Welcome to the América Móvil fourth quarter 2015 earnings conference call and webcast. My name is Stephanie, and I will be your operator for today. At this time, all participants are in listen only mode. We will conduct a question and answer session toward the end of this conference. If at any time during the call you require assistance, please press star followed by zero and an operator will be happy to assist you. As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to host for today, Ms. Daniela Lecuona, Investor Relations Officer. You may proceed.
Thank you. Thanks everyone for joining us this morning to discuss our fourth quarter 2015 financial and operating results. We have today on the call Mr. Daniel Hajj, our Chief Executive Officer, Mr. Carlos García Moreno, Chief Financial Officer, Mr. Oscar Von Hauske, Chief Operating Officer, also with us, Mr. Carlos Robles, Chief Financial Officer from Telmex.
Thank you, Daniela. Welcome everybody. Carlos is going to make a summary of the fourth quarter results. Carlos?
Thank you, Daniel. Good morning, everyone. Thank you for attending the call. While 2015 came to a close, the Fed finally moving to increase its benchmark interest rate for the first time in years. Bringing along renewed volatility in financial markets that has intensified throughout this year on the continued decline of the price of crude oil and on speculation that the Chinese economy may be weaker than expected. Maybe also the U.S. economy. Emerging market financial assets and currencies, among them those from Latin America, have been impacted by these factors. We added 1.5 million postpaid wireless subscribers in the fourth quarter, including 513,000 in Brazil and 361,000 in Mexico. Our postpaid subscribers increased 5.9% year-over-year. We had net additions of 4.3 million prepaid wireless subscribers, of which 4.9 million were in Brazil, 651,000 in Ecuador, and almost 300,000 in Peru.
All in all, our wireless subscriber base ended 2015 at 286 million clients, and our fixed line RGUs reached 81 million units for a total of 367 million access lines. Our fourth quarter revenues were slightly in Mexican peso terms, 0.6% year-over-year to MXN 231 billion, bringing to MXN 894 billion the figure for the full year 2015. At constant exchange rates, service revenues were down 0.6% from the year-earlier quarter. The same rate that was observed in the third quarter. That is, we are seeing a stable revenues. By product line, there wasn't much change in the group of service revenues in the fourth quarter relative to the prior one, with data service revenues continuing to expand on both in mobile and fixed platforms, 10.3% and 10.9% respectively, and prepaid TV revenues that rose 6.6%.
There were significant improvements in service revenue growth in the fourth quarter relative to the third in Argentina, from 24% in the third to 35% in the fourth, in Chile and in Telekom Austria Group. It is important to note that at the consolidated level, A, the share of mobile service revenues in total service revenues has kept on increasing, reaching 58.5% in the fourth quarter compared to 55.8% in the year-earlier quarter. B, within mobile service revenues, the share of data-based revenues reached 50% for the first time. In Mexico, service revenues on the fixed platform have reversed their downward trend, as can be seen in the chart, while mobile services revenues are stabilizing. This is important. We have seen the decline in fixed voice service revenues that began mostly on account of the elimination of national long distance plans beginning on January 1, 2015.
We are seeing that this reduction of voice revenues have leveled off and is now making some increase. We expect that by the first quarter of this year, when we will have a clean comparison after the regulatory measures, that we will see even better figures. As you can see also on the chart, mobile service revenues in Mexico have stabilized and recovered most of what we had lost initially out of the regulatory measures that were in force in 2015 and 2014. As for EBITDA, it totaled MXN 63.9 billion in the quarter, a 5.1% reduction relative to prior year in Mexican peso terms, although at constant exchange rates it was down by 2.9%.
I think it's important to note here that we had a one-off event in Ecuador that basically has to do, for the most part, with an old litigation that was something that was there in the company from even before we acquired it. It had to do with rounding of invoices, and it applied to all the operators in Ecuador. This is something that had been in litigation for several years, and finally, over the last few months, we were notified that we were supposed to pay this. This was, again, something that was in the company for the most part out of, I think it's before we bought it, and it's something that just materialized in this quarter. It is important in Mexico, this is something I'd like to highlight. In Mexico, as we mentioned before, we had 361,000 net adds in postpaid.
