Welcome to the América Móvil first quarter 2018 conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. 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.
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 Garcia Moreno, CFO, Mr. Oscar Von Hauske, COO, and also from Telmex, Mr. Carlos Robles.
Thank you, Daniela. Welcome to this first quarter 2018 financial and operating report. Carlos is going to make us a summary.
Okay. Thank you, Daniel. Good morning, everyone. 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 debates over 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. 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 pay-TV accesses down 2.4%, mostly DTH clients in Brazil. We continued to disconnect mobile prepaid clients. Our base was down 2.7%. Our revenues totaled MXN 254 billion. In Mexican peso terms, they were down 3.7% from the year earlier quarter on account of the appreciation of the peso versus other currencies. Correcting for this currency effect, revenues actually rose 2.8%, with service revenues increasing 2.1% at constant exchange rates. EBITDA totaled MXN 71.2 billion. It was nearly flat in peso terms, but up 5.9% at constant exchange rates.
As has been the case in prior quarters, postpaid revenues and prepaid data revenues, together with fixed broadband revenues, were the main drivers of revenue growth. The main drags came from fixed line voice revenues, reflecting mainly reductions in long distance revenues in Brazil and Mexico. Mexico was the top performer in the quarter, with service revenue growth accelerating from 3.3% in the fourth quarter to 6.3% in the first one, continuing with the recovery process begun more than a year ago. In this process, by the way, interconnection charges did not have the most meaningful impact. More than 80% of the increase in revenue that we had in the first quarter relative to the year before had to do with the normal operation. It was more clients, more revenues from the existing clients.
Central America followed Mexico in terms of acceleration of revenue growth, going from 1.8% to 3.5% in the period. Mobile ARPU increased sharply in Mexico, 11.6%, and in Brazil, 10.7%, with TracFone in the U.S. posting a 7.3% rise as our Straight Talk plans continue to gain traction. The ARPU declined, however, in Peru by 5.6% and in Colombia by 3.4%. The ARPU increase in Mexico was the fourth consecutive one, accompanied by strong net additions in the postpaid segment. The same is true of Brazil, as you can see in the chart. At 28%, our EBITDA margin was 0.8 points higher year-to-year before and was the highest consolidated EBITDA margin in 10 quarters since the third quarter of 2015.
EBITDA margins were up more than 2% points in Mexico, Brazil, Peru, and Chile from the year earlier quarter, and more than 8% points in small operations like Panama and Costa Rica. Margins are higher very much across the board, all throughout the organization, with a couple of exceptions. Although still down compared to a year before, the EBITDA margin in Puerto Rico exhibited a strong recovery from the prior quarter, increasing from -3.5% to +9.5%, which reflects the gradual normalization of our operations in the island, partly linked to the resumption of electrical power in most of the territories. Operating profits totaled almost MXN 30 billion in the first quarter and were up 7.5% at constant exchange rates.
We posted a comprehensive financial income of MXN 913 million, a foreign exchange gains of MXN 22.9 billion, driven mostly by the appreciation of the Mexican peso versus the U.S. dollar. More than offset our net interest and other financial expenses. Our net profit totaled MXN 18 billion and was equivalent to MXN 0.27 per share, or $0.29 per ADR. At the end of March, our net debt stood at MXN 614 billion. It was nearly flat relative to December, but would have been MXN 13.6 billion lower in March had we not had to consider the payment of hybrid bonds in the amount of EUR 600 million by Telekom Austria as incurring new debt. The Telekom Austria hybrid bonds had been considered equity given they were perpetual bonds, notwithstanding that they could be called in certain dates.
Paying down those bonds meant both a decrease in equity and a corresponding increase in net debt on the balance sheet. From the perspective of rating agencies, the hybrid bonds were considered to be 50% equity and 50% debt. Our capital expenditures in the quarter came in at MXN 24 billion. I think this is all that I have in summary. I will pass the floor back to Daniel so that we can get started with the Q&A session.
