Welcome to América Móvil fourth quarter 2016 conference call and webcast. All participants will be in listening 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, 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 to discuss our quarterly results. We have on the line Mr. Daniel Hajj, CEO, Mr. Carlos Garcia Moreno, CFO, Mr. Óscar Von Hauske, COO, and also from Telmex, Mr. Carlos Robles, CFO.
Thank you, Daniela. Good morning, everyone. Welcome to the fourth quarter 2000 results. Carlos is going to make a summary of the results. Please, Carlos.
Thank you, Daniel. Good morning, everyone. During the fourth quarter, economic activity remained soft in Brazil, relatively strong in Mexico, Colombia, and Peru, with [inaudible] sales performing well, aided by the recovery of commodity prices, including oil. The new year was dominated by the U.S. election. It was to have a major impact on the Mexican peso and a much more limited one on the other regional currencies. In the postpaid segment, we registered net additions of 1.3 million clients in the quarter. Brazil was the leader, adding 1 million subs, followed by Mexico with 229,000 and Colombia with 148,000. During 2016, the postpaid subscriber base increased 10% year-on-year in Brazil, 8.6% in Colombia, and 7% in Mexico. We disconnected prepaid subscribers that were not generating traffic in Brazil, Panama, Costa Rica, Croatia, and Macedonia after the implementation of strict return policies.
Altogether, we connected 3.3 million subscribers, closing the year with 281 million. Fixed broadband was the leader in active growth with 10.4% year-on-year, followed by postpaid mobile subscribers with 5.3% and Pay TV with 1.9%, with prepaid subscribers coming down by 3.7%. Our fourth quarter revenues rose 16.9% in peso terms from the year-end quarter, reaching MXN 259 billion. With this, revenues for the year ended up just shy of MXN 1 trillion, a 9.1% increase from the year before. The relatively high revenue increase seen in Mexican peso terms are to a large extent the consequence of the Mexican peso having depreciated vis-à-vis the currencies of all other operations. At constant exchange rates, service revenues rose 0.7% annually in the fourth quarter, their best show in 2016, led by mobile data revenues that shot up 11.7%. Fixed data revenues declined 5.3% and Pay TV revenues 4.2%.
Mobile voice revenues remained relatively stable, declining slightly less in annual terms than they had throughout 2016, whereas the ongoing reduction in fixed voice revenues accelerated on account of low interconnection rates and long-distance revenues, mainly in Brazil. Mobile data accounted for the largest revenue share among the different business lines, with 32.8%, followed by mobile voice with 39.7%. Since the second quarter of 2016, mobile data has been our top revenue generator. The average consumption of megabytes per user jumped 81% year-on-year. Several operations, including Mexico, Colombia, the U.S., Puerto Rico, and Peru, posted their best numbers for service revenue growth in at least four quarters. Mexico and the Caribbean were the regions with the main improvements in service revenue growth relative to their trends. Mexico contributed 24% of our service revenues, followed by Brazil with 21.6%, the U.S. with 15.8%, and Telekom Austria Group with 9.4%.
Central America, the Caribbean, and Ecuador, all of them dollar-based or quasi-dollar-based countries, accounted for 11% of our service revenues. Altogether, revenue growth was well supported by our strong performance in the postpaid segment and with broadband and PTD clients. Fourth quarter EBITDA came in at MXN 55.7 billion, a 2.9% increase from the year-earlier quarter, bringing the total for the year to MXN 256 billion. The year-on-year comparison is affected by the 17.7% decline posted by Telekom Austria Group in the quarter. At constant exchange rates, EBITDA was down 8.1%, but excluding Europe, EBITDA declined 6.5% from the year-earlier quarter, which is the lowest rate of decline in five quarters. As you can see in the chart, there's been a clear tendency for improvement in EBITDA growth. This is the case excluding Europe.
In the next slide, as we can see, adjusted for one-off items in the fourth quarter of 2015 and 2016, the underlying EBITDA in Telekom Austria actually rose 1.7% on the back of solid service revenue growth. Rather than posting a decline of 17.7%, which is due to one-off in the last quarter of 2015 and the last quarter of 2016, if you look at the underlying EBITDA growth, it was 1.7%. We obtained an operating profit of MXN 25.8 billion in the quarter and MXN 109.6 billion in the year. They were down 20.1% and 22.5% respectively from the year before. Our comprehensive financing costs totaled MXN 28.2 billion in the quarter and MXN 86.3 billion throughout 2016, which was 3% higher than the year before.
