Earnings Call: Q4 2016

Feb 3, 2017

Welcome to the America Movil 4th Quarter 2016 Conference Call and Webcast. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Daniela Laucona, 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. Oscar Von Hauska, COO and also from Telmex, Mr. Carlos Robles, CFO. Thank you, Daniela. Good morning, everyone. Welcome to the Q4 twenty results. And Carlos is going to make a summary of the results. Please, Carlos. Thank you, Daniel. Good morning, everyone. During the Q4, economic activity remained soft in Brazil, relatively strong in Mexico, Colombia and Peru, with PFSH performing well, albeit by the recovery of commodity prices, including oil. The news 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 raised the net additions of 1,300,000 claims in this quarter. Brazil was delivered, adding 1,000,000 subs, followed by Mexico with 279,000 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 stricter churn policies. Altogether, we committed 3,300,000 subscribers, closing the year with 281,000,000. This broadband was delivered in actual growth with 7% 7.4% 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 4th quarter revenues rose 16.9 percent in peso terms from the year earlier quarter, reaching MXN 259,000,000,000. With these, revenue for the year ended up just shy of ARS1 1,000,000,000, a 9.1% increase from the year before. Developing the high revenue increases seen in Mexican peso terms are to a large extent a consequence of the Mexican peso having depreciated vis a vis the currencies of all other operations. At constant exchange rates, service revenues rose 0.7% annually in the 4th quarter, the best showing in 2016 led by mobile data revenues that showed 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 that may have throughout 2016, where 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 only 2.8%, followed by mobile VoIP with 39.7%. Since the Q2 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 the best numbers for service revenue growth in at least 4 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 Telecom 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 savings revenues. Altogether, revenue growth was well supported by our strong performance in the postpaid segment and with those unanticipated declines. 4th quarter EBITDA came in at ARS55.7 billion, a 2.8% increase from the year earlier quarter, bringing the total for the year to ARS256,000,000,000. The year on year comparison is affected by the 17.7 percent decline posted by Telecom Austria Group in the quarter. At constant exchange rates, EBITDA was down 8.1%, but EBITDA declined 6.5% from the year to quarter, which is the lowest rate of decline in 5 quarters. As you can see in the chart, there's been a clear tendency for improvement in EBITDA growth, This is the case during Europe. And in the next slide, we have seen adjusted for 1 off items in the Q4 of 2015 152016, the underlying EBITDA in Telecom Austria actually rose 1.7% on the back of solid service revenue growth. So rather than posting a decline of 17.7%, which is due to one off in the last quarter of 'fifteen and the last quarter of 'sixteen. If you look at the underlying EBITDA growth, it was 1.7 percent. We obtained an operating profit of MXN 25,800,000,000 in the quarter and MXN109,600,000,000 in the year. They were down 20.1% and 22.5 percent respectively from the year before. I will compare 10 50 nursing costs totaled MXN 8.2 billion in the quarter and MXN 6.3 billion throughout 2016, which was 3% higher than the year before. Ported a net loss of ARS 6,000,000,000 in the 4th quarter, resulting in an ARS 8,000,000,000 net profit for the years ago. Our capital expenditures totaled ARS 100 and 4,000,000,000 and our net shareholder distributions after deducting dividends received from KPN and Telecom Austria, ARS14.8 billion. After the sale of part of our interest in Telecom Austria and the purchase of interest in NOLO, Blue and Black Phone, we had a net inflow of MXN 1,900,000,000. Our net debt ended the year at MXN 6.30 billion as compared to MXN 5.82 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 the $17,000,000 17 percent and the euro 14%. The above depreciation of the Mexican peso compared to an appreciation of substantially all our other currencies versus both the dollar and the euro in 2016, with the Brazilian barrel 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% 5% and the Chilean peso 5.7% and 9.1%. Altogether, our non peso service revenues appreciated 8.1% peso diodora and 11% peso diodoro 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 total 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 of $6,100,000 if we were to exclude the €500,000,000 raised by Telecom Austria in December to cover our bond amortization during January. But after deducting our position in cash, short term financial investments and marketable securities, our net debt declined to $30,400,000,000 Taking into account the equity credit in our capital bonds and our net EBITDA position, our net debt to EBITDA ratio stood at 2.1x, which is an improvement from the prior quarter, marking the beginning of what we expect will be a declining trend in leverage ratios that will gather force throughout the year. Our outstanding financial bet saw a major reduction of our dollar debt that went down from $15,000,000,000 to $10,700,000,000 but a reduction in outstanding debt of $4,300,000,000 in dollar denominated debt. And there was a slight increase in our euro debt. It went from €13,100,000,000 to 13 €14,000,000,000 but net net it was roughly flat. And we had a slight increase as well in our Mexican peso bet, which went which we build at MXN 4,400,000,000. So 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. So with that, I would like to finish the call. Thank you all for listening in. And I will pass it back to Daniela. We can start with the questions. We will now begin the question and answer session. The first question comes from Amir Roskondosky from Barclays. Please go ahead. Thank you very much for taking the questions and 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 ARPU has increased sequentially in the 4th 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 What is happening and 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. So these new subscribers are already moved. So they are starting to have the unlimited voice, the unlimited SMS, and they are starting to consume a little bit more. So 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. So 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 more that we're seeing in Mexico that you are seeing in Mexico. If you compare, let's say, a plan against the U. S, maybe the $50 plan that they sell there, here it's around $15 to $17 So it's around 74% less price here, giving the same things that in the same plan. So I don't think that the rates and the plans are going to go lower. So where we want to compete is competing with more coverage, good speeds, 4 gs. We have very good plans to move a lot of our subscribers this year to 4 gs networks, to LTE to have a better to consume more data and to have a good perception of the network. So 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. So that's more or less where we are in 2017, giving the being competitive in price, but giving something else to the customer, good network, good coverage, good promotion. So that's more or less where we are right now. I don't think that prices will go down more going down this year. That's very helpful. Please. If I may, just very quickly. In the Q2, ARPU was down 17.7 percent. In the Q3, it was down 15.7 percent. And in this last quarter, it was down 11.55%. So there has been considerable improvement in margins that really began since the second quarter. That was really good. I think that as we move into this year and we begin to have the year on year comparisons with the Q1 of last year and the Q2, we will see a normalization of the search of growth. And I think that we will begin to see increasing revenues compared to last year. And one more thing, in prepaid, what prepaid, there's the unlimited voice and unlimited SMS. But I think people in prepaid is starting to use more and more data. So as they are changing from 2gs to 3gs and 3gs to 4gs, people is using more and more data. So I think that's something that is also helping the ARPU to go up because in prepaid ARPUs are also growing. The average prepaid client today is consuming twice as much in terms of units of both and 3.5 times more in data than a year before. So there has been a really a real surge in the provision of data services to the prepaid market, but again also accompanied by a doubling of the minutes of voice. Minutes of voice in Mexico are today 4.66 minutes per user per month, which is effectively decided in Latin America. That's very helpful. Thanks very much for the color. And then 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? And 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? Yes. I think well, the first question is the new regulations or the Ifetel is going to take the decision what they said they are going to take the decision in the Q1 of this year. So 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 2 years ago. So it's very important to know that America Movil accomplished all the measures. We show to the IPETEL that we accomplished the measures. They make some investigations on that and all the investigations and were good. So we accomplished On the unbundling local loop, what I understand is that they are On the unbundling local loop, what I understand is that therefore companies today using the local loop of Telmex and it's working and they are using that. So that's where we are. On the interconnection rates, as we said, we have injunction since 2 years ago against the inter asymmetric in 0 interconnection rate. And I think that is still in the Supreme Court, and it's going to take maybe all this year to have a decision. So in the regulatory side in Mexico is where we are right now. Thanks very much for the incremental color. Thank you. Next up comes from Rodrigo Villanueva from Merrill Lynch. Please go ahead. 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 elimination of interconnection asymmetry beginning in 2017. I was wondering if you could give us a potential impact on how these could positively hit your margins there? Thank you. Yes. Hi, Rodrigo. Good morning. Talking about Colombia, yes, they eliminate the asymmetric interconnection rate. Today, it's the traffic is balanced. So there's 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 Comsel Claro, sorry, are more or less balanced. So there is nothing important that you could see in the results. But important to say on Colombia, I think the company is improving very fast. It's doing very good. We're starting to grow very good 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. So I think you are you could see a good recovery in Colombia, and I'm sure we can have this recover 