Welcome to América Móvil's fourth quarter 2017 conference call and webcast. All participants will be in a 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 a question. 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 Miss Daniela Lecuona, Head of Investor Relations. Please go ahead, ma'am.
Thank you. Good morning, everyone. Thanks for joining us in our fourth quarter conference call. We're here on the line with Mr. Daniel Hajj, our Chief Executive Officer, Mr. Carlos García Moreno , Chief Financial Officer, Mr. [Óscar von Hauske] , Chief Operating Officer, and also from Telmex, Mr. Carlos Robles, the CFO. For those of you who are following on the webcast, please make sure you refresh your browser so you have access to these slides. Daniel?
Thank you, Daniela. Welcome, everyone, to this fourth quarter América Móvil report. Carlos is going to make a presentation of the results. Carlos.
Okay.
Thank you, Daniela. Good morning, everyone. The last quarter of 2017 ended on a strong note, with inflation seemingly well-contained and economic growth picking up in most of the world, both in developed and in emerging countries. With commodity prices trending up, several Latin American countries saw new synergies for expansion, particularly in Brazil, that is recovering from a long and deep recession. In Central and Eastern Europe, the region's too dependent from the overall economic recovery in Western Europe that has been remarkably strong in bordering countries such as Germany and Austria. The positive economic momentum had us posting good revenue and EBITDA growth very much across the board, with data services leading the way on both the mobile and the fixed line platforms. Mobile ARPU grew practically everywhere, boosted by data revenues.
The investments we made over the last several years on conversions, including deployment of fiber optic and expansion of our 4G footprint, have provided us with the fastest data networks in our region. That gives us a competitive edge on our main business segments and in most countries has helped us strengthen our position. We ended 2017 with 362 million accesses, slightly less than a year before, with our mobile postpaid and fixed broadband accesses increasing 6.4% and 4.2%, and mobile prepaid and pay TV accesses falling by approximately 2.6% each. Those of you that are looking at our chart presentation, you will see this in the first chart. In fixed voice accesses, we lost 1.9% as people moved to prepaid packages or to postpaid mobile services.
In mobile postpaid, we added 1.7 million subscribers in the fourth quarter, 1 million in Brazil, 206,000 in Mexico, and 109,000 in Austria, to finish the year with 70.6 million subs. Our postpaid net adds surpassed those of the year before by 26.6%. Our revenues totaled MXN 264 billion in the fourth quarter. They were down 2% in MXN terms on account of foreign exchange rate movements. At constant exchange rates, revenues were up 0.5%, and service revenues were rising 1.4%. Service revenue growth was driven by postpaid revenues that were up 9.5% at constant exchange rates, prepaid data, which was up 9.7%, and fixed broadband revenues that rose 5.8%. Mobile data was the main driver overall, with the traffic on our networks increasing 66% over the year.
By regions, the more dynamic one was the South America block, with service revenue growth of 4.5% at constant exchange rates, followed by Mexico with 3.3%, which has recovered significantly from a year ago. Mobile ARPU were up, as we said before, in most operations, with Mexico's increasing 7.2%, Brazil's 10.2%, and Chile 2.8%. Even the U.S. increased 2.4%. Fourth quarter EBITDA totaled MXN 70.2 billion. It was up 6.8% in MXN terms and 9.8% at constant exchange rates, compared to 1.3% in the prior quarter, when EBITDA was hit by the natural disasters in Mexico and Puerto Rico. In South America, EBITDA rose 13.5% at constant exchange rates, followed by Mexico with 13.5%, and Central America with 7.8%. EBITDA margins were up in most of our operations from the year before, with Mexico's increasing by 4.1% this quarter, Brazil's by 2.9%, Ecuador's by 3.9%, and Peru's by 6.5%.
Our consolidated CDOs reflect the major loss of revenues in Puerto Rico, which was -16% year-on-year in the aftermath of the hurricane that battered the island in September. The revenue decline, mostly to do with the lack of electrical power toward the island and its impact on fixed line telephony, resulted in an even greater drag on consolidated EBITDA. Our operations EBITDA margin plummeted to -3.5% in the fourth quarter from 21.6% in the second quarter. We went from having a positive EBITDA in Puerto Rico to having an EBITDA loss in the fourth quarter. Excluding Puerto Rico, our consolidated service revenues expanded 1.9% year-on-year, and our EBITDA increased 12%. Consolidated EBITDA of América Móvil, excluding Puerto Rico, was up 12% at constant exchange rates last year, last quarter.