Posted a net loss of MXN 6 billion in the fourth quarter, resulting in an MXN 8 billion net profit for the year as a whole. Our CapEx totaled at MXN 164 billion, and our net shareholder distributions, after deducting dividends received from KPN and Telekom Austria, MXN 14.8 billion. After the sale of part of our interest in Telekom Austria and the purchase of interest in Olo, Blue and Backbone, we had a net inflow of MXN 1.9 billion. Our net debt at the end of the year at MXN 610 billion as compared to MXN 582 billion at the end of 2015. The increase in our net debt in Mexican peso terms results essentially from valuation effects as the peso depreciated vis-à-vis the dollar, 17%, and the euro, 14%.
The above depreciation of the Mexican peso compares to an appreciation of substantially all our other currencies versus both the dollar and the euro in 2016, with the Brazilian real gaining 21.7% versus the dollar, 25.4% versus the euro, the Colombian peso gaining 5.7% and 9.1% respectively, the Peruvian sol 1.8% and 5%, and the Chilean peso 5.7% and 9.1%. Altogether, our non-peso service revenues appreciated 8.1% versus the dollar and 11% versus the euro in 2016. This would not include the appreciation in real terms after inflation of the Argentinian peso. In fact, during 2016, the purchasing power of our current revenue mix increased 1% in dollar terms and 4.3% in euro terms. In peso terms, it increased 21.7%, and this can be seen in the chart. We underwent an important deleveraging process throughout the year.
Our outstanding debt came down by the equivalent to $6.1 billion, if we were to exclude the EUR 500 million raised by Telekom Austria in December to cover a bond amortization due in January. But after deducting our position in cash, short-term financial investments and marketable securities, our net debt declined to $30.4 billion. Taking into account the equity credit in our hybrid bonds and our net derivatives position, our net debt to EBITDA ratio stood at 2.1 times, which is an improvement from the prior quarter, marking the beginning of what we expect will be a declining trending leverage ratio that will gather force throughout the year. Our outstanding financial debt saw a major reduction of our dollar debt. It went down from $15.0 billion to $10.7 billion. That's a reduction in outstanding debt of $4.3 billion, in dollar-denominated debt.
There was a slight increase in our euro debt. It went from EUR 13.1 billion to EUR 13.4 billion, but net net it was roughly flat. We had a slight increase as well in our Mexican peso debt, which grew by MXN 4 billion, MXN 4.4 billion. Effectively, what we have is a big reduction in outstanding dollar debt with the euro debt and the peso debt remaining roughly stable throughout the year. Well, with that, I would like to finish the call. Thank you all for listening. I will pass it back to Daniela.
Thank you. We can start with the questions.
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 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 Amir Rozwadowski from Barclays. Please go ahead.
Thank you very much for taking the questions. Good morning. I've got a couple, if I may. First and foremost, can you provide us with some color on the competitive landscape in Mexico? From what we gather, your ARPUs increased sequentially in the fourth quarter, which is a notable difference from recent quarters. How do you see pricing trends evolve in the coming quarters, particularly as one of your more emboldened competitors seems to be increasingly focused on profitability in 2017?
Good morning, Amir. What is happening, what we're seeing in Mexico is that a lot, maybe 60%, of let's say, let's talk about prepaid and postpaid separately. On the prepaid, maybe 60% or 70% of our subscribers are on the new promotion. These new subscribers are already moved. They are starting to have the unlimited voice, the unlimited SMS, and they are starting to consume a little bit more. I think that's very good. In postpaid also, what we're doing, we're working very hard to try to maintain our users in the same rate plans that we have. We are giving them promotions, and we're moving on that direction. I think the prices in Mexico are very low, are one of the lowest prices in the world, the prices that you are seeing in Mexico.
If you compare a plan against the U.S., maybe the $50 plan that they sell there, here it's around MXN 15 to MXN 17. It's around 70% less price here giving the same things in the same plan. I don't think that the rates and the plans are going to go lower. Where we want to compete is competing with more coverage, good speeds, 4G. We have very good plans to move a lot of our subscribers this year to 4G networks, to LTE, to consume more data and to have a good perception of the network. With everything that we're doing in Mexico on the network, with our distribution network, everything, I think those are the things where you have to compete here to have good handsets. That's more or less where we are in 2017.