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. So you could see 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 van Mio said. In Colombia, the EBITDA in the Q1 was down nearly 13% from the prior year. And the Q4, we posted the 1st increase, and it was an increase of 9% year on year. So we have gone from minus 13% to close 9% in 3 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. So that's the first question. Then Rodrigo? Yes, 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, but 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 want to consider? Yes. No. Well, it's going to be let me 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. So you have to have a profitable customer and with some the prices and the rates are low, doesn't make any sense to subsidize. So it's going to be different in each country, different in Latin America than in the rest of the world. But in my view, in the next years, I think subsidies will disappear in the market. That's where I think all the telecom 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 we have the exchange rates have been very volatile. And the price of the handset that we're selling is much higher. So even if you subsidize less, well, still the dollars are more dollars, but we are working very hard on trying to take out all these subsidies. And in each country, it's going to be different. Each country the competition is different in each country, so it's going to be different. So it's very important that we take a look. It's one of our biggest costs that we have. And the other important issue that we're having is the financing. So we are moving from subsidies to finance the handset and that's been working very good also in America Movil. So 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. But I'm sure that the subsidies are going to have reductions in the next years. Understood, Daniel. And one final question, if I may. What is behind the considerable margin pressure in Argentina? And what do you expect will happen in the market in that market with the new telco regulation? And also, if you see any potential M and A taking place there between Telecom Argentina and Calyricion, or if it's going to be a market moving from 3 to 4 players? Thank you. Well, I think we have a revision a few days ago on the Argentina market. And I can tell you I feel comfortable on Argentina. The reason of the reduction in the margin this Q4, it's a lot on the we on the as the also the currencies, we can we still we used to have good margin in the handsets. And today, we don't have the same margin in the handsets because of that. Both prices and reduction on cost on the handsets, we have been working a lot on that and we think we can recover this year the same margin that we used to have in the handsets. In Argentina, we are not subsidizing. In Argentina, we're having profits. But these profits and these margins have been reduced a lot during 2016 because of the devaluation. But I think in 2017, it's they are going to recover. That's one thing. 2nd, 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. So if we cannot increase prices every month, so we have been very careful. And 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, very hard on cost and expenses. We're putting and working in the network to have more efficiencies. So in the market, we are well 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. So 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. So I feel that Argentina is going to have 2017 better than 2016 results. So that's more or less, I don't know Carlos, if you want to give some numbers. And the other question that you said in terms of if you this is going to stay with 4 players or 3 players, I really don't know. There are 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. So we want that the regulator will be in that direction. Okay, very clear. Thank you very much. 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? And is it possible that there could be incremental regulations placed on your competitor AT and 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 both for the economy of Mexico would be important. So 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 and 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. So 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. And then can you just comment on Brazil, please? I believe that AT and 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? And any other update that you can provide on Brazil as kind of 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 if I have been hearing rumors that AT and T is interested on selling that, but we don't know exactly what they are going to do. So if the market will consolidate there will be good, I don't think we are interested in consolidating We are growing in the cable. We have a very good network and cable network over there. So we are not interested. I don't know if other ones are being thinking or are trying to consolidate that market. I think still Brazil is in 2016, we have a complicated economy there. But I think Brazil is in my view, Brazil is in the bottom and it's going to be the economy is going to get better as time goes. So I think we have the best platform in Brazil, wireless, fixed, also satellite we have. So we feel we can take advantage of the recovery of the economy in Brazil. So I don't know, Oscar is here. I don't know, Oscar, if you want to talk a little bit more about Brazil. Well, I totally agree. I think we've been seeing some improvements in the