Thank you, Carlos. I think we can start with the Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Fred Mendes from Bradesco. Please go ahead.
Good morning, everyone. Thanks for the call. I have two questions, actually. We are seeing a stronger mobile performance in Brazil and in Mexico. Both countries, they are showing a weak fixed business line, also impacted by long-distance calls and the corporate segment. My question is, when you should see a reversal of this negative trend, and what do you think would be the drivers for the recovery? I can follow up with the second question. Thank you.
I will call you next.
No, thank you.
Well, good morning. Talking a little bit about Mexico or wireless in Mexico, I think we have a very good quarter. ARPU's growing, revenue is growing, EBITDA is growing. I think what we have been doing 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. The perception of our coverage quality and speed is very good. Also, we're working very hard on other projects and to give a better service to all of our customers. We're changing our customer care centers. We're changing and transforming all to digital. 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 other things that you said that are not doing very good is, let's say, long distance in Yes, in Brazil, where long distance is not doing good. I think long distance, at the end of the day, is going to disappear, so national long distance. We know that all these long distance minutes are going to disappear, but I don't know if Oscar wants to, or Carlos wants to tell us.
Only one point here before Oscar comments on this, but as long distance revenues, as Daniel says, they are basically condemned to disappear rapidly. Good news in Mexico that a lot of that has already disappeared because we had the elimination of national long distance revenues some time ago with the telephone reform. What remains of long distance revenues in Mexico is now today only 3% of fixed line revenues, which is very small. It's all international. In the case of Brazil, national and international long distance, again, it's coming down rapidly, but the total today is only 15% of fixed line revenues. I think that certainly in Mexico, we should have this drag eliminated probably in the next couple of quarters. In Brazil, it's probably going to be maybe a little bit longer, three, four quarters, but it's not going to be that important.
Okay.
I will add, if you look at the minutes in long distance, it's still steady. What is happening in the market is a big price erosion in the market. We are moving on to unlimited calls in all our packages. That's another impact in long distance. It's a trend. The long distance is coming down. We need to do something to compensate that decline with other services. That's what we are doing. We are trying to bring new services to add to our connectivity, and then to try to restate the revenues with the impact on long distance.
Okay.
No, thank you, Carlos. I think very clear. Just to follow up on the same question, especially on the mobile segment in Brazil, that you're growing like 8%. The other competitor is growing like 3.5%, and expect the other one to grow something like 6%. Of course, you should most likely report the highest growth in this quarter. What is the main driver for this? Are you getting clients from competition that's basically, of course, your ARPU is increasing, but also you clean up your base. I'm just trying to understand the strong improvement in your mobile growth and the drivers for that. Thank you.
In Brazil, no? You are talking in Brazil?
In Brazil.
Yes, perfect.
Look, we have been working a lot in our coverage, again, in our capacity, in our quality. We have been investing a lot for the last two years, and I think we have a very competitive network today. We are the only ones to have 4.5G, so the speeds that we're giving in Brazil are good, are important. In that sense, we're working good, and I think we are moving in the right direction. Brazil is 100% penetration, or more than 100% penetration. If you're going to get a customer, it is going to be a customer from other companies, or if it's in postpaid, coming from prepaid. Those are the two places where you can get customers, coming from prepaid to postpaid or from other carriers. Well, that's where we are.
In Brazil, people are aiming for very good quality, and I think we're giving good quality at this moment. We are preparing. We want to give the best possible quality. Our mobile data is growing a lot, we're moving a lot subscribers from 2G to 3G to 4G to 4.5G. All these subscribers are going to use more and more data, and also that's something that is helping us to increase revenue.
Perfect. Thank you very much.
Thank you.
Our next question comes from Andre Baggio of J.P. Morgan. Please go ahead.
Hi. Good morning, everyone. I want to know a little bit more about the impressive 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.
I don't hear you very well. Can you repeat the question?