Just looking at the detail in Mexico and Brazil, you will see in the charts that we are presenting. You can see that in Mexico, EBITDA was up 13.5% year-on-year with stable revenue growth driven by data revenues. Postpaid net adds of 206,000 that we mentioned in the quarter was slightly higher than what we had in the third quarter, but it was a similar number third quarter, we had good growth postpaid market. ARPU, as you can see in the chart again, has been increasing consistently over the last several quarters. Last quarter was up 7.2% year-on-year. Looking at Brazil, EBITDA was up 11.6% year-on-year. Data revenue is up 42%. Again, both postpaid also prepaid, but very significant in postpaid.
You can see at the bottom in the next chart, postpaid net adds have been increasing consistently over the last quarters, particularly the second half of the year was very strong. From a year before, we have roughly doubled the net share of adds of postpaid net adds in the market. Okay. You can see also in the chart that ARPU have been trending up in Brazil and will continue to trend up in our view. Our operating profit came in at MXN 28.6 billion, having increased 10.9% from the year-earlier quarter. Relative to total revenues, it goes from 9.6% the year before to 10.8%, at the level of operating profit, a slight increase in the margin.
We posted a comprehensive financing cost of MXN 37 billion in the quarter, which was almost wholly driven by foreign exchange losses arising from the depreciation of the Mexican peso versus the USD and the EUR in the quarter. A year before, comprehensive financing costs totaled MXN 28 billion. For the full year 2017, comprehensive financing costs were down 50% from the year before to MXN 43 billion. We had a net loss of MXN 11 billion in the fourth quarter, but a net profit of MXN 9 billion for the full year. Here, obviously, just to make the case that sometimes we have very significant moves in a given quarter that have an impact. For instance, the move last quarter was basically the peso, over the last few days of December was shooting up, but it has basically recovered.
Today, we are at the levels that we had before this increase in the peso. All of the FX moves of the last quarter have already been erased. Finally, on net debt, our net debt was down by MXN 15 billion in 2017 to MXN 614 billion. This is what you get if you look at our balance sheet. This figure reflects the flow reduction in net debt. This is the actual payments of debt that we made in the year of net debt of MXN 47.9 billion. We had to add the effect of the Colombian ruling, the equivalent of MXN 18.5 billion. We had the impact of foreign exchange valuations throughout the year. That's how you get to the MXN 615 billion figure of net debt end of December. Relative to EBITDA, net debt stood at 2.0 times.
This is a slightly better in dollar terms, measured in dollar terms than what we had the prior quarter. With that, I will turn it back to Daniela so she can lead the Q&A session. Thank you.
Thank you, Carlos. We're ready to take the first question. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star two. Our first question comes from Amir Paz-Bazalski with Barclays.
Thank you very much. Good morning, folks. I was wondering, can you provide us an update on the competitive landscape in Mexico? It seems though pricing continues to see positive trends. What do you believe is principally driving that improvement? Is it sort of competitive behavior or is it, as you mentioned, some of the data traffic growth you've seen? Specifically, I was also wondering, any update on your thoughts around potential competitive changes with respect to Red Compartida and how we should think about that impacting the market as you see it over the next year or two?
Good morning. Talking a little bit about Mexico. First of all, I want to say that we have been making a lot of work in Mexico. We have been controlling our costs, improving our networks, changing some technologies, state-of-the-art technologies giving us a better cost and efficiency, more coverage. We do a lot of new cell sites last year that give us better coverage, and we're moving a lot of our customers to our 4G network. The perception that you could see of our customers in Mexico, it's very good. It's improving. We have an indicator called Net Promoter Score, in this indicator, people is very happy and improving the way they are talking about Telcel and the network of Telcel.
That's something that we have been doing for the last year and a half, and also the control of the costs that we're having has been very important. Second, I think in the market, as the market is more stable, I don't think we are improving prices, but the prices have been more stable. We're doing a lot on our distribution network. We've been very careful that the new activations that we have been doing are good activations, are profitable activations. Because sometimes we see that you can activate a lot of subscribers, but they never consume, or they consume, or they use you as a card instead of being as a new customer. We have been very careful and improving a lot all the way.
We have the retail, the distribution, we have our own customers, we have our own stores, and we have been improving and working very hard on doing that. That's what I see that happened last year. For this year, I also see a very stable competition. I don't see, because, as I told you in the last conference call, and I can tell you today, is the prices that we have in Mexico are lower than the prices than a lot of countries around the world. Even in the U.S., we are much lower in our plans than what we have there, and I don't think or I don't see that we're going to go lower. Well, you never know. No competition. I think the market for 2018 could be more stable in Mexico.