last months in terms of the market. So but the first, let's say, 8 months Lavalier was really bound in the economy, but we will see some improvements on the last quarter. And I agree with you, we are very well positioned of 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. So I think we have a good chance to have a good year in Brazil this year. Thank you, Daniel. Thank you, Carlos. Appreciate it. Thank you. Next question comes from Daniel Firdale from Credit Suisse. Please go ahead. Thank you very much. Good morning, everyone. Firstly, could you provide us more clarity on the margin dynamic in Mexico because services revenues continue to increase sequentially and we see that margins continue to decline. So 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. I think we let me have we have in Mexico a 23% decrease year on year quarter against quarter. And I think in 3rd quarter, we have higher, we have 24.6%. So the margin is improving. Of course, you cannot compare 4th quarter against 3rd quarter because the sales, the postpaid, the promotions, the Christmas promotions are expenses. And I think we don't think, as I said, prices we don't see prices decreasing more in Mexico. So we hope that people start to use more and more data and with more and more data, more 3 gs phones, more 4 gs phones, I think the trend of increasing ARPUs would be again to have a recovery against what we have last year. It's what we see how we see Mexico. Okay. Very clear. And my second question One subsidies, we are reducing subsidies from last year. So that's another place where we are reducing our cost. If you can check that subsidies has been going down even with the volatility of the exchange rents in Mexico because the 4th quarter was high moving from 18.9 to 20 even almost 22 and then returning to something. So it's been very volatile all these rates. And even with that, we have the concepts are in dollar. So even with that, I think the reduction in subsidies has been reduced a lot. Okay, okay. Very clear. And my second question is how do you see the leverage evolving in the coming quarters and whether or not lower CapEx or lower shareholder distribution are still good alternatives for a faster decline? Well, I think that sharehold distributions, basically, share buybacks did take place throughout the year in a very constant fashion. So it's not something that is really concentrated in 1 quarter or 2 quarters. We don't really speed up share buybacks based on that. And the dividends, I expect the dividends will be very much in line with what we had last year. And as you recall, last year, we had, for the first time, the given the option to investors return to receive their dividend in cash or in shares. Half of the dividend of last of the second point was actually distributed in terms of shares. So that was something that set us on cash. But I think the net net deleveraging throughout the year takes place based on the free cash flow the company is generating because the shareholder distributions are not going to be much more than what we had last year. So as and the deleveraging is not linear. Not all the quarters is anything kind of cash flow. It has a lot to do with working capital. The Q1 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. So that's why the pre leverage should be a bit more biased towards the second half of the year. Okay. Thank you very much. Next question will come from Fred Mendez from Bradesco. Please go ahead. Good morning, everyone. Thanks for the call. Actually, you could just talk a little bit more about Brazil. I mean, while we see Claro posting really strong results in terms of the postpaid net adds, you talk about over 1,000,000 subs. We are still seeing weak results decreasing 8.5% year over year in the mobile business. So 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 still we just we're reviewing the result of our competitors. We are posting very good results on the post paid net adds. I think these are small against all the big base that we are having. So that's why we are you are not seeing a good growth on that. And I think maybe because we are being a little bit more aggressive in terms of rates, that will be another reason. But 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 quarter in 2nd quarter, minus 13.9 in 3rd quarter, minus 5.5 percent and today, minus 1.7 percent. So 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. So that's you are still not seeing growth, but the reductions of what we used to have has the improvements, let's say, the improvements of the data revenue where everybody is growing and where we are growing also are being good. So we're feeling comfortable on that. Next question comes from Alejandro Gallosra 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 Mexican pesos. But the depreciation has been increasing significantly in 2016 and specifically 16%. Do you expect the depreciation to stabilize at some point? Or and when should we see stabilization at 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 and 2016 would be in 2016, maybe the reductions on the life of the products, the set top boxes, the depreciation on the set top boxes will reduce the life of from 5 years to 3 years. That would be, but we will check and get back to you. I think what you say, what Andrea 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 or depreciation of certain things, particularly set of boxes. But the other thing that is important and we have to account for this is when you are expressing in