Being competitive in price, but giving something else to the customer, good network, good coverage, good promotion. That's more or less where we are right now. I don't think that prices will go down more this year.
That's very helpful. Oh, please.
If I may, Amir, just very quickly. As you point out, it's an improvement in ARPU on a sequential basis from 128 to 132. You're looking at year-on-year changes. In the Q2, ARPU was down 17.7%. In the Q3, it was down 15.7%, and in this last quarter, it was down 11.55%. There's been considerable improvement in ARPUs that really began since the Q2. That was really the worst. I think that as we move into this year, and we begin to have the year-on-year comparisons with the first quarter of last year and second quarter, we will see a normalization of the rate of growth. I imagine that we will begin to see increasing revenues for comparative last year.
One more thing in prepaid. In prepaid, there's the unlimited voice and unlimited SMS, I think people in prepaid is starting to use more and more data. As they are changing from 2G to 3G and 3G to 4G, people is using more and more data. I think that's something that is also helping the ARPU to go up because, in prepaid, the ARPUs are also up.
The average prepaid client today is consuming 2 times as much in terms of minutes of voice and 3.5 times more in data than a year before. There's been a real surge in the provision of data services to the prepaid market, again, also accompanied by a doubling of the minutes of voice. Minutes of voice in Mexico are today 466 minutes per user per month, which is certainly the highest I think in Latin America.
That's very helpful. Thanks very much for the color. Secondly, how should we think about the potential regulatory measures that may be on the horizon? During the quarter, there was some news that suggested some incremental pricing regulation may not actually happen. How do you think about its prospects, how do you think about potential regulations around local loop unbundling and how we should think about the potential size and scope of that impact on your business if it was to happen?
I think, well, the first question is, the new regulations. The IFT is going to take the decision, what they said they are going to take the decision the first quarter of this year. We still don't know. We are debating with them. They send some measures, we'll return with. What is very important is that we accomplish all the measures that we get two years ago. It's very important to know that América Móvil accomplished all the measures. We show to the IFT that we accomplished the measures. They make some investigations on that, all the investigations and were good. We accomplished everything. Still we don't know what's going to be the decision on Ifetel, what is important is that we're accomplished.
On the unbundling local loop, what I understand is that there are four companies today using the local loop of Telmex, and it's working, and they are using that. That's where we are. On the interconnection rates, as we said, we have injunction since two years ago against the asymmetric and zero interconnection rate, and I think that's still in the Supreme Court, and it's going to take maybe all this year to have a decision. In the regulatory side in Mexico is where we are right now.
Thanks very much for the incremental color.
Thank you.
Next call comes from Rodrigo Villanueva from Merrill Lynch. Please go ahead.
Thank you. Good morning, Daniel, Carlos, Daniela. I have a couple of questions. The first one is related to Colombia. It seems to me that there's going to be the elimination of interconnection asymmetry beginning in 2017. I was wondering if you could give us a potential impact on how this could positively hit your margins there. Thank you.
Yes. Hi, Rodrigo. Good morning. Talking about Colombia, yes, they eliminate the asymmetric interconnection rate. Today, the traffic is balanced. I don't think it's going to be anything important that you are going to see in the results because the traffic between the companies and Claro are more or less balanced. There's nothing important that you could see in the results. Important to say on Colombia, I think the company is improving very fast, is doing very good. We're starting to grow very good the postpaid subscribers again. Our revenues are starting to grow. We are working very hard on cost and expenses. Our fixed line operations are growing also. I think you could see a good recovery in Colombia, and I'm sure we can have this recovery for all this year.
I think we're investing in a very good network, and I'm comfortable the way and the trends of how Colombia is evolving. All this year, you're going to see very good trends in the Colombian market.
Just to give you a bit more detail on what Daniel said. In Colombia, the EBITDA in the first quarter was down nearly 13% from the prior year. In the fourth quarter, we posted the first increase, and it was an increase of 9% year-over-year. We have gone from -13% to +9% in three quarters. That's the kind of change that we're seeing in Colombia today.
We're feeling comfortable the way the new management is working on Colombia. That's the first question then, Rodrigo?