Well, this number of net adds in postpaid was 51% higher than what we had seen in the year earlier quarter. That obviously explains part of the reduction in the EBITDA in Mexico. It is important also to note that in Mexico, as it is the case in other countries, but it has been very noticeable here. Equipment revenues, linked as they are to the exchange rate, have increased much faster than service revenues. Therefore, looking at the EBITDA margin in relation to total revenues will amplify the real impact on margins. The reduction in EBITDA margin, for instance, is 50% higher if expressed in relation to total revenues, than if it is expressed in relation to service revenues. It is important to correct for the distortions introduced by FX volatility on total revenues. This is very important.
What I would say is when you look at the reduction of EBITDA margins in Mexico, one-third is attributable simply to the comparison to total revenues where the equipment revenue component has increased a lot given the FX depreciation. One third, a little bit less than a third, could probably be attributable to Telesites. The remaining is attributable to the faster pace of net additions in Mexico, which obviously has taken place also in a more competitive environment. Okay. Anyway, our fourth quarter operating profit was down 5.9% year-on-year to MXN 2.2 billion, our net profit was six times higher than in the year earlier quarter, as our comprehensive financing costs came down along with foreign exchange losses. Our net profit was equivalent to MXN 0.24 per share or $0.28 per ADR.
Net debt ended the year at MXN 588 billion as compared to MXN 537 billion a year earlier. The former figure considers MXN 44 billion in marketable securities available for sale. That is the value of our KPN stake after deducting the value of KPN shares held on the fully mandatory exchangeable bond issued in September in the amount of €750 million. Our capital expenditures totaled MXN 164 billion in 2015, while our shareholder distributions amounted to MXN 71 billion, including the extraordinary dividend paid out in September. Our net debt-to-EBITDA ratio stood at 1.3 times at the end of December, allowing for the equity grade on our hybrid bonds and for the market value of our derivatives position.
We have, as you can tell, a strong balance sheet, which is an important reason for why we have the best ratings in the telecom sector today, the best credit ratings in the telecom sector. That basically needs to show that we have a lot of financial flexibility, which we will be prepared to use it when convenient. With that, I would like to finalize this part of the call and hand the floor back to Daniel.
Yes. We're going to start with.
We're going to begin the Q&A session.
Ladies and gentlemen, if you'd like to ask a question, please press star one on your phone. If your question has been answered or you wish to withdraw your question, press star two. Questions will be taken in the order received. Please press star one to begin. Your first question comes from the line of Amir Rozwadowski from Barclays. You may proceed.
Thank you very much for taking the questions. If I may, thank you first for the color on how to think about sort of the margins in Mexico and the various impacts there. I was wondering if you could give us an update on how you folks are viewing the competitive landscape. Obviously, we've seen some new competitors in the market. They've just started to report some of the results. Would love to hear your thought process in terms of how we should think about the potential impact to pricing trends in the market and your own sort of subscriber acquisition costs. Thank you.
Well, as Carlos said, he gave us an overview on the costs. Well, first I have to say that in Mexico, the valuation of the peso is increasing a little bit all our costs. We are having
Not only Mexico, Brazil, Colombia, a program on cost controls that is very important. As the exchange rates go higher, some of our costs are in $, we have to review them and work on all of our costs in the company. Second, in terms of the competition, I think as you can see in Mexico, there is effective competition. Even everybody in the news, even some regulatory persons are saying that we already have effective competition in Mexico. We have some changes in the structure of the market with this new competitor, plus the other competitors that we have, plus the MVNOs that we have in Mexico. We have more services, and all of that is bringing a big reduction in the prices in the market. The consumers are the ones that are gaining here in Mexico.