peso terms the depreciation that you have in other countries lending the field, when you have had depreciation of the peso, this ability, real, then all of that depreciation from Brazil weighs that much more in peso terms. And that's something that is having an impact. Okay. Good explanation. And my second question is the following. It's regarding the status of the 60 MHz spectrum that you want to acquire from MBS. I understand that it's still pending from the regulatory point of view. But I was also wondering if you could disclose the cost perhaps, the degree 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 will 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 TeleSite. TeleSite has enough towers to and then we can put it's in the 2.5 frequency, 2.6 frequency. So I think we don't need extra towers in Mexico. We are not disclosing the price, and it's still on the IPETEL to have the authorization on the IFFEL. So we already have the disclosure on that, but we need the important to give more data, to have more speed and to use all the towers in Avera. So it will be this new frequency would reduce the CapEx in Mexico. So we can give more data using that frequency. So that's what we're trying to do here. So we're only on the decision for the okay of the IFFE. Okay, great, Daniel. 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. But today, we have, let's say, the tele sites, we rent from tele sites maybe 13,000 or 14, I don't remember, it's a 14,000 towers. So I think with these 14,000 towers, I don't think we need more towers than if we will start making a network then I think it should be better, the 850 frequency than the 2.5. But with the amount of cell sites that we have today, I don't think we need more than what we have. So it's not going to be if you are asking me if it's going to be a big investment to put the 2.5, no, it doesn't. It's a frequency that we are using in Brazil. It's a frequency that we're using in Colombia. And it's working with the same towers that we have been having in Colombia and in Brazil. So we don't think we need more towers to do that. What would be important is to do with this spectrum will give us, well, new things like carrier aggregation and 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 comes from Richard Deming 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's a tribunal ruling forcing Ifitel to re examine 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? And maybe just update us on the status of that strategy currently. And then 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 preponderance rules that we have. So we have some rules the last 2 years when we start as a preponderant player and we have all the rules. We do what the Ifetel and the rules said. So we comply with everything that they put. So that's very important. And I think that's important. In the other side, when you talk about Pay TV, TV for 10X, well, we are the only country, maybe there's 1 or 2 countries in the world where there's no convergence there. So 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 big. So what it's clear is that we it's important to have more competition in the TV market and that's what we are saying. So there is in all the world, the rules are the same for everyone. There is convergence for everyone. And I think Mexico has to go to have convergence also here. And that's what we're asking, and I don't think that's something different from what is happening all around the world. So that's and in the other side, as I said, we comply with everything that they tell us a preponderant player in the wireless and in the VIX, we comply with everything that they put to us. So well, that's on Mexico. On Chile, I think we're doing very good. On Chile, 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. And 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 America Movil, 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 4th quarter was very good. Central America is not growing as they have been growing, but still growing in Central America. So I think all overall, we are receiving all the work that we have been doing on cost controls, taking care about the CapEx, looking deeply on the market, we're taking care about the subsidy, growing on the fixed, everything is starting to have very good results. So I hope that 2017 would be also as good as 20 16. So that's what I can tell you about the results. I got very short on what's going on in Chile. And in Chile, you have a 5.4% service revenue growth, which is very well distributed between mobile and fixed. Fixed already accounts for onethree of our service revenues. And we have roughly same kind of revenue growth in mobile and in fixed, so it's broad based. But what is interesting is if you look at year on year, EBITDA is going 80% because we have had a very significant recovery of margins. Margins used to be 7 1%. Today, they are 12%. So yes, I think that it is clear we expect that EBITDA will get to teams. They are already in the teams. And I think that we should expect to continue to see them going up. Okay. Thank you, Daniel. Carlos, it's really helpful. Thank you. Great. Thank you, Richard. Next call comes from Gregorio Tomasi from Itau BBA. Please go ahead. Thanks and thank you very much for this call, Carlos, Daniel and Daniela. I have a couple of 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, you need to America Movil needs to ask from the regulator a letter of confirmation that has been stating that America Movil has been in compliance