. But I would like to understand what are the actual growths that you have at this point in time to gain access to this market in Mexico. Thank you.

[Daniel Hajj Aboumrad:]

With the actual separation that they – it's out – what's out that (39

[Operator:]

The next question comes from Cesar Medina from Morgan Stanley. Please go ahead.

[Cesar A. Medina:]

Hi. Thanks for the call. I have two questions. One related to a competition in the U.S. There has been a significant decline in margins. So, wanted to see what the forecasts would be. And then the second, if you could comment on the Red Compartida and what type of developments are you seeing now that the project is operational for, I guess, 30% of the market? Thank you.

[Daniel Hajj Aboumrad:]

Well, on Red Compartida, what I understand is that they are launching in some places and that they are going to do these wireless – fixed wireless broadband. And if – I don't have anything more than that. I think everybody's going to compete on that segment. We are going to compete on that segment. So, we are preparing our offers and we're competing in there. In the – the other question was...

[Cesar A. Medina:]

U.S. market.

[Daniel Hajj Aboumrad:]

U.S. U.S. is – it's a good question, I think I'm happy with the way platform is evolving this quarter. I think last quarter, if you can see, the EBITDA was very high, the first quarter of last year was very high because the growth that we have been having stopped a little bit. I think if you can really check the growth of platform this quarter, you could see that in the life line the plans that were subsidized by the government, SafeLink are the ones that are going down and the StraightTalk that it's our main plans are going up. So, you could see that the plans where we're putting advertising that are good ARPUs are starting to grow. And I feel that this quarter, we have a better response than what we have in our budget. So, we're starting to grow again, we have better plans. Last year, we need to renegotiate to make new plans in the market. So, I think we are ready this year to start growing. Yes, of course, growth means not the same EBITDA that we used to have last year, but still I think EBITDA was good, we're going to be careful with the EBITDA. We want to have a profit in the company. But also, it's very important to have growth. And the growth, we see it in the first quarter and we're going to see the growth in – all around the year. So, I'm feeling very comfortable on what – on how platform is developing.

[Carlos José García Moreno Elizondo:]

Yeah, just to add to what Daniel said, platform revenue had been – the rate of work had been declining for some time, as Daniel said, very much led by the reconnection of our SafeLink clients, and this has had to do with changes in the way this program is run by the government. So, we have to recertify clients more frequently and that is what not something that we were prepared for initially. But what you can see is that there has been a turnaround in this revenue decline, so now we are growing sequentially compared to the prior quarter. And I think this is – it's hitting a new direction for the company in terms of revenue growth. We're doing really well, as Daniel said, we'd be – the Straight Talk program, that's selling very well to have a new plan. It used to have no plans. We don't need a quota on limited data. Now, what they do have, one, (44

[Cesar A. Medina:]

Got it. Thank you.

[Daniel Hajj Aboumrad:]

Thank you.

[Operator:]

And the next question comes from (44

[Unknown Speaker:]

Hey, everyone. Thanks for taking the question. So, I just wanted to ask around the euro-sterling hybrid issues you had outstanding at the parent level. First off, can you just kind of talk about how you see your average generally within the cap structure here, is that something you may want to increase over time in light of the ratings credit you get? And then, just as a more specific follow-up, have €900 million up for call in September. It will be great, if you could give us any early thoughts about how you might look to address that.

[Carlos José García Moreno Elizondo:]

Well, the coverage bonds, as you know, they all were issued with different call dates. And as you point, there's one that is coming up I think in September for €1.1 billion. I think at the time that we issued the coverage, we wanted to get some temporary support on capital. We were expecting to bid for some company, if it's really KPN and Telekom Austria. And at that time, we needed some support. I don't believe that we need support anymore since we have been delevering and we'll continue to delever. So, no, we don't have any plans to go to the market in the – this year, not for anything including not for refinancing our capital bonds. In terms of paydown EBIT, all the debt we can pay this year.

[Unknown Speaker:]

Excellent. Thank you.

[Carlos José García Moreno Elizondo:]

Thank you.

[Operator:]

And the next question comes from Daniel Federle from Credit Suisse.

[Daniel Hajj Aboumrad:]

(46

[Daniel Federle:]

Good morning, everyone. Thank you very much for taking my questions. The first one is regarding the Mexican market. We saw the IFT announcing new quality measures for mobile services that should be effective beginning of next year. So, my question is, are you expecting any significant change in competition or market conditions with these new quality measures as of January 2019? And my second question is regarding handset subsidies in Mexico, if there is a space to reduce further subsidies in the region? Thank you very much.

[Daniel Hajj Aboumrad:]

On the quality measures in Mexico, I don't think we have any (47

[Daniel Federle:]

Okay. Perfect. Thank you very much.

[Daniel Hajj Aboumrad:]

Thank you.

[Operator:]

And the next question comes from Diego Aragao from Goldman Sachs. Please go ahead.

[Diego Aragao:]

Hi, Daniel and Carlos. Good morning.

[Daniel Hajj Aboumrad:]

Good morning.

[Diego Aragao:]

I have two follow-up questions. Sorry if I missed something from your open remarks, but my first question is regarding the functional separation. What can you share with us at this point regarding this new legal entity in terms of the size? I mean, just want to have some sensitivity around the size of the business. And the second question is regarding CapEx. You mentioned the 4.5G launch in new markets like Mexico and Brazil. But I noted that your CapEx is pretty much stable on a last 12-month basis. Can you help us to understand and eventually help us to quantify if is there any CapEx efficiency opportunity here? Thank you very much.