What is happening is that people is starting to consume more data, using more data, and that is what is giving us a better ARPU. You're seeing that the lowest, I think, we get in ARPU is MXN 116. Today we are at MXN 142. The increase in ARPU has been very good in our customers. That's what I see. We have been giving, as I told you, moving a lot of our subscribers from 2G to 3G and then from 3G to 4G, and we are financing handsets. We are giving them new applications. I think Mexico, all the work that we have been doing, it's in a good shape right now, Mexico.
Thank you very much. Then just to follow up on terms of Red Compartida and how you're thinking about the potential shift in competitive landscape as that ramps.
Red Compartida is working. I think they are developing their network still. They have been, I don't know, one year working on the network, so I don't think they have a big coverage at this moment. I don't understand really what's their business plan and how they are going to do it, but I'm sure that it's a new competition, a new competitor, and we need to see what they are going to do. Today, they are very small in the market, but I'm sure they are going to grow in the future. I think they are going to sell wholesale. They are not allowed to sell directly to the customer. What they are going to do, in my view, is get a lot of MVNOs in their network, and, I think that's more or less the business plan.
We're improving, getting good coverage, good network. We just bought, last year, 60 MHz of spectrum and 2.5 GHz. We're using that right now. We're giving good speeds, good quality. We are in good shape right now.
Thank you very much for the incremental color.
Thank you.
Our next question comes from Leonardo Olmos with Santander.
Hello, everyone. Good morning. Thank you for the conference call. My first question is regarding the talk we had on Investor Day last year. You're very close to the goal indebtedness level of 1.5 net EBITDA, and therefore, you said that probably you have 100% of cash flow or a big part of it going to distributions. My question is, when could that happen? If that could happen, which kind of amount of increase on distribution are we to expect? Thank you.
I think what we had in the Investor Day was simply a projection of how things would be expected to evolve over the next few years, and we said to the extent that we can reduce the leverage to our target of one and a half times net debt to EBITDA, which we have been very consistent about for quite some time. Once we do that, and in the absence of any acquisitions, then there's no other outlet for the cash flow of the company than distributions. I think, partly this may depend on exchange rates and obviously varying things like the Colombian situation of last year.
We would expect that a combination of good EBITDA growth that we are having and consistent reductions in debt that we expect to have also this year, should put us in a good position to get to our leverage target, I would say within the next couple of years.
Okay. Thank you.
Let me tell you before the end of next year.
Okay, thank you. My second question is a bit more specific. It is about fixed services strategy in Mexico. You had some additions on fixed broadband, still we see top line on fixed services negative. What is the strategy going forward, including deployment or upgrading the fixed broadband network? How do you couple that with pay TV bundling eventually? How do you plan to do the fixed services in Mexico? How to see that in the coming years?
I think you have to see. If you see the service revenue from last quarter up to this quarter, basically they are flat compared to the revenues of the third quarter. The revenues have been stabilizing for the last three quarters. Basically last year compared to this year, it was a reduction in some international traffic with operators. What we are looking forward is to continue to increase the quality of our products and continue to increase the value added services for our customers, such that we can sustain and increase the competitive position of our products. Looking forward, our focus will be on quality and will be in increasing the value added services for the customers.
Thank you. Good day.
You're welcome.
Our next question comes from Rodrigo Villanueva with Merrill Lynch.
Thank you. Good morning, Daniel, Carlos. My question is related to the functional separation of Telmex. I was wondering if you could share with us, which do you think will be the terms and conditions for this functional separation? When would you expect this functional separation to be concluded? Thank you.
Well, still in discussions, Rodrigo. We still don't know how this is going to end. We're still discussing. What looks like is at the end of this month, maybe March, we will have a decision. It will be soon, but still we don't have anything yet.
Thank you, Daniel. Regarding the spectrum auctions of 2.5 GHz in Mexico, what are your thoughts about this? Are you expecting to participate in these auctions, or are you going to be blocked by the regulator? Thank you.
No, I think the bidding rules are already out. We are not allowed to participate in the first round. We are allowed to participate in the second round. We're studying what to do. Remember, last year we buy 60 MHz of spectrum. They are not covered nationwide. We still have some states meeting, not too much, but I think we have around 85%-90% of the coverage of all Mexico. We're studying what to do. We don't like a lot the rules, how they end the bidding rules, but we're studying what to do and how to do it. We are allowed to participate in the second round, not in the first round.
Understood. Thank you very much, Daniel.