Understood. Thank you very much. Very clear, Daniel, Carlos. The second question is related to handset subsidies. We have seen some decline in handset subsidies over the last few quarters. I was wondering if it's possible to see a gradual elimination potentially going forward, probably not on a consolidated basis, but in specific markets. Is this something that you are considering?
My view is that it doesn't make any sense for any telecom company to have subsidies on the handsets, because the prices are getting so low, the investments are so high that you should not subsidize handsets. You have to have a profitable customer, and with the prices and the rates so low, doesn't make any sense to subsidize. It's going to be different in each country, different in Latin America than in the rest of the world. In my view, in the next years, I think subsidies will disappear in the market. That's where I think all the telecom companies will aim for that, and I think that's what is going to happen. We're working on that.
For us, it's been a little bit more difficult in Latin America because the exchange rates have been very volatile. The price of the handset that we're selling is much higher. Even if you subsidize less, well, still the dollars are more dollars. We are working very hard on trying to take out all these subsidies, and in each country it's going to be different. The competition is different in each country, it's going to be different. It's very important that we take a look. It's one of our biggest costs that we have. The other important issue that we're having is the financing. We're moving from subsidies to finance the handset, and that's been working very good also in América Móvil. To answer your question, I think, yes, we want to take the subsidies.
I don't think it's short-term to take out all the subsidies. It's going to be different in all the markets, in the different countries. I'm sure that the subsidies are going to have reductions in the next years.
Understood, Daniel. One final question, if I may. What is behind the considerable margin pressure in Argentina? What do you expect will happen in that market with the new telco regulation? Also, if you see any potential M&A taking place there between Telecom Argentina and Cablevisión, or if it's going to be a market moving from three to four players. Thank you.
Well, I think we have a revolution a few days ago on the Argentina market. I can tell you I feel comfortable on Argentina. The reason of the reduction in the margin this fourth quarter, it's a lot on also the currencies. We used to have good margin in the handsets. Today, we don't have the same margin in the handsets because of that, both prices and reduction on cost on the handset. We have been working a lot on that. We think we can recover this year the same margin that we used to have in the handsets. In Argentina, we're not subsidizing. In Argentina, we're having profits, these profits and these margins have been reduced a lot during 2016 because of the devaluation. I think in 2017, they are going to recover. That's one thing.
Second, I think also the inflation is high, the increase in prices. We have been very careful on the increase of the prices in our services. We cannot increase prices every month, we have been very careful. I think the margins that you are going to see in 2017 are going to be a little bit better than in 2016. We're working very hard on cost and expenses. We're putting and working in the network to have more efficiency. In the market, we have a very good position in the market. We have a good preference from the customers in terms of quality, in terms of coverage, in terms of service. I'm feeling comfortable. Also, we are putting a lot more LTE network in Argentina. We're going to have more data. The data is growing there.
I feel that Argentina is going to have 2017 better than 2016 results. That's more or less. I don't know, Carlos, if you want to give some numbers. The other question that you said, in terms of if it's going to stay with four players or three players, I really don't know. There's some changes in the regulation. Still, those changes are not clear. They change some things in the law saying that the regulator is going to take some decisions. Still, we want to see which are the decisions that the regulators I hope that the regulators take decisions on improving competition, full convergence, and what is the best for the country. We want that the regulator will be in that direction.
Okay. Very clear, Daniel. Thank you very much.
Thank you.
Again, if you have a question, please press star then one. Please limit yourself to one follow-up question. Thank you. Next question comes from Walter Piecyk from BTIG. Go ahead.
Thank you very much. I'm just curious, I guess, what you think the impact would be of a potential 20% import tax on Mexico. Have you had any discussions with your president as far as what your advice is, and how to respond to this? Is it possible that there could be incremental regulations placed on your competitor, AT&T, who's obviously been having a lot of success against you in Mexico? Thanks.
Well, on the import tax, we don't know. I think we as a telecom company, we don't have that, but for the economy of Mexico would be important. We don't know exactly what will be the impact if we have that tax from the United States. The regulators, as I said before, they are working, they are going to take the decision on the new regulations in this quarter. Still, we don't know what they are going to do. That's mainly what we have.
Do international discussions have some impact on how those regulations are considered as far as competition in Mexico?
No, we haven't had any discussion on that. No.
Okay. Can you just comment on Brazil, please? I believe that AT&T also might be considering, I guess, a sale of that TV asset there. I know that your market share is very high. Would regulations prohibit you from purchasing those satellite-based Pay TV services that they have available there? Any other update that you can provide on Brazil as Oi progresses through this. Is there a potential for consolidation in that market, or is that now just completely behind us?