[Daniel Hajj Aboumrad:]

Well, CapEx is very important. I think to maintain the company in good shape you need to – there's a lot of technologies coming more households to pass. There is a lot of things, so we include Austria, we include Dominican Republic, Central America and Mexico, Brazil, Ecuador also. CapEx is important and we're going to invest as we needed. Of course, we are in the process of renegotiating all the contracts and we're going to try to find better technologies, better prices. And that's the work that we do every day. So, in terms of CapEx, nothing where we want to invest MXN 8 billion. I hope we can have some efficiencies. But always we have MXN 8 billion, plus or less 5%. So, we are not so sure how we are going to end, but it could be plus 5%, less 5%. So, I don't know exactly it. In the functional separation, Carlos can explain again what he explained at the beginning of the conference.

[Carlos José García Moreno Elizondo:]

Yes. As I've mentioned, we have two periods. The IFT established a two-year period to make the functional separation, some of the IFT established terms and conditions for the separation. Therefore, at this moment, we are working on the assets and the other elements that will have to be transferred to the – with new entity. And we will, in the next two years, as we follow up, we will be giving the information as we have it. So, we don't have at this moment any information that we can share.

[Diego Aragao:]

Sure. Okay.

[Daniel Hajj Aboumrad:]

Nothing much to share on that.

[Diego Aragao:]

Okay. Thank you, Daniel and Carlos.

[Daniel Hajj Aboumrad:]

Thank you.

[Carlos José García Moreno Elizondo:]

Thank you.

[Operator:]

And the next question comes from Rodrigo Villanueva. Please go ahead.

[Rodrigo Villanueva Bravo:]

Thank you. Good morning, Daniel, Carlos. My question is related to the spectrum auctions in Mexico. Apparently, news reports are suggesting that AMX didn't participate in the 2.5 gigahertz spectrum auction. And I was wondering if this is because you already acquired spectrum last year from MBS or because you were blocked by the government. And I was also wondering, if you know who were the two companies that participated in these auctions. Thank you.

[Daniel Hajj Aboumrad:]

I don't know who are the two companies that are going to participate, what I read in the news is that Altan is going to be out, it's not out. So, we are not there, so maybe it's going to be Telefonica (52

[Rodrigo Villanueva Bravo:]

Understood. Very clear, Daniel. And my second question is related to the arbitration claim against the Republic of Colombia. I was wondering if there is any update on this respect. And also, it seems to me that the $1 billion that you paid could be tax deductible. Is this the case? Thank you.

[Daniel Hajj Aboumrad:]

Yes, I think it is going to be tax deductible. Carlos can talk a little bit more on that. And so please, Carlos.

[Carlos José García Moreno Elizondo:]

Certainly, so it is – it's tantamount to an impairment, it's basically (53

[Rodrigo Villanueva Bravo:]

Understood. Thank you very much.

[Daniel Hajj Aboumrad:]

(24

[Rodrigo Villanueva Bravo:]

Got it. So, in the meantime, you would be just taking advantage of the deductibility of this payment?

[Daniel Hajj Aboumrad:]

And we already pay, so we paid last year. So, yes, of course, we're going to take advantage of that with the deductible and depending on what happens and let's see what is going to happen with the ruling.

[Rodrigo Villanueva Bravo:]

Okay. Thank you very much, Daniel.

[Daniel Hajj Aboumrad:]

Thank you.

[Operator:]

And the next question comes from Richard Dineen from UBS. Please go ahead.

[Richard Dineen:]

Oh, thank you very much for taking my question. Good morning, everyone. Just maybe a clarification to an answer on an earlier question on Mexico MTRs. Daniel, I think you said 15% of the 13% Mexico mobile service revenue growth was from the change in MTR. So, around about 2 percentage points of that 13% growth was from the change in MTRs. And if that's correct, I guess we should expect that kind of a benefit to recur for the remaining quarters this year if I heard you correctly.

[Daniel Hajj Aboumrad:]

Yes. Yes. And if Carlos wants to get into detail.

[Carlos José García Moreno Elizondo:]

No. Nothing more to add. I think that you're right.

[Richard Dineen:]

Fantastic. Thank you for that. And then, maybe just a quick follow-up perhaps for Carlos Robles just on the ULL situation in Mexico. I remember the unbundling rate was set by IFT. I think it was MXN 68 per port, which seemed very low. Just wondering what the status is of that. Have you challenged that? Is there a scope to challenge it? Because I guess that rate could have a bearing on how many competitors take advantage if ULL and how aggressive they can be on price. So, any update on the status of the ULL offer would be really interesting. Thank you very much.

[Carlos Robles Miaja:]

Regarding the unbundling, what I can tell you is that it started in 2016. We have been offering these services to all the competitors that have asked for it. And yes, the tariffs that the IFT established would think that our – out of the international comparison, they are well below the international comparison and we are taking the legal means regarding this. So therefore, in the future, we may have some notes to go back. Yeah.

[Richard Dineen:]

Okay, fantastic. Thanks. Thanks for all of the comments today, very helpful. Thank you. Thank you, everyone.

[Carlos Robles Miaja:]

Thank you.

[Daniel Hajj Aboumrad:]

Thank you.

[Carlos José García Moreno Elizondo:]

Thank you.

[Operator:]

And this concludes our question-and-answer session. I would now like to turn the conference over back to Daniel Hajj for any closing remarks.

[Daniel Hajj Aboumrad:]

Just to thank everybody for being in the call and see you next quarter. Thank you.

[Carlos José García Moreno Elizondo:]

Thank you, all.

[Carlos Robles Miaja:]

Thank you.

[Operator:]

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