Thank you, Rodrigo.
Our next question comes from Andre Baggio with JP Morgan.
Hi, good morning, everyone. First question I have is that we have seen a significant improvement in margins in Mexico. It's been a long time that we saw that before. Do you think that we should see is continuous margin improvement, like there's scope in your view to continue having efficiency in acquisition costs and other stuff, so that we could see better margins in 2018 than 2017?
Well, difficult to say because while we're doing a lot of work in the cost cutting, we are moving to the digital transformation. We are investing in a lot of new technologies that will give us better costs.
Coverage. On the other side, the people is consuming more, prices are more stable. I think we are in a good path in Mexico and, well, we are in the first step. You're asking me if we're going to have another step in terms of margins, EBITDA margins, and maybe yes, but, well, we have to consolidate what we have right now in the market and see. It's going to be very important to see the consumption of the people. Economies will help a lot. If people start to consume more and spend more money with us, then I think, of course, we're going to have a much better increase on EBITDA, another increase on EBITDA. That's how I see the market in 2018.
Perfect. The second question is.
We have some good news about the interconnection rate. We are charging interconnection. On the other side, we have some new expenses because we buy some frequencies last year, we have to pay some fees, starting to pay some fees this year. Well, all overall, we're doing a lot of things, but I think we can sustain what we have achieved at this moment.
Perfect. The second question I have is regarding Brazil. In Brazil, we are seeing some very good trends in terms of mobile, let's say growing almost 10%. On the other hand, the wireline, which I understand is mostly the cable company NET Serviços, is now shrinking at roughly 2%. What can be done in order for this big piece of the Brazilian revenues, which is wireline, to resume growth? Is it more investments? Is this recovery of the economy? What do you have in your mind?
Well, I think you have to divide NET, and Oscar Gonzalez can talk a little bit more about that, into the cable company and the DTH, direct to home, the satellite. I think in the cable company, we're doing very good. We are doing more quad plays. With broadband, with fixed TV, and also with mobile. It's helping us a lot. We have been doing that for maybe two years, and it's helping us a lot with the churn. I think even in the cable company, we're gaining market share, so we're doing good in the cable company, and we are having a little bit of disconnections in the satellite business. Satellite business, we want to be very careful because what we don't want is to spend money in acquisition. People get it, and then they use it for a couple of months, or three or four or five months.
We want to have a good strategy on the satellite, and we are moving on that. We're changing. We put a new person in charge in Brazil of the satellite business, and I think this year we're going to see improvements. If you see cable NET, cable company, we are gaining market share. What is important is, in my view, if the economy of Brazil recovers, then you are going to see a good recovery in broadband and in NET Serviços. Oscar Gonzalez can expand a little bit on that.
Yeah, sure. Thank you. If you break down the fixed revenues, you have different products. I think we've been doing pretty well in fixed broadband. We are growing, and we are gaining market share. If you see pay TV, cable is steady, and the market is steady. When you look satellite TV, and you look all the revenues of pay TV, all the market decrease close to 1.7% year-over-year. We decrease the same path, so we are keeping the market share of pay TV business. But what is really decreasing strongly is long distance. The long distance, national, international, has decreased 26% in one year. And to be honest, we want a little bit of market share, but the decrease was too high.
As well, local voice has been decreasing because the people, as you know, is using different sources to get that product, like could be WhatsApp, IP, or whatever. There is an evolution. I totally agree with Daniel Hajj that if the economy recovers, we will see different figures in satellite TV and as well on fixed. We are expecting that, and we believe this year we see getting better of the last quarter of the economy. We will really focus on— You know, the products that we've been pushing in the market is quad play. We believe the bundles are the ones that we are taking place. We are really successful to bundle the products.
Perfect. Thanks a lot.
Thank you.
Thank you.
The next question comes from Walter Piecyk with BTIG.
Thanks. Carlos, in Mexico, your service revenue was up 8%, ARPUs were up 7%. I think in your prepared comments you talked about in 2017 about adding cell sites. Is that still going to be the plan for Mexico and some of these other markets which we're also seeing increased ARPU? Maybe you can give us an update on your CapEx plans for 2018 versus the, I think you spent about $7.2 billion in 2017.
I think talking about CapEx, I think the guidance for this year would be around $8 billion. It's what we're expecting to have. We want to accelerate a little bit some things in Brazil, let's say the modernization in Brazil. We have something in Argentina that we're going to pass 1 million homes passed for doing TV and broadband. Also in Mexico, we have some coverage issues. I think we're going to increase a little bit between 5% and 10% of what we do last year. We're finalizing the CapEx for this year. We have been very disciplined in CapEx, in costs. Everything that I explained that we're doing in Mexico, we're doing that in Brazil. We have a very cost control and expenses that we're taking care there in Brazil and very disciplined.