As you could see in the fourth quarter, prices are going down as we have been very successful in the postpaid market. I think we have 51% more postpaid subscribers than what we had in the fourth quarter of 2014. We're doing good. We are doing good in the market, even though the market is very competitive as it's going to bring us higher cost of acquisitions. It's going to bring us higher cost on retaining our subscribers. But overall, I think Telcel is doing good in Mexico. In number portability, we're gaining, still gaining in number portability, and we feel that this year still is going to be a very competitive market, and that's what you could see for 2015.
Thank you very much.
One important thing that I have to mention is that still Mexico is one of the lowest markets in Latin America in terms of penetration. Still we have a big share of growth in the future. We still can grow in smartphones and in the market, new subscribers. It's also one important thing for Mexico, specifically for Mexico.
That's very helpful. Then if I may, you talked about the ability to sort of lap some of the regulatory measures that are in place and the impact to sort of the service revenue going forward. Based on where you sit today, obviously there is some regulatory review going on around the competitive initiatives that have been put into place. What are the prospects for further potential regulatory initiatives to spur ongoing competition? It seems as though you feel comfortable with sort of the competitive dynamics of the marketplace currently and supporting the need for increased competition, would love to hear your thoughts around incremental regulatory measures that could come up.
Your next question comes from the line of Michel Morin from Morgan Stanley. You may proceed.
Thank you. I don't know if you're going to want to answer that earlier question from Amir, in any case, I wanted to ask about the buyback. You made an announcement of MXN 12 billion earmarked for buybacks this year. That seems to be lower than what you've been doing in recent years. I was hoping to hear what the plan is there, what the thought process was in targeting that amount. Then secondly, regarding your comment on Mexico and the impact on margin of handset sales, if you can comment also on how you've changed your subsidy policies. Are you being more aggressive or less aggressive on handset subsidies? Thank you.
We are having technical difficulties. Please stand by. Thank you. Your next question comes from Michel Morin. You may proceed.
Yes.
Hi, good morning. The question was regarding buybacks. You've announced a MXN 12 billion plan. I was wondering if you could elaborate a little bit more on the thinking around that number, considering that it seems to be lower than what you've been doing in recent years. Secondly, Carlos, on your comment on the impact of handset sales in Mexico and the impact on margin, did you actually also increase your handset subsidies in Mexico? What is the trend on that front? Thank you.
All right. Hi, Michel Morin. In terms of subsidy, I think all around América Móvil, we have trying to reduce the subsidies. We're reducing a little bit the subsidies. It has been like a race because all the handsets are in dollars, so as the exchange rate is moving, so we have to actualize the prices. All overall, I think the numbers are that we are reducing our subsidies in Mexico and in Latin America. In the buybacks, we announced yesterday that MXN 12 billion because we have a remaining balance of last year of MXN 17 billion, so we're going to add these MXN 17 billion pesos to the MXN 12 billion pesos that we have. We're always open to ask for more if we need it in the future. No?
Okay. That's very helpful.
As we do it.
Hey, Michel. As you know, we have done it before, we obviously come at the beginning of the year with an idea of what our financial planning looks like. As Daniel said, we have some balance left over from last year that will be added to whatever we are increasing. I think the important thing to note is, as I mentioned today, we have financial flexibility to do what we think makes sense. Having these limits is really not an issue because our limits can always be redefined over time, as we have done in the past.
Okay, great. Thank you very much.
Thank you.
Thank you.
Your next question comes from the line of Vera Rossi for Goldman Sachs. You may proceed.
Thank you. Good morning. Could you talk about your discussions with the regulator about the preponderant status, what will be the priorities in these discussions that are likely to start in March? What are the AMX priorities to get from these discussions? Second is about your 4G users. What is the % of subscribers you already have with 4G devices, what countries are you ahead and behind in this migration to 4G? Thank you.