Well, I don't know. I have been hear rumors that AT&T is interested on selling that, we don't know exactly what they are going to do. If the market will consolidate there, will be good. I don't think we are interested in consolidating the TV assets of AT&T. As you said, we have a good market share. We are growing in the cable. We have a very good cable network over there, so we are not interested. I don't know if other ones are been thinking or are trying to consolidate that market. I think still Brazil is, in 2016, we have a complicated economy there. I think, in my view, Brazil is in the bottom and the economy is going to get better as time goes. I think we have the best platform in Brazil, wireless, fixed, also satellite we have.
We feel we can take advantage of the recovery of the economy in Brazil. I don't know, Oscar is here. I don't know, Oscar, if you want to talk a little bit more about Brazil.
No, I totally agree. I think we've been seeing some improvements in the last months in terms of the market. The first, let's say, eight months of last year was really down, the economy, but we've seen some improvements on the last quarter. I agree with you, we are very well positioned on the assets that we have. We have the cable network. We are pretty strong on enterprise offering as well. We've been developing cloud services, IoT in different markets. I think we have a good chance to have a good year in Brazil this year. Thank you.
Thank you, Daniel. Thank you, Carlos. Appreciate it.
Thank you.
Next question comes from Daniel Federle from Credit Suisse. Please go ahead.
Thank you very much. Good morning, everyone. Could you provide us more clarity on the margin dynamic in Mexico? Services revenues continue to increase sequentially, and we see that margins continue to decline. I would like to understand exactly which cost lines are still going up in the market.
I think the margin is getting better in Mexico. Let me check. We have in Mexico a 23% decrease year-over-year, quarter-over-quarter, I think in 3Q we have higher, we have 24.6%. The margin is improving. Of course, you cannot compare 4Q against 3Q because the sales, the postpaid, the Christmas promotions are high. We are working very hard on the cost and expenses. We don't see prices decreasing more in Mexico. We hope that people start to use more and more data, with more and more data, more 3G phones, more 4G phones. I think the trend of increasing ARPU would be, again, to have a recovery against what we have last year. It's how we see Mexico.
Okay, very clear. My second question-
One more. Subsidies. We are reducing subsidies from last year. That's another place where we are reducing our cost. You can check that subsidies have been going down, even with the volatility of the exchange rates in Mexico, because the 4Q was high, moving from $18.9 to $20, even almost $22, then returning to something. It's been very volatile, all these rates. Even with that, the concepts are in dollars. Even with that, I think the reduction in subsidies has been reduced a lot.
Okay. Very clear. My second question is, how do you see the leverage evolving in the coming quarters? Whether or not lower CapEx or lower shareholder distribution are still good alternatives for a faster decline?
Well, I think that the shareholder distributions, basically share buybacks, they take place throughout the year in a very constant fashion. It's not something that is really very concentrated in one quarter or two quarters. We don't really speed up share buybacks based on that. The dividends, I expect the dividends will be very much in line with what we had last year. As you recall, last year, we had, for the first time, given the option to investors to tell me whether they want to receive their dividend in cash or in shares. Half of the dividend of the second point was actually distributed in terms of shares. That was something that's different cash.
I think the net, your deleverage throughout the year takes place based on the free cash flow the company generating, because the shareholder distributions are going to be much more than what we had last year. The deleveraging is not linear. Not all the quarters is going to become cash flow. It has a lot to do with working capital. The first quarter of the year tends to be more intensive in terms of working capital. Towards the end of the year, we can free some working capital, that's how the deleveraging should be a bit more bias towards the second half of the year.
Okay. Thank you very much.
Yes.
Next question comes from Fred Mendes from Bradesco. Please go ahead.
Good morning, everyone, and thanks for the call. If you could just talk a little bit more about Brazil. While we see Claro posting really strong results in terms of the postpaid net adds, we talk about over a million subs, we are still seeing weak results, decreasing 8.5% year-over-year in the mobile business. I was just wondering if there was any specific reasons for this weak performance and how it should evolve for the next months and quarters. Thank you.