I'm sorry. We talk about the improvement in the ARPU and growth in Mexico mobile, what's the leverage for that?
I think ARPU are growing. Remember that two years ago, when we start with the unlimited plans, ARPU gets down. We get unlimited minutes, so people start to use a lot of minutes, have to spend less money. The prices were very competitive, today what is happening is prices are still very competitive, but people is using more and more data. 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%. Those growths, because we have a good base today. The 100% growth in megabytes of use is a very good growth.
I think one thing that is important is it's growing data, but it's also growing voice. If you look at voice, the minutes of use in Mexico are already nearly 500, okay? The highest here in the continent out of the U.S. As Daniel said, data expansion has been tremendous. It's 100% increase year-on-year, which is much more than we see practically obvious.
Can you talk a little bit about the structure of Brazilian cable there? Because it used to be growing very well, net services, and now it's together with fixed line and voice, and with long distance. Can you talk a little bit the performance of the cable in Brazil, how is it going? How we should expect about cable in Brazil?
Well, through the years, we've been building a lot of home passes in Brazil. I think that we have a great coverage with a great technology in Brazil. You see that we've been working in a triple-play environment, have been working through the years. Right now, we are focused as well in broadband with a very good speed. I think that we have a very compelling offering in the market. Well, as you know, voice is coming down. When you look at the breakdown of the revenues in NET, voice is decreasing like at 12%. When you look at broadband, it's growing 10% in revenues. Pay TV that was decreasing a little bit. What we saw in the last quarter that in cable it's improving pay TV as well. We expect that 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. As well, we are adding new services as cloud in the offering in order to improve the ARPUs on the cable side.
Yes. Next question.
The next question comes from Alejandro Gallostra from BBVA. Please go ahead.
Hi. Good morning, and thank you very much for taking my question. I would 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? 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?
Well, I think what they are giving is, I think the broadband wireless service is competitive when you don't have a fixed service. If you have fiber, I don't think it will have the broadband service. There's still a lot of places where we don't have fiber or competition doesn't have fiber, or there's no fiber in some places. I think in those places that will be interesting to give the wireless broadband services.
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?
Yes, 5G, but also with 4.5G. With 4.5G, we can give a very good speed. If we have 4.5G, I think we can give a very good service, a wireless broadband service in the house.
Okay, thank you.
In Austria, we have a lot of customers with broadband service. They are using around 30.
30 megs, yeah
30 megs of capacity. I think it's good. It's easy to move. People can take from one address to the other one, just move from an apartment to another one. It's good. I think it's going to be a good service in the future as well.
Okay. My second question is a follow-up on the Telmex expectations beyond the long-distance revenues discussion. Are you ready to give us more color on the impact that you think the functional and legal separation would have on this business in the long term?
Yes. Please, Carlos. Carlos can talk a little bit about the separation.
Yes. Actually, what we have at this moment, it's that in March, we received the IFT issue, the resolution, and the terms and conditions for the separation 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 take some steps regarding the separation. We don't agree with the separation, therefore, it will be challenged in accordance with the applicable laws. Given that it's compliance, it's mandatory, and therefore Telmex and Telnor will start to take the separation process pursuant to the terms and conditions established by the IFT. That's what we have at this moment.
Thank you, Carlos.
Okay, thank you.
All right.
Thank you so much.
The next question comes from Leonardo Olmos from Santander. Please go ahead.
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?
In terms of geography, I think it's difficult to say. I think we're putting CapEx where we need it. The big countries are the ones that are using more CapEx than the other ones. Let's say Brazil, Mexico, Colombia is another one. We're putting CapEx all around Latin America. In Central America, we're putting CapEx, and it's working very good. We're growing very good our fixed line business over there. We're putting our budget. Today, our budget is $8 billion. I think we are going to accomplish that budget. 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.