I think with everything that we're doing in the networks plus with being very efficient in costs, I think we're going to have a good year.
Daniel, that doesn't include spectrum, I assume. For Brazil, when you say network modernization, does that mean adding cell sites or just replacing the equipment on existing cell sites?
When I talk about modernization, we're adding equipment or modernizing the old equipment to a new cell site. We're going to do maybe another 2,000, 1,500 cell sites. I don't have the number exactly, but we're going to do that.
In Brazil?
In Brazil.
Wow. In addition to what you're doing in Mexico. Got it.
In addition of what we're doing in Mexico. Everything is going to be covered by this total CapEx that I'm saying. This CapEx is going to include frequencies, if we are going to buy some frequencies, and modernization, more fiber, photonics. Photonics is very important. Photonics, I'm talking about the new technology that I've been saying. It's consolidating all the IP and being much more efficient in the cost for data. We're doing a lot of things and everything is included in the number that I just said.
I think you added 800 cell sites or so in Mexico last year. Are you going to add a similar amount this year or maybe more?
I don't know exactly if there are going to be 800, but there's going to be more or less that, around 800. Some of them are going to be for capacity, others are going to be for coverage, others are going to be indoor. Well, we have a set of things, but at the end of the day, what we want is to have the best quality in our networks in each country, and we're working to do that. I think the preference of the customers is going to be because of the quality, coverage, speed of the service that we give, and that's what we're aiming and working for.
Great. Daniel, if you don't mind, just one last question. In Austria, they're going to auction off 3.4 GHz spectrum. Do you have plans to use this? How do you plan to deploy it if you use it, like small cell deployment, fixed wireless? What are the plans in Austria for that spectrum if you intend on bidding on it?
We are reviewing and making the analysis on that, and I don't have an answer right now because we're working and defining what to do. Soon we can have a decision there.
Great. Thanks, Daniel.
Thank you very much.
The next question comes from Daniel Federle with Credit Suisse.
Hello. Good morning, everyone. Thank you very much for taking my questions. The first one is related to the cost-cutting efforts announced in the investor day last year. It seemed to me to be like a three-year plan. I was wondering if you could tell us which countries are more advanced in this initiative and if they contributed significantly to 4Q results already. If I may, the second question is related to Mexico. You have been mentioning this issue with the international long-distance calls. If you could give us an indication of the magnitude of this impact and if it's expected to worsen or to improve with the new MTR rates in 2018. Thank you very much.
The first question is about the modernization of the networks or the modernization of the new products, is the question?
The first question is related to the cost-cutting efforts across the group, okay?
Fair enough.
Which countries are more advanced in this?
If you ask me that, well, we are advancing in all of them, it's not sufficient. I think this year we're working very hard on that. We have a specific project in each country, they are different. It's not cost-cutting plan, it's also being more efficient. We have like a digital transformation, we call it. It's a plan that we're doing in all the countries, it's going to give us much efficiencies in everything. Not only efficiencies, it's going to be much easy for all our customers to deal with us. In our customer care centers, in our web pages, in our invoices, in the apps, in everything. We are having a good project there. Plus, it goes from purchasing and acquisitions, we're working very hard on that, to all these new projects, infrastructural projects.
I don't know, Oscar, if you want to add other projects that we're adding.
No, as you mentioned, the digital transformation goals to eCare, eBilling, is supporting, trying to digitalize all the interaction with the customers. It could be in our commercial offices, in the IVRs, in the web page, in the applications, through monitoring the social networks in order to really be fast to support the customers. We are sitting over 360 view of the customers, digitalizing as much as we can all these interactions, is one. As Daniel mentioned, we are doing in the network, trying to reduce the cost to handle data traffic in the network. That's photonics. We are getting closer the fiber to the customer. We are doing a lot of caching and peering to reduce the cost of the content network. It's different efforts and different in each of the countries, depending the needs of the different countries.
These efforts are also coming with new, let's say, plans, commercial plans. By an example, in Brazil, something that is working very good is we call them Americas. That is, you can take your phone to all Latin America without charging any roaming or anything. In Central America, we're having that. In Mexico, we have it with U.S. and Canada. With all these things that we're doing, we are also doing new things in the commercial side. There's a big plan that we're having on that now.