Yes, it's a very good question. We're reviewing the result of our competitors. We're posting very good results on the postpaid net adds. I think these are small against all the big waves that we are having. That's why you are not seeing a good growth on that. I think maybe because we are being a little bit more aggressive in terms of rates, that will be another reason. We're feeling that in the long run, we are moving, we are doing much better than what we used to do. We used to have 15%, 13% in data, let's say we have in second quarter, -13.9%, in third quarter, -5.5%, and today, -1.7%. The increases that we're having in the data revenues are being good, and I think you're going to see a much better 2017.
You are still not seeing growth, the reductions of what we used to have, let's say, the improvements of the data revenue where everybody's growing and where we are growing also, are being good. We're feeling comfortable on that now.
Very clear, Daniel. Thank you.
Thank you.
Next question comes from Alejandro Gallostra from BBVA. Please go ahead.
Hi. Good morning, Daniel, Carlos, and Daniela. Thank you very much for the call. My first question is related to CapEx and depreciation. We can see that you have been reducing CapEx in dollar terms, although it has remained stable in MXN. The depreciation has been increasing significantly in 2016, and specifically 16%. Do you expect the depreciation to stabilize at some point? When should we see stabilization of the depreciation?
Well, I don't have that answer, but I will check. Maybe because a lot of the CapEx that we put last year that was higher in 2015 than 2016 would be in 2016, maybe the reductions on the life of the product, the set-top boxes, the depreciation on the set-top boxes will reduce the life from five years to three years. That would be, but we will check and get back to you.
I think what Daniel has said is correct. I think that there's been, and I think that we have mentioned in other calls, that we have shortened the life of depreciation of certain things, particularly set-top boxes. The other thing that is important, and you have to account for this, is when you are expressing in MXN terms the depreciation that you have in other countries, namely in Brazil, when you have had a depreciation of the MXN, this ability, BRL, then all of that depreciation from Brazil weighs that much more in MXN terms, and that's something that is having an impact.
Good explanation. My second question is the following. It's regarding the status of the 60 MHz spectrum that you want to acquire from MVS. I understand that it is still pending from the regulatory point of view, but I was also wondering if you could disclose the cost perhaps, the agreed cost, and also since this is a higher frequency than the ones that you're currently operating with in Mexico, I was wondering if, depending on your deployment, if you would require a significant number of additional towers to rent.
No, I think we have enough towers in Mexico. Well, we don't have towers. The towers are from Telesites, but Telesites has enough towers. Then we can put it in the 2.5 frequency, 2.6 frequency. I think we don't need the extra towers in Mexico. We are not disclosing the price, and it's still on the IFT to have the authorization on the IFT. We already have the disclosure on that, but we need the okay of the IFT. That's where it was. Well, I think it would be important to give more data, to have more speed, and to use all the towers in America. This new frequency would reduce the CapEx in Mexico, so we can give more data using that frequency. That's what we're trying to do here. We're only waiting on the decision or for the okay of the IFT.
Okay, great, Daniel. Thank you. Thank you very much for the explanation. My understanding is that since this is a higher frequency, I would expect you to rent additional space, perhaps not additional towers, but additional space in each tower, so that you can put additional antennas to create this higher frequency. Is that correct?
No. Yes. What you are saying is correct when you are starting a network, okay? When you start a network, I think you prefer to have low frequencies than high frequencies. Today we have, let's say, the Telesites. We rent from Telesites, maybe 13 or 14, I don't remember. There are 14,000 towers, so I think with these 14,000 towers, I don't think we need more towers. If we will start making a network, then I think it should be better the 850 frequency than the 2.5. With the amount of cell sites that we have today, I don't think we need more than what we have. If you are asking me if it's going to be a big investment to put the 2.5, no, it is nothing. It's a frequency that we are using in Brazil. It's a frequency that we're using in Colombia.
It's working with the same towers that we have been having in Colombia and in Brazil. We don't think we need more towers to do that. What would be important is to do with this spectrum will give us new things like carrier aggregation and all other things that will give us more speed to our customers, and it's what we're looking, to give more speed to our customers.
Okay, great. Thank you very much, Daniel, for the additional color.
Thanks.
Next question come from Richard Dineen from UBS. Please go ahead.