Great. Thank you. My next question is regarding content. What type of content acquisition would make sense for América Móvil? In a very general way, I am asking. Eventually, should we see more movements on content for the company, like we saw on the Olympics or something like that?
We don't have right now any company that we're reviewing on content that makes sense. What we're doing is, you know that we have Claro música, we have Claro video, we have some channels in Colombia, some things in internet here. We're developing some content. I think we are developing some content more than buying content. Other content that we could buy is, and we're buying for all the cable companies, the pay TV, HBO, Fox, Turner, all of that. I think we are in that idea. Nothing to buy any company.
Okay. Thank you very much.
Thank you.
The next question comes from Amir Rozwadowski from Barclays. Please go ahead.
Thank you very much, 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? The question I have following is, if we think that that's the case, 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.
Well, it's a big question, a long question. What I can tell you in Mexico is that, as I said, two years ago, we enter in a very dynamic market. We reduce prices a lot between reduction, unlimited, our ARPUs decreased. I don't remember, but maybe our ARPUs decreased two years ago around 25%. What we're seeing right now is that these ARPU that gets reduced two years ago are coming to the levels that we used to have on that time. They are coming because people is using more data, and they are, let's say, in postpaid, prices are very competitive. We have prices with a lot of data, but people is using more data on that. They are jumping to new plans. They are jumping to better plans with more data. In prepaid, we have our cards with some amount of data.
They are using that and they are renewing a new card faster because they are using data. As people moves from 2G to 3G and from 3G to 4 and 4.5G, I think all of them are going to use a lot more data, then we are going to have better. There's more applications. There's a lot more things to do with the data. People is using that. It's not only in Mexico. You see that in postpaid in Brazil, we're growing also. All around Latin America, megabytes of use are growing a lot. The market is still very competitive. I'm not seeing any increase of prices for the last year, so it's been very competitive in the wireless market. I don't know if there's gonna be an increase or a decrease, but what I can tell you is that the market is competitive.
As I told you, we have lower prices in postpaid than in the U.S., let's say, much better prices than in the U.S. I don't think we are going to reduce more the prices. I don't know how the market is going to behave in the next months. We feel that very important that the perception of Telcel in the market is very good perception. We have very good coverage. We have very good quality. We have very good speed. We have the best network in the market, and that counts a lot.
That's very helpful. 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?
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. It's because there's a lot of different projects in terms of costs. We have efficiencies, cost control, better technologies, digitalization. There's a lot of projects that we have all around Latin America, and they are being successful. We can tell you that we're gaining and having the benefit of all these projects at this moment.
What we said here in Mexico, Amir, there's a number of initiatives, short-term initiatives that we're working on. We are also developing more of a medium-term plan to bring down structural costs more rapidly. You will be seeing the impact of the short-term initiatives certainly this year. We expect to have some other reductions over the following year that are more of a structural nature, and that we'll be seeing results of which we'll be seeing in the medium term.
Thank you very much for the incremental color.
Thank you.
Thank you.
The next question comes from Julio Arciniegas from RBC. Please go ahead.
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, Oi all of them, they are announcing for their FTTH deployments. Does AMX plans to upgrade their cable network in those areas where they are going to be competing against fiber to the home. My second question is regarding to Colombia. I see that, for example, mobile service revenue in Colombia, they have it deteriorated in Q1 2018. Can you give us some color of the competitive landscape in mobile in Colombia? Thank you.
Julio, first one, mobile in Colombia, I think it's very competitive. This first quarter was a very competitive market there. I think in prepaid and postpaid, in wireless, in fixed, we're doing very well. I think things are getting stable, and I hope we can see a better market. What we need there is that people use more and more data, that we have more revenues, because voice is going down in price and also in consumption. What we need is that data will move faster, and people start to consume more on that. In Brazil, about the fiber, Oscar, I don't know if you can.