Okay. Related to the second question on long distance calls.
Yes. Regarding the national long distance, as I mentioned, during the third quarter compared to the fourth quarter, the revenues coming from the long distance have already stabilized. They are 1.2% above the third quarter revenues. Going forward, this might be the trend that we will be looking forward. It's important to remember that in 2018, we're going to further reduce the calling party pays for our customers. That decrease in the tariff would be to enhance the products that we have, therefore, you might see an impact in other voice revenues. Yeah.
Okay. Thank you very much.
You're welcome.
The next question comes from Julio Arciniegas with RBC.
Yes. Good morning. Thanks for taking my question. Regarding Colombia, what should we expect from mobile ARPU in Colombia, as it's one of the few countries where ARPU is declining? Is this ARPU performance related to less mobile data take-up versus other countries, or it's just pricing pressure? My second question is regarding Puerto Rico. When do we expect to have the fixed service fully restored? Thank you.
Well, in Colombia, let's divide the topics. I think it's going very well. We're growing. We're doing very good in broadband, in TV. Our margins are expanding. I think we have a very good technology, and the people where we put in our services is very happy. We're doing very good. What people think about the service is excellent. We're growing and we're doing very good. In the other side, in the mobile, it's being more competition. It's tough. In the postpaid, we have been having some problems with some acquisitions of some customers. We are changing some plans, some ways of doing that. We are acquiring some customers that at the end, they are not consuming what we feel they are going to consume. We're changing a little bit on that.
In prepaid, the market is difficult because rates are going down, more social networks, more that. I think in this year, I think it's going to be more stable and we're going to do much better. I have a good view in the future for Colombia. We're working also hard in efficiencies, in controls, and I think we can see some improvement in the year. The margins are not bad. The margins are around 44%. It's difficult to increase a good margin, but we're doing a lot of things to improve that.
Just to add to what Daniel is mentioning. The fixed revenues in Colombia, service revenues are up 10% year-on-year. Mobile revenue was flat. It is the case that fixed is going very, very well. The mobile market has had more issues, including regulatory, and I think that's something that we need to shake off.
Thank you. Regarding Puerto Rico?
Puerto Rico, I think we have a very tough fourth quarter because the hurricane was, I think it was in September, middle of September. Really the tough situation was in October and November. We have a tough quarter, even negative in EBITDA, what we have this quarter, because we have to give to our customers a lot of credit notes. We have to spend a lot of money reestablishing all our networks. Today, we have the mobile network, maybe 99% working. It's doing good. We do a lot of work to reestablish everything there. Even that, the energy is not 100% working. We are having 99% of our network working. We have a big fiber optic ring that we also recover during the last quarter. In those places, in those sectors, we're okay. In the fixed, still, we are working very hard in the fixed.
I think it's going to take us a little bit of time to do that. We are, let's say, renewing some part of our fixed network. In places where we don't have the fixed service already fixed, we're giving them some wireless phones for them to use them. Competition is tough. What I think first quarter, you are going to see a recovery of what we're having last quarter. In terms of revenues and EBITDA, I think, but still we're putting a lot of money in this fixed network to reestablish everything. I hope that in the second quarter of this year, it will be as normal as what we have last year, but still this quarter we're going to do so much better than the last one, but still we're going to do some expenses to reestablish everything.
Okay.
I think we are much better than the competitors right now, but much better than what some of our competitors are doing.
Okay, fantastic. Thanks for the answer.
We have movement.
Our next question comes from Soomit Datta with New Street Research.
Hi. Two or three questions, please. Just first couple on Mexico. Can you comment at all on Blue Telecomm, which I think is pushing increasingly nationwide, obviously backed by Televisa. At the moment, it still seems to be a slightly tentative process, but I just wondered whether you'd seen any impact yet or if you had any thoughts on what impact that might have on the fixed business.
I don't get your No, I'm sorry, can you?
Sure. Shall I repeat it? Yeah. I was asking question on competition in Mexican fixed.
Fixed.
Blue Telecom, I think, have pushed more nationwide in the last couple of weeks or so. I wondered what impact you thought that might have on your fixed business, Telmex, in 2018.
Well, I think Carlos can talk a little bit more on that, but I think in Mexico, we're having a lot competition all around. If Televisa is entering in new markets, well, I think they are already in a lot of markets. I don't see a new competition or a specific competition, we have been having competitions all over also. That's our discussion with the regulators. The competition is there's a big competition. That's some of the discussions that we're having with them. Where they don't have competition is in TV, that's where we need to have that concession to have TV in Mexico. There's no competition there. Okay?