with all regulations before requesting the pay TV license. And 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. And the second question is about CapEx. If you can verify what your CapEx guidance is for 20 'seventeen? And what do you see would be 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 Ipatel for that. We want to be very clear that when we ask for that for the pay TV license, then everything is settled and there is no complaints against any of our rules. So we want to be very sure that when we ask that, it's everything is done. And we're seeing where is the best timing to do that. So 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. And I think that we're going to have a reduction of around 10% from 20 16. The CapEx of 2017 will be around 10% less what we have in 2016. We're reviewing, and we think it could be around. We still haven't finished that, but we think it's going to be around $7,000,000,000 from $7,000,000,000 to $7,500,000,000 the CapEx that we're budgeting for 20.70. And I think it's important because there was a question on leverage. I think that we expect to review that further this year by approximately $2,500,000,000 maybe 3. And that's I think that we are going to probably end the year very much along very close to the targets that we have had, the medium term targets that we have had of closer to 1.5 times net debt to EBITDA. So I think this is going to be, as Daniel mentioned, partly based on a little bit less CapEx, but partly based on improving operations growth. And one important thing is that we I think 2013, 2014, 2015, we do a big CapEx in Olomir. So we are well prepared. It's not because we have 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 America Movil is to have the best network, the best coverage quality in the fixed and in the wireless. And we're still going to aim for that. So we are doing that in all the countries and I think in 2017 we are still going to see very good, very good networks in our markets. Thank you very much. Thanks a lot. Due to time restriction, we only have time for one more question. Next question comes from Michel Morin from Morgan Stanley. Please go ahead. Daniel, I just wanted to clarify what you said earlier about subsidies. You're saying that you've been reducing subsidies. Was that a comment more broadly about the company or about Mexico specifically? No, that's hi, Michel. I think our strategy and what I said, and I'm going to 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 have the results that we want. But of course, we are reducing subsidies in all the we are financing a lot of our handset and that's it's helping us to reduce our subsidies. So yes, we are we want and we're trying to reduce subsidies. Of course, it's a lot that is related a lot to the competition, to the markets on what everybody is doing, what our competitors are doing in the market spot. We are trying and it's going to be different in all the country in the different countries, but we're trying to reduce subsidies, Michel. Right. Okay. And then 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. But when I look at the difference between your revenue and your costs, your EBITDA to get a sense of what's happening on the cost side, those costs are up 14% year on year on my calculation. So 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? And I don't know if interconnection is having an impact. If you can help us understand what's been That there's a lot of costs. Of course, we're trying to 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 dollars. So it's not so easy. Interconnection is growing. Of course, it's growing. It doesn't make any sense that we're subsidizing the AT and T. We're paying them interconnection and they are paying 0 interconnection. I don't think that's something that make any sense. It is the biggest company in the world and we're subsidizing in Mexico the interconnection. Also to Telefonica, what and other costs that are related in dollars, they are going up a little bit. But in the other side, there are some costs that are going down there. So also you are not going to see as revenues are stabilizing and growing a little bit or ARPU increasing a little bit, then the cost, well, we need a little bit of time to control more the costs. And I think there's Michel, going to what Anil is saying in terms of the effects of the peso or the exchange rate. If you look at the cost of equipment specifically, it goes up nearly 20%. And we are looking at sales revenue that were declining 30%. So that's basically the big difference about the cost of equipment. The prior quarter has been up 12%. The prior quarter has been maintained. So it went it basically doubled from the Q2 that was growing 10% year on year to practically growing 20% year on year in the last quarter. But that is not something very sustainable because it will have to do with the exchange rate. And to the extent that the exchange rate begins to strengthen again, you will see this reduction again. And what I'm seeing here is, Timichel, is our equipment revenue is growing 24.5 percent quarter against quarter and our cost is increasing 19.3%. So the revenues is growing That was for Mexico, right, those numbers? Yes, that's for Mexico. You are asking Mexico, no? You are asking my brother. You can see in the rest of the country where we are doing also big efforts there. Yes. Okay. Perfect. Thank you very much. Thank you, Michel. Thank you. This concludes 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.