Well, you know our cable network is fully digitalized. What we've been doing is in the A segment, in the ultra broadband, we already deployed DOCSIS 3.1 that we believe that is a very competitive technology. This year, maybe we will go to another cities, and in that cities, maybe we will use fiber in Brazil. As you know, we have already 27 million home passes with cable. We're fully digitalized, we feel that we have a good technology there. The expansions we are analyzing if we use fiber or we are still using copper.
Can you give us some color on the scope, for example, of how many households would the company expect to, I don't know, to upgrade to fiber to the home? Is this fiber to the home or is fiber to the cabinet what the company is thinking about doing in Brazil?
Yeah, we expect to build 1 million home passes in the next 12 months. 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. As you know, in cable companies, the DOCSIS 3.1, the fiber is pretty close to the households. Moving the fiber from the node to the households in the network is gonna be pretty easy for us because we already upgraded all the network in Brazil.
Okay. Thank you. Thank you for your answer.
No, a pleasure. Thank you.
The next question comes from Walter Piecyk from BTIG. Please go ahead.
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? There's been a report on Bloomberg that as part of NAFTA negotiations that AT&T was pushing the governments to see if they can somehow circumvent that Supreme Court ruling. Is that even possible in Mexico?
There's been a demand on the part of competitors, I think it might be the case. Whether that's something that is enforceable when a Supreme Court ruling is already out there, I think it's something different. I think we have a standalone legal framework, which in this particular case has ruled, surprise, that when a supplier delivers something, he's entitled to get something back for it, for the delivery. I think we don't expect to see any changes. I mean, this process went through all the motions, got all the way to the Supreme Court, as we know, and we've had this ruling, which is by the way, completely consistent with what you see in all other countries. What we had in Mexico, I think for the time before this ruling, was literally an aberration. Doesn't make any sense that your competitor doesn't pay for your network.
Talking a little bit about the Bloomberg report, just to let you know that in Mexico, the growth in revenue 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. The growth is because people is using more data. We have more customers. They are using more minutes, share of market. I don't know what, but the MTR is not the majority of the growth of Telcel this quarter.
Got it. Thank you. Just my second question is on capital investment. I know, Daniel, on the last call, you talked about investing $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 gonna continue to ramp over the course of the year.
Specifically in Mexico, as far as new cell site builds, when we look at the results of cell sites, it looks like it was a little lighter. Do you expect to ramp the new site builds in Mexico, and is there an opportunity perhaps to do a similar transaction with Telesites or someone else, in any of your other markets to monetize some of the tower assets that you have in maybe Colombia or somewhere else?
We don't have any plan at this moment to do other ones. I'm not saying no, but we don't have any plan to do anything at this moment. We're growing towers, but we're not growing too many towers because we have, you remember that we bought a lot of spectrum last year, and we're using that spectrum. If you have a spectrum, then you don't need too much towers. We have 18,000 towers in Mexico, it's a lot of towers that what we have. What we're doing is putting new technologies. We're launching our 4.5G network, it's new technologies in the same towers 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.
Those are the places where we are growing, but we have a pretty good coverage in Mexico with what we have right now.
Thank you, Daniel.
Thank you.
The next question comes from Carlos Legarreta from GBM. Please go ahead.
Hi, thank you. I know you already addressed the functional separation, but I don't think we've talked about the access to pay TV market. As I understand, the March resolution from IFT basically denies this possibility. I would like to understand what are the actual routes that you have at this point in time to gain access to this market in Mexico. Thank you.
With the actual separation that it's out, that was out, that IFT sent us, there's no pay TV license included in the actual separation. We're still discussing with them, and we're still interested in having TV. It's the only place in the world that we're not allowed to have TV. I hope they understand and that they can give us the TV license. Still fighting for that. Yes.
The next question comes from Cesar Medina from Morgan Stanley. Please go ahead.
Hi. Thanks for the call. I have two questions, one related to competition in the U.S. There's been a significant decline in margins, wanted to see what the forecast would be. 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.