Okay. Just to follow up, please, just back to Red Compartida. Are you planning on using the network yourselves? Have you had any discussions there regarding wholesale pricing? Are you keen to start deploying 700, or start using the 700 spectrum via their network this year?
I think 700 is a very good frequency because you have a lot of coverage, it's good for the wireless. Red Compartida is going to be another competitor, well, we're going to compete against them. The way we think we can compete, as I told you, is with good service, with good network, good coverage, a lot of speed, quality in the service, that's where we're going to compete. That's mainly what we have.
Does that mean you're not going to use their network?
We're not planning. Your question is if I'm going to use Altán Redes. No, I don't think-
Yeah
we are planning to use Altán. Doesn't make sense. It's not because I don't want, it's because I don't think they are going to give me something that I don't have. I have good network, good quality, better coverage than them. No, I don't think we're going to use Altán Redes.
Okay, very clear. Thank you.
Okay.
The next question comes from Carlos Ballareta with GBM.
Hi. Thank you. Good morning. My questions are regarding the U.S. The first would be, what is the potential impact from the fiscal reform? The second would be regarding the SafeLink program. We saw a number of disconnections this quarter, and I'm just wondering if this should be a one-off, or we should see more going forward. Thank you.
I think in the Straight Talk program, I think we have been disconnecting. Sorry, SafeLink program, we have been disconnecting some of the subscribers. It's a Lifeline program that the government is subsidizing to some customers. They changed some rules in this program, that's why we are disconnecting a lot of them, because the rules changed. Then you have to add a lot more data. I think the program is starting to be a little bit more complicated, that's the reason why we're disconnecting a lot of them in SafeLink. In U.S., we have other brands, other Straight Talk, Simple Mobile, Page Plus, Total Wireless. A lot of these brands with higher ARPU, we are improving. Competition is tough. Every month or every 2 months, you have to add more and more data to the plans.
I think we're doing good in these other plans, this year we're going to gain subscribers in all of these plans. I still think that in SafeLink, we are going to still disconnect for some months, customers that they are not consuming or they are not using this service. That's more or less what is happening in U.S., in TracFone. Competition in prepaid is becoming more aggressive, you have to add more service, more data, more things to your plans. That's what is happening all around Latin America.
Just to add to what Daniel is saying. In the case of Straight Talk, which is the main brand of the company, we have introduced recently a new MXN 50 plan that has unlimited voice, unlimited data, unlimited SMS, and it has had a tremendous acceptance. I think again, it's our main brand, and we have a good expectation that it can continue to do well. This is the brand that is sold exclusively through Walmart.
Thank you. Regarding the tax reform, does that change anything that you guys were planning to do in the U.S.?
I think it only reduces the tax rate from 35% or thereabouts to 21%.
One question. It reduces the tax rate, but reduces also the deductions in some cases that we're going to have. It's not going to be as high as 35% to 21%, Carlos.
That's right. Net net, the applicable tax rate would be coming down significantly. The issue at the end of the day is, if the dividends flow back to Mexico, then there's practically no change in the tax regime. That's things that we need to understand better to see if there's going to be any changes also in the tax laws in Mexico.
Thank you for the color.
The next question comes from Masha Kahn with Deutsche Bank.
Hi, good morning. I've got a quick question on Colombia. When do you expect to get 700 MHz spectrum? What's the update, or latest on the auction there? The second question is on financing handsets versus giving subsidies in the past. If you could just probably estimate the impact on moving to financing and whether you've seen any pickup in bad debt, that would really help. Thank you.
I don't hear you very well, the first question is about the spectrum in Colombia. I think
Colombia 700.
The 700 spectrum in Colombia, I think we are interested in that spectrum, and we are discussing with them the bidding process and the rules that they are going to put for that spectrum. We are in that moment, discussing with the regulator. Of course, we are interested in the 700 spectrum in Colombia. It's a good spectrum, and that's good for us and good for Colombia, because then we're going to be allowed to give more speed, more coverage to all the Colombian people. Both gain. I hope we can get good, let's say, rules in this spectrum. In the financing, in the handsets, we have been financing handsets for maybe two years, and it's been good.
I think what helped us to give a better handset to the customer, and then with a better handset, the customer can use more data. Do more things, more applications. We're doing that maybe all around Latin America, every place in Latin America. In some places, we have a little bit higher bad debt than in other ones. All overall, our program has been very successful and very good.
Okay. Thank you very much. The 700 MHz is expected this year, most likely, right? It's not part of your CapEx guidance.