Thank you. Good morning, everyone. Thanks for taking the question. Actually, most of the things have been covered, but maybe quickly on Mexico Pay TV. A couple of weeks ago, there was a tribunal ruling forcing IFT to reexamine the question of dominance and significant market power in Pay TV, particularly with regards to Televisa. Do you think that's an important development as regards to your ambitions to receive a Pay TV license? Maybe just update us on the status of that strategy currently. Secondly, just quickly on Chile and the margins. You've made some pretty decent progress there, talking about the kind of cost cuts that are driving that. I'm just wondering where you think those Chilean margins might go in the coming years. Do you think there's room for continued margin gains into the teens? That would be really helpful. Thank you very much.
Well, what is important is to comply with the preponderant rules that we have. We have some rules the last two years when we start as a preponderant player, and we have all the rules. We do what the IFT and the rules said. We comply with everything that they put. That's very important, and I think that's important. In the other side, when you talk about Pay TV for Telmex, well, we are the only country, maybe there's one or two countries in the world where there's no convergence there. I don't think make any sense for the Mexican people even, because I think prices in TV are not going down as they are in the telecom, in the wireless, in the fixed. What it's clear is that it's important to have more competition in the TV market, and that's what we are saying.
In all the world, the rules are the same for everyone. There's convergence for everyone. I think Mexico has to go to have convergence also here. That's what we're asking, and I don't think that's something different from what is happening all around the world. In the other side, as I said, we comply with everything that the IFT as a preponderant player in the wireless and in the fixed, we comply with everything that they put to us. Well, that's on Mexico. On Chile, I think we're doing very good. We're growing revenues, and I think that the margin would also. It's still a low margin, so I think we can grow the margin also next year.
I read your report, Richard, and what I want to comment to you is, I think that the results, in my view, the results of América Móvil, I look at very good. I think a lot of the markets has been having an increase. Colombia is having increased good trends. In Brazil, we're moving in the right direction. I think in Mexico, you are seeing signs that things are getting better. In Peru, the revenues are growing. As our revenues are growing, I think we're going to increase our margins. U.S. has a very good report also. The fourth quarter was very good. Central America is not growing as this has been growing, but still growing in Central America. I think all overall, we're receiving all the work that we have been doing on cost controls, taking care about the CapEx, looking deeply on the market.
We were taking care about the subsidy, growing on the peaks. Everything is starting to have very good results. I hope that 2017 would be also as good as 2016. That's what I can tell you about the results.
Very shortly, going on on Chile. In Chile, you have a 5.4% service revenue growth, which is very well distributed between mobile and fixed. Fixed already accounts for one third of our service revenues, and we have roughly the same kind of revenue growth in mobile and in fixed, it's both based. What is interesting is if you look at year-on-year, EBITDA is growing 80%, because we have had a very significant recovery of margins. Margins used to be 7.1%, today they are 12%. Yes, I think that it is clear we expect that EBITDA will get to teens. They are already in the teens, and I think that we should expect to continue to see them going up.
Okay. Thank you, Daniel, Carlos, that's really helpful. Thank you.
Great. Thank you, Richard.
Next call comes from Gregorio Tomasi from Itaú BBA. Please go ahead.
Thanks, and thank you very much for this call, Carlos, Daniel, and Daniela. I have a couple of questions first on, again, on a little bit of follow-up on Pay TV license in Mexico and the second one on CapEx. On the Pay TV license in Mexico, I understand, if I'm not mistaken, that according to the reform, América Móvil needs to ask from the regulator a letter of confirmation that has been stating that América Móvil has been in compliance with all regulations before requesting the Pay TV license. I understand that you haven't yet requested that letter from the regulator. Is this right? Are you following a different path than the one I am assuming it will take you to the Pay TV license? That's the first question. The second question is about CapEx.
If you can verify what your CapEx guidance is for 2017, what do you see would be a regular CapEx outlook from the years onward?
Well, on the TV, I don't remember exactly what are the rules or the policies. We haven't asked the IFT for that. We want to be very clear that when we ask for the Pay TV license, then everything is settled, and there's no complaints against any of our rules. We want to be very sure that when we ask that, everything is done. We're seeing where is the best timing to do that. That's more or less what we're asking. The second question is on the CapEx. I still think we're managing very well the CapEx in 2016. I think that we're going to have a reduction of around 10% from 2016. The CapEx of 2017 will be around 10% less what we have in 2016.
We're reviewing, we think it could be around, we still haven't finished that, we think it's going to be around from $7 billion-$7.5 billion, the CapEx that we're budgeting for 2017.