Well, on Red Compartida, what I understand is that they are launching in some places and that they are going to do this fixed wireless broadband. 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. We are preparing our offers and we're competing there. The other question was?
U.S. market.
U.S. U.S. is a good question. I think I'm happy with the way TracFone 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 TracFone this quarter, you could see that in the Life line, the plans that were subsidized by the government, SafeLink Wireless, are the ones that are going down. The Straight Talk that is our main plans are going up. You could see that the plans where we're putting advertising that are good ARPUs are starting to grow. I feel that this quarter we have a better response than what we have in our budget. We're starting to grow again. We have better plans.
Last year, we need to renegotiate to make new plans in the market. 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. Still, I think the EBITDA was good. We're going to be careful with EBITDA. We want to have profits in the company. Also it's very important to have growth. The growth, we see it in the first quarter, and we're going to see the growth all around the year. I'm feeling very comfortable on how TracFone is developing.
Just to add to what Daniel said, TracFone's revenue had been, the rate of growth had been declining for some time. As Daniel said, very much led by the disconnection of our SafeLink clients. This has had to do with changes in the way this program is run by the government. We needed to recertify clients more frequently, and this was not something that we prepared for initially. What you can see is that there's been a turnaround in this revenue decline. Now we are growing sequentially compared to the prior quarter, and I think this is setting a new direction for the company in terms of revenue growth. We are doing really well, as Daniel Hajj said, with the Straight Talk program. That's selling very well. It has a new plan. It used to have no plan with unlimited talk and unlimited data.
Now they do have one with unlimited talk and unlimited data, which sells for about $50, if I remember correctly, which has gained a lot of traction.
Got it. Thank you.
Thank you.
The next question comes from Christian Crosby from J.P. Morgan. Please go ahead.
Hey, everyone. Thanks for taking the question. I just wanted to ask around the euro sterling hybrid issues you had outstanding at the parent level. First off, can you just talk about how you view hybrids generally within the Cap structure here? Is that something you may want to increase over time in light of the ratings credit you get? Just as a more specific follow-up, you have EUR 900 million up for call in September. It would be great if you could give us any early thoughts about how you might look to address that.
Well, with the hybrid bonds, as you know, they all were issued with different call dates. As you point out, there's one that is coming up, I think, in September for a EUR 1.1 billion deal. I think at the time that we issued the hybrids, we wanted to get some temporary support on capital. We were expecting to bid for some companies, including KPN and Telekom Austria, and at the time, we needed some support. I don't believe that we need support anymore since we have been delevering, and we continue to delever. No, we don't have any plans to go to the markets in this year. Not for anything, including not for refinancing hybrid bonds. We intend to pay down all the debt that we can pay this year.
Excellent. Thank you.
Thank you.
The next question comes from Daniel Federle from Credit Suisse.
Yes. Keep moving.
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. My question is, are you expecting any significant change in competition or market conditions with these new quality measures as of January 2019? 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.
On the quality measures in Mexico, I don't think we have any change. We have been having quality measures. I think that's something that we're looking for, to give the best quality to our customers. That's what we're aiming for. I don't think there's going to be big changes there. I hope there's not big changes there. The other question?
Subsidies.
The subsidies. Well, I think what we want is to reduce subsidies all around. Subsidies means competition. That's something that we need to see country by country. América Móvil will be very happy to reduce. We are reducing a lot our subsidies all around Latin America. It's something that doesn't make sense. I think it's better to give a better price and better service to your customers than to subsidize the handset. In the other side, there are coming new 4.5G phones with better technologies, expensive phones. Well, that's the story for the last 10 years. That's what we're looking and what we're being careful for.
Okay, perfect. Thank you very much.
Thank you.
The next question comes from Diego Aragao from Goldman Sachs. Please go ahead.
Hi, Daniel, Carlos. Good morning.
Good morning.