Good morning, Vera. In terms of the regulation in Mexico, I think the process starts in March, two years since they declared us as a preponderant player. What they are going to review are the effects that the measures that they put they have in the market. I think in América Móvil, we are accomplished in Telcel and Telmex, everything on terms of the regulation. During these two years, we have the regulator review with us all the measures, I think we are happy the way we have been accomplished all these measures. What they are going to review in March, I don't know how long it's going to take for the regulator to review, is if there's some changes in the market, structure in the market, new competitors, MVNOs, reduction in prices, I think more services, more investment in Mexico.
Looking for all these things that they are going to review, I'm optimistic that there's, as they said, more effective competition in the market, and that the revision is going to be in good terms for América Móvil. It's my personal view.
What will be the priorities of AMX in this discussion? It's eliminate asymmetric regulation, or there are other things that AMX would like to discuss with the regulator in this revision?
Well, of course, there's a lot of revisions in terms of commercial issues that we want to review with them. Small commercial issues, things that we have to give to our customers that the competition is not giving, or our position is that, or we give them to all the customers, or nobody gives that to all the customers. There's still a lot of small things that we want to review. We want also to review, as you said, the asymmetric interconnection, the price of the unbundling, we want to review, because in some things we are not on an agreement with them. There's a lot of things that we're going to start to review on March.
There's no doubt, Vera, no doubt that what they were looking two years ago, the regulator were looking with this telecom reform, is that they want more competition, and they are looking for more competition in the market. If you could see prices, if you could see investments, if you can see the structure of the market, there's no doubt that we have that.
Vera, you remember in several years in Mexico and other countries, it was when all of the wireless penetration was increasing, it was happening very quickly. There was a lot of advertising, there was a lot of investment. They were very lively markets. Well, that's exactly what you have today in Mexico. There's a lot of new investment for the first time in years, certainly from the competitors. There is much more advertising. You see a very energetic market out there. As Daniel said before, it's a market that we think is going to grow. I think there will be share for everyone in this expanded market. Wireless penetration in Mexico, by its last count, is probably still less than 90%, which is below what we have in other countries in the region.
We think that there's going to be some increase of penetration over the next several years, several months, that will be helping out in this effect.
All of this is for the benefit of the consumers, Vera. If you can review some commercial information in internet, you could see that the prices in Mexico today are much lower than the prices, let's say, in the United States. You could see that in these last two years, specifically in the last six months, the prices have been dropped in Mexico a lot, much lower than, let's say, what you could see in U.S.
Okay, could you also talk about the 4G migration and what are the countries that are ahead and behind in this migration?
Yeah, I don't have exactly the 4G numbers, but I can tell you a little bit about the penetration on the smartphones. I think Mexico is doing good. Mexico, Chile, Colombia are the ones that are the higher countries penetrated. Let's say Central America, Ecuador, Peru, we need to do more and more penetration on that. Brazil is in the mid on the chart, is in the mid place on the chart. América Móvil, in terms of smartphone penetration, is around 36% penetration overall. In postpaid, we have around 56% as the average penetration of smartphones in América Móvil, with Mexico one of the highest with 78%. It's more or less the numbers that I can remember. If you want to go deeper on that, you can talk with Daniela to give you more sense on that.
Your next question comes from the line of Daniel Federle. You may proceed from Credit Suisse.
Okay, good morning. Thank you for taking my questions. My first question related to CapEx. It was mentioned during the AMX Investor Day last year that CapEx to sales ratio could decline in 2016 and onwards. Now, with the currency depreciation, how do you see CapEx evolving in the coming years? That is the first question. The second question is related to the pay TV because the company has been saying it is ready to ask for a pay TV license in Mexico. I'd like to hear from you how the company's evolving in this matter as well. Thank you.
Well, I think let's start on the pay TV. The pay TV, I think we are working on the pay TV permission. When we think it's the right moment, we're going to ask for that permission. We're working, we're doing things, we're waiting to see when is the right moment to ask for the pay TV permission. In terms of the CapEx, well, we said last year in the Investor Day, what we want is to have around 15% CapEx to service revenues, and we are on that trend. What I can say is that the last three years, 2015, 2014, and 2013, we have a big investment, $33 billion on CapEx for the last three years. I think we invest good. We put all our networks on shape, we grow coverage, we move from 2G to 3G and from 3G to 4G.