I think it's important because there was a question on leverage. I think that we expect to reduce debt further this year by approximately $2.5 billion, maybe $3. I think that we are going to probably end the year very close to the target that we have had, the medium-term target that we have had of closer to one and a half times net debt to EBITDA. I think this is going to be, as Daniel mentioned, partly based on a little bit less CapEx, but partly based on improving operations overall.
One important thing is that we, I think 2013, 2014, and 2015, we do a big CapEx in all America. We are well prepared. It's not because we're reducing important things in our CapEx. No, we're making more efficient our CapEx, but the big things we are already invested in that. One of the strategies in América Móvil is to have the best network, the best coverage, quality, in the fixed and in the wireless, and we're still gonna aim for that. We are doing that in all the countries, and I think in 2017, you're still gonna see very good networks in our markets.
Thank you very much. Thanks a lot.
Thank you.
Due to time restriction, we only have time for one more question. Next question comes from Michel Morin from Morgan Stanley. Please go ahead.
Thank you. Daniel, I just wanted to clarify what you said earlier about subsidies. You are saying that you have been reducing subsidies. Was that a comment more broadly about the company or about Mexico specifically?
Hi, Michel. I think our strategy and what I said, and I'm gonna repeat it, our strategy is to reduce subsidies. We are reducing subsidies all around in terms of percentage. Maybe in some countries like in Mexico, as we're having a lot of volatility in the exchange rates, we haven't had the results that we want. Of course, we are reducing subsidies in all the countries. We are financing a lot of our handsets, and that, it's helping us to reduce our subsidies. Yes, we want and we're trying to reduce subsidies. Of course, that is related a lot to the competition, to the markets, on what everybody is doing, what our competitors are doing in the markets. We are trying, and it's gonna be different in the different countries, but we're trying to reduce subsidies, Michel.
Right. Okay, I was asking the question really when looking at Mexico in particular. You've done a good job in terms of the top line stabilizing and now growing again. When I look at the difference between your revenue and your cost, your EBITDA, to get a sense of what's happening on the cost side, those costs are up 14% year-over-year on my calculation. I'm wondering how much of that is the impact of handset costs? How much of it is other things that you may be doing? I don't know if interconnection is having an impact. If you can help us understand what's been driving the cost increase there, that would be very helpful.
There's a lot of costs. Of course, we're trying to manage all our costs. Very difficult to manage the cost when, as I told you, we have an exchange rate of 18 and then 21. A lot of things are related in USD, it's not so easy. Interconnection is growing. Of course, it's growing. It doesn't make any sense that we're subsidizing AT&T. We're paying them interconnection, and they are paying zero interconnection. I don't think that's something that makes any sense. It is the biggest company in the world, and we're subsidizing, in Mexico, the interconnection. Also to Telefónica. Other costs that are related in USD, they are going up a little bit. In the other side, there are some costs that are going down there.
You are not going to see as revenues are stabilizing and growing a little bit or are increasing a little bit, the cost, we need a little bit of time to control more the costs.
I think there's, Michel, going to what Daniel is saying in terms of the effects of the pressure with the exchange rate. If you look at the cost of equipment specifically, it goes up nearly 20%, and we are looking at Pay TV revenue that were declining 30%. That's basically the big difference about the cost of equipment. The prior quarters have been at 12%, the prior quarters have been on 10%. It basically doubled from the second quarter, that was going 10% year-over-year, to practically going 20% year-over-year in the last quarter. That is not something very sustainable because it really have to do with the exchange rate. To the extent that the exchange rate begins to strengthen again, you will see this reduction again.
What I'm seeing here, Michel, is our equipment revenue is growing 24.5% against quarter, and our cost is increasing 19.3%. The revenues is growing faster than our cost. That means that the subsidy is going down. Even that we're selling very good postpaid.
That was for Mexico, right? Those numbers?
Yeah, that's for Mexico. You are asking Mexico, no? You are asking Mexico. You can see in the rest of the countries, well, we are doing also big efforts there.
Yeah. Okay, perfect. Thank you very much.
Thank you, Michel. Thank you.
This conclude our question and answer session. I would like to turn the conference back over to Daniel Hajj for any closing remarks.
I just thank everybody for being in the call. Thank Carlos, thanks Daniela, Oscar, everybody. Thank you.
Thank you.
This conference has now concluded. Thank you for attending today's presentation. You might now disconnect.