I have two follow-up questions. Sorry if I missed something from your open remarks. My first question is regarding the function separation. What can you share with us at this point regarding this new legal entity in terms of the size? I just want to have some sensitivity around the size of the business. 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 there any CapEx efficiency opportunity in here? Thank you very much.
Well, CapEx is very important. I think to maintain the company in good shape, there's a lot of technologies coming, more households to pass. There's a lot of things. We include Austria, we include Dominican Republic, Central America, Mexico, Brazil, Ecuador. CapEx is important, and we're going to invest as we need it. Of course, we are in a process of renegotiating all the contracts and trying to find better technologies, better prices, and that's the work that we do every day. In terms of CapEx, nothing, we're going to invest $8 billion. I hope we can have some efficiencies, but always we have $8 billion plus or less 5%. We are not so sure how we are going to end, but it could be +5%, -5%. I don't know exactly.
In the functional separation, Carlos can explain again what he explained at the beginning of the conference.
Yes. As I 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 this separation. At this moment, we are working on the assets and the other elements that will have to be transferred to the new entity. We will, in the next two years, as we follow up, we will be giving information as we have it. We don't have, at this moment, any information that we can share to you.
Not too much to share on that.
Okay. Thank you, Daniel and Carlos.
Thank you.
Thank you.
The next question comes from Rodrigo Villanueva. Please go ahead.
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. I was wondering if this is because you already acquired spectrum last year from MVS or because you were blocked by the government. I was also wondering if you know who were the two companies that participated in these auctions. Thank you.
I don't know who are the two companies that are going to participate. What I read in the news is that Altán Redes is going to be out, is not out. We are not there. Maybe it's going to be Telefónica and AT&T, the ones that are participating, but I don't know. Why we don't participate? First, because we have enough spectrum at this moment. We just bought 30 plus 30 one year ago. On the other side, they don't block us, but they don't give us the same equal conditions. If we don't have equal conditions and we are not so enthusiastic for the spectrum, then we decide not to participate. That's the easy, clear decision that we have.
Understood. Very clear, Daniel. 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. Also, it seems to me that the $1 billion that you paid could be tax deductible. Is this the case? Thank you.
Yes. I think it's going to be tax deductible. Carlos can talk a little bit more on that. Please, Carlos.
Well, it is tantamount to an impairment. It's basically a grant that a buyer could feel on account of having to take on a new obligation in exchange for nothing. That's basically accounting wise, it's an expense, and the expense should be tax deductible. We have the rulings, the review or statements from various independent, major accounting firms that confirm this independently. I think that we are going to take it in that route.
Understood. Thank you very much.
The injunction that we have for the government, no news. I think it's going to take some time. It's in process. Nothing new that we can discuss at this moment.
Got it. In the meantime, you would be just taking advantage of the deductibility of this payment?
Well, we already paid. We paid last year. Yes, of course, we're going to take advantage of that to be deductible. Depending on what happens, let's see what is going to happen with the ruling.
Okay. Thank you very much, Daniel.
Thank you.
The next question comes from Richard Deenin from UBS. Please go ahead.
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. Around about two percentage points of that 13% growth was from the change in MTRs. 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.
Yes. If Carlos wants to get detail, nothing more to add, but I think that you're right. Yeah.
Fantastic. Thank you for that. 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 scope to challenge it? Because I guess that rate could have a bearing on how many competitors take advantage of ULL and how aggressive they can be on price. Any update on the status of the ULL offer would be really interesting. Thank you very much.
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. Yes, the tariff that the IFT established, we think that are out of the international comparison, they are well below the international comparison, and we are taking the legal means regarding this. Therefore, in the future, we may have some notes about that. Yeah.
Okay. Fantastic. Thanks for all of the comments today. Very helpful. Thank you. Thank you, everyone.
Thank you.
Thank you.
Thank you.
This concludes our question and answer session. I would now like to turn the conference over back to Daniel Hajj for any closing remarks.
Just thank everybody to be in the call and see you next quarter. Thank you. Thank you all.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.