We do big investments. I think this year we can reduce the CapEx to around 25% of what we do last year. We're starting to reduce our CapEx. It's difficult to give you a number today because with all the exchange rates that we're having, we are working on that. When we have already the number, we can give it to you. It has been difficult for us because it's moving. Some of the things are in local currencies, other ones are in U.S. dollars. We are reviewing exactly what are going to be the number for this year. What I can tell you that we can reduce from 20%-25% the CapEx of last year.
I think it's important to know that the imported component, the fixed component of CapEx is only about 40%. The rest of that is basically to civil works and things that are basically local costs. What Daniel says, it's difficult to gauge what the impact in U.S. dollars will be, because obviously there's been different depreciations in different countries. If you look at 60% of CapEx in each country is going to be local currency, we don't really know exactly whether it will be coming out in U.S. dollar terms. The intent is, we have just finished a phase of heavy investment the last five years, $50 billion, as you know, were invested in our infrastructure. From here now on, we will not need to invest as heavily.
A lot of what needed to be done has already been done, that's why we are stepping down the intensity of CapEx for the next five years. This is not only something for this year alone, it's something that will happen over the next five years.
Okay. Thank you very much. Just to clarify, this 20%-25% decline is in U.S. dollars, right?
Yes.
Again, the final effect is going to be dependent on the exchange rates because of what I just explained. That's why I didn't want to give you a figure.
Yes, it could be in dollars, it's approx. I cannot give you a number still today. We're reviewing new pricing, we're reviewing exchange rates. There's a lot of things that still we are working on.
Your next question comes from a line of Marcelo Santos from JPMorgan. You may proceed.
My first question is about the US dollar component of cost. You gave a little bit of detail on the handset side. Are there other relevant costs which are not handset that are also denominated in US dollars in the subsidiaries? This is my first question, a little bit of clarification on that. The second question is, how much of your data revenues are comprised of SMS? I ask this because in some countries, the data growth is at single digits. I was wondering if that was not because you have internet growing and SMS shrinking. An idea of how much SMS still left would be interesting. Thank you.
Well, in terms of the first question on the USD, there's other costs that are in USD, IT, software-
Content
content. There's other things, I don't have it right now, but there's other things that we purchase, and they are in USD. We're reviewing and seeing exactly what part of our costs is in USD, that's why you see that the margins are, and the cost can increase a little bit. The second question, can you repeat it, please?
The loss SMS.
My second is about SMS. We see in some operations that mobile data growth below 10%, and would expect sometimes them growing faster. I wonder if that's not because of SMS component, which might be shrinking. I just want to get a general idea of how much SMS do you have.
I think SMS is, in my view, SMS is very related to WhatsApp. As people is using more smartphones and they have the availability to use WhatsApp, then they use WhatsApp instead of using SMS. I think that's the relation that we are having mostly in all the countries. As they use more WhatsApp, they use less SMS. That's what you could see.
How much of the data revenues, rough numbers, are SMS, just percentage-wise?
I don't have the number. Very different in each country. Some countries, they use a lot still of SMS. In the other ones, other countries, they don't use a lot of SMS, and they start to use more WhatsApp. I don't have the number right now.
It's directly linked, as Daniel said, with the penetration of smartphones in each country.
Si.
Your next quest-
Yes.
Your next question comes from the line of Walter Piecyk from BTIG. You may proceed.
Thanks. I just want to go back to the capital investment question. You're saying 2016 versus 2015 is going to drop 20%-25%. You're talking basically $8 billion U.S. as far as capital investment. Did I hear that correct?