Yes. I hope so, it would be this year. The government still doesn't say exactly when it's going to be, but I hope it will be this year. Everything that we are discussing is going to be inside this budget that we have.
That's included in the MXN 8 billion CapEx guidance for that-
Yes
spectrum cost.
Yes.
Okay.
Yes.
Okay, thank you.
Thank you.
The next question comes from Maria Zeferino with UBS.
Hi, thanks for taking the question. I would like to know if you see any opportunities in Brazil in terms of potential M&A, but not only M&A, also in terms of network sharing agreement and infrastructure sharing with Oi and the other players. If you have any expectations of 5G spectrum auction or even participating on the 700 leftover, that Brazil regulator has made comments about. Thank you.
About the 5G, I think it's too early. We are launching our 4.5G network in Brazil, very successful. We are the first ones to launch the 4.5G network, and we are happy. Our customers are very happy with that. M&A, I don't hear a lot of things on M&A right now. I think Oi is already restructured some part of their debt. If they are going to have share agreements with some of us, I don't know. We haven't talked with them at this moment. We're open always to discuss everything with everybody, and I don't know what's going to be the strategy of Oi at this moment. Well, I think Oi, maybe for two or three years, has been trying to restructure their debt and doing that. In my view, they still have a lot of things to do at this moment.
Well, that's how I see the things in Brazil. Brazil, a lot of competition, not crazy competition, but a lot of competition. Brazil is still a very competitive place, and I hope that the economy will recover fast, so that will be very good for all the sector, no?
Perfect. Thank you very much.
Our last question comes from Alejandro Gallostra with BBVA.
Hi, good morning Daniel, Carlos, and Daniela. I have a question on the cost reduction initiatives that you're implementing in Mexico and the margin improvements that you expect. I was specifically wondering how much of that should come from the new interconnection rates, if you plan to keep all of these savings or if you plan to transfer some of them to the final customers, and perhaps if you could quantify the margin improvement in Mexico. Second, I was also wondering, what are your views to the potential change in Mexican government? More specifically, if AMLO were to win, would you expect significant changes in the industry? Thank you.
The first one is, we don't do things because let's say what you are saying is how much of the interconnection rate that we're getting is moving to the customer. We don't do things that way. We have been implementing a digital transformation, a customer care plan, a better network plan since one or two years, and improving and improving. That's not because the interconnection rate. We have been doing that for a long time, and we're going to keep doing that because I think that's the future of the company, not because they give us interconnection or we don't have interconnection, now that's different. We're looking long term and investing for our customers and for the long term of the company. That's what we're doing, and in América Móvil, we are, as we said, investing in Mexico.
Independent of who is winning or who will win, we are going to invest and what we're going to do, what we need to do to have the best network, the best distribution, the best brand, a good customer care centers. We have around 400 today, and we are remodeling them and making our customers to get in and have a good experience there. We are doing a lot of investments, and we're doing that for the long term. We're not moving anything because elections or not elections.
I understand that most of the margin improvements and operating improvements in Mexico would come from all these strategies that you just mentioned. I was just wondering how that compares to the margin improvement that you should get from the new interconnection rates, if this should be a significant improvement, a significant portion of the EBITDA margin improvement that you expect, or if most of the improvement should come from all these strategies that you just mentioned.
I think the improvement that you see, it's cost cutting, efficiencies, more consumption. Look the ARPU of the people, it's consuming more. In the cost cutting, it's a little bit interconnection, we have to pay fees for the new frequency. It's different. Overall it's giving us, it's not only one thing that we're doing, but we're doing a lot of things, and overall, it's giving us this improvement on EBITDA. I don't have it separate how much and what % is because each of the things. No, I don't have it that way.
Thank you. Thank you very much, Daniel. Just to clarify my second question, do you think that a change in government would significantly change the dynamics in the industry, or you think that the dynamics would stay pretty much the same, that nothing significant would change?
As I said, we're investing for the long term, not investing for the short term. When you invest for the long term, then you have your investments done for a long time. That's the only thing I can tell you. Depending on who wins, what we really care is about our customers. We're investing in Mexico, on our customers, and that's the plan we're having for 2018. That's the plan for the last 10 years that we have been having.
Good. Great. Thank you very much for the call.
Thank you.
Thank you. This was the last question. We thank everyone on the line.
Yes.
Go ahead, Roberta.
Sorry, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Daniel Hajj for any closing remarks. Please go ahead, sir.
Thank you, everybody, for being in the call, and thank you, Roberta. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.