That's what we have as a previous number. As we are saying, we have good investments and big investments, a heavy investment in 2013, 2014, and 2015. I think we can reduce our investments in 2016. I don't know if it could be eight, it could be 7.5. I don't know exactly the number, I can tell you that our investment in 2016 is going to be lower than what we do in 2015. It's going to depend. Still too early for us to say. Depends a lot on pricing, the dollar, and the growth also. It's going to be very important about what's going to be the growth, let's say, in the fixed, because part of the CapEx is a variable set-top boxes and all of those things.
It's going to depend on a lot of things that we don't have clear today what we're going to have. As I said, at least we can reduce 20%-25%.
I think it was asked earlier, maybe I missed the answer. I think there's a pretty low percentage of your customers that are using LTE phones today. I get that there was capital investment, but as data grows, theoretically, you have to keep up with the networks. I think in Brazil as an example, one of your competitors, TIM Brasil, is spending 20% or 25% of revenue in anticipation of this LTE growth. Your strategy seems a bit different, given this kind of expectation of data growth, which is hopefully what's going to provide revenue growth. I'm just trying to understand, where exactly are you cutting the CapEx? Is it U.S. dollar-denominated type things like radios from Nokia and Ericsson? You're spending more on the local stuff until the currency recovers?
Help us understand, because that's a very big cut that no other operator I think has identified yet.
Well, my answer to you is going to be, we are not reducing the CapEx because we're going to cut LTE, or we're going to cut capacity, or we're going to cut moving 3G subscribers to LTE subscribers. We're not going to do anything on that. I think the last two years we have been investing heavily. We have been investing in the backbone, in the links, in the fiber, in everything. That's exactly what it's, let's say, in some countries, if you add some more frequency, then you don't have to do anything. Then you have to do a little bit more of radios, and then you have a lot more of capacity. I don't want to get involved in the engineering side and how we are going to grow. We have been investing a lot.
We have a very robust network in all of our countries compared to a lot of our competitors, that's what's going to give us the ability to invest less this year. In terms of competitiveness, I think still in 2016 and 2017, with the investments that we are going to do, we are still going to be very competitive in the market in terms of our infrastructure.
As we said repeatedly, Walter, in the past, to manage data, you really need to have a good fixed-line platform. A lot of the MXN 50 billion that we last five years were deployed precisely to build, as Daniel said, more fiber optic links, fiber to the towers, a lot of the things that are really required. All of that is behind us. When you look at the cost of radios, as you say, relative to the rest of building fixed-line platform, it's nothing. The fact that we are reducing CapEx is simply because we have already finished with a lot of the construction that needed to be done on the fixed-line side. It's not that we are going to be curtailing now. Now that we have everything done, we're going to be curtailing the easy part, which is the radios.
We invest last year, cable submarine, satellites.
Increase
metropolitan rings. Look what NET is doing in Brazil. NET is the one that in cable, in pay TV, is the one that it's growing.
Subscribers
subscribers in Brazil. That's really because we have the network to go to all these new houses. I feel pretty comfortable on what we have been doing the last years and what we're going to do this year.
The difference of being an integrated player as opposed to being only a mobile one.
Your next question comes from the line of Carlos Legarreta from GBM. You may proceed.
Good morning. Thank you for taking the question. I think it will be helpful for all of us to understand what's at stake at this regulatory review in March, obviously aside from the possibility of getting the pay TV license. Certainly the asymmetric regulation we've seen so far has been pretty stringent, and I think the effect on competition is pretty obvious. I was wondering if there's any specific issues that are currently being discussed with the regulator that we could be looking at. Thank you.
Well, as I told you, in March, we're going to review the effects of the measures that they put to us two years ago. We're going to review if they work or they don't work. They can put more asymmetric regulation. They stay where they are, or they can reduce the regulations that they put to América Móvil. It's what they are going to do. In terms of the asymmetric interconnection, well, the position of América Móvil is that América Móvil should not subsidize companies like AT&T and Telefónica that are strong international operators, and that I don't think that América Móvil would subsidize paying them interconnection and they don't pay interconnection to América Móvil. That's the position of América Móvil, and those are the things that we're going to review there. As I said before, there is effective competition in the market.
If there's no competition, look on the pricing that we have. I think Mexico today is one of the lowest pricing countries maybe in the world. I think those are the things that IFT are going to review, and well, let's see what's going to happen.
Okay. Thank you. A follow-up, if I may. On Brazil, you acquired a small cable company. I was wondering if you could give us any details about that particular acquisition or any others that could be on the radar going forward. Thank you.
Yes. The company name was Blue. It's a small company, a company that has close to 8,000 home passes, 300,000 customers. The company has already upgraded the network. It's fully directional, so it complements well all what we've been doing in NET. That company will be integrated through NET. I think expand the reach that we have, and we get into a market that we don't have network, so we complement the network position on NET. We will integrate in the next three or four months the company, and we have pending some approvals to do all the integration that will occur in the next two or three months.
Your next question comes from the line of Richard Dineen from UBS. You may proceed.
Thanks very much for taking the question. Good morning, guys. You mentioned in the release about cost reduction efforts behind the margin gains, specifically in the U.S. and Brazil. Just wondering if you can specify whether the cost reduction is more driven by internal efficiencies, streamlining operations, or whether it's more a case of being less aggressive in your commercial strategy, lower subsidies, discounts, and promotions, and so forth. Then secondly to that, whether Brazil and the U.S. are perhaps unique situations in that regard, or whether you think there are opportunities to lift margins by similar methods in other markets. That's my question. Thank you.
Let me start on Brazil. I think on Brazil, what we have been doing the last two, three years is we are integrating the networks. We have one platform for fixed, for mobile, and for pay TV, and that integration is giving us a reduction on costs. I feel very competitive in Brazil. I feel we have the best platform in Brazil for the growth and the best platform for taking a share in the market. We're still growing good in the fixed platform. We're growing in the pay TV. I think this last quarter looks much better in the mobile. We have gaining in number portability in postpaid. The indicators that we have looks like in Brazil we're doing good. Even the economic situation that we're living there, we feel that Brazil could give us better margins for this year.
In the U.S., well, the competition in the U.S. is tough. As an MVNO, we have to be also more aggressive in the market, and that reduce a little bit our costs. We are, for this 2016, reviewing new plans for the market that will give us, again, growth and give us, again, the margin. Still, we think 2016 for TracFone is going to be very competitive. I'm sure that we could have good plans to compete in the market. That's what we have in Brazil and in the U.S. The other question
About the cost control that we have, we're putting cost control in all the countries. As Carlos said in the beginning of the conference, there are some countries that, let's say El Salvador, Puerto Rico, Ecuador, that we sell in dollars, so the exchange rates don't hit us. In other ones, like in Central America, we haven't had any devaluation there, so we're still having cost controls. In the other ones like Colombia, Mexico, Peru, that we have big devaluations on the exchange rate, we are putting more and more cost controls, and we're working very hard to maintain as much as possible our cost down. That's more or less what we need to do all 2016.
Well, I think further to what Daniel is saying, as you know, we have what we call our core EBITDA, which is basically the EBITDA that we have before factoring in subscriber acquisition costs. What you can see is that in substantially all the countries, and I would tell you only there's two of the smaller countries in South America that are an exception, but of the rest, all of them have seen increases in core EBITDA margins. That's important because it basically shows that other than in the commercial efforts, there have been important progress in terms of streamlining costs. Okay? It's not through a reduction in the commercial presence, it's simply by having a more efficient structure.
Your next question comes from the line of Mauricio Fernandes from Bank of America Merrill Lynch. Please proceed.
Thank you. Good morning, everyone. I want to go back to the buybacks, and in fact, the capital question, Carlos and Daniel. The renewal of the fund doesn't mean much since you can renew the fund whenever the board meets. It seems, based on what you said at the investor day last year, the plan is to achieve 1.5 times net debt-to-EBITDA. I just wanted to confirm that that's still the case, given a lot has changed, particularly in the macro environment, in fact, since then, and 2, when would you expect to achieve that 1.5 times? Thank you.
Mauricio. Hi. Well, what we have said is the one and a half times is kind of our medium-term target. We have always had a medium-term target. You're never exactly there. Yes, we intend to remain hovering around the target. We are today, as we showed in the presentation, at 1.8 times EBITDA. When you factor in, you do the methodology the same way that the rating agencies do. I think that we are pretty much where we need to be today on that regard. We don't need to make any special arrangements to our financial plan. What is important, Mauricio, is to understand that having the financial flexibility is something that is important when you are willing to use it.
I think the bottom line is, yes, we have the financial flexibility, and as I said at the beginning, it's something that we may use if and when we think it makes sense. That's where I would leave it. Obviously, there's a long-term goal, a medium-term goal in terms of overall leverage. I think that we are satisfied with where we are today. I think that we are going to see a good progress on the financial front. This does not impede us from continuing with what we have basically said in terms of overall distributions. Having said that, we have the flexibility and may use it if it makes sense.
Okay. Is there any intention, Carlos, to reduce the activity of buybacks, particularly given the share price has come down? It would make sense actually to perhaps increase buybacks, not to reduce buybacks, despite the strategies not that far away from being that close to around the level of one and a half times net debt-to-EBITDA.
I said the leverage ratio is a medium-term ratio. It's something that we are hovering around. We do not have a deadline that says we need to be at 1.5 tomorrow. No, we don't. We have flexibility, and this is obviously something that we can always revisit with the rating agencies. Having said that, you do have an outstanding plan. As Daniel said, we have roughly MXN 30 billion already in reserve. As you say, it may be increased, as we have done in the past. We have increased in the middle of the year, as we said, if we think it makes sense.
Due to time constraints, we're going to take one last question, and your last question comes from the line of Chelsea Konsko from TIAA. Please proceed.
Hi. My first question is just more of a clarification on what you spoke about at the beginning of the call in terms of the contribution to the margin contraction in Mexico. It was a little bit difficult to hear you. I think you were saying a third from
From one factor, a third from another, and a third from a third factor. If you could just repeat that. My second question is related to your capital markets plans, considering the debt that you have coming due this year, in which currencies would you prefer to issue and refinance that debt?
Well, what Carlos said is that in Mexico, we have a very competitive market. Part of the reduction of our margins are, first, because we grow a lot on postpaid subscribers. Second, because we have a lot more competition, reduction on prices, it's very important. The third is because the exchange rates, okay? The exchange rates hit us in two things. First, because the revenues in handsets are growing more. Third, because we have other costs like Telesites. Telesites is more or less costing 1.5% of our EBITDA because the spinoff of Telesites of service revenue. The last one is because the exchange rates and the costs that we are having in dollars. All of those things are playing all around in the margins of Mexico. That's what I can Carlos can explain a little bit what we think we can.
On the refinancing, well, this is a year that I think that we're going to see reductions in debt. Already, Telekom Austria paid EUR 750 million, I think two or three weeks ago, which means that over the last, since the end of December till today, they have already paid roughly EUR 1 billion. That's been a net reduction that is not being refinanced. We have approximately EUR 3 billion-EUR 4 billion in amortizations left for the year, $3 billion of amortization left for the year, and I don't expect that we will go to the market for more than EUR 1 billion.
Do you have a currency preference?
I think that is really determined at the time of when we launch the transaction, depending on the conditions in different markets. As you know, we have established a presence in various markets, we can afford to look at which appears to be best for our objectives. Okay. I don't think that we'll have more than one offering in the market this year, maybe EUR 1 billion, and we're done. We are going to actually see a good reduction in gross debt for América Móvil in principle. All of this consistent with everything else that we have mentioned, in the absence of other extraordinary situations where we might want to use more financial flexibility.
Now, I would like to hand the call over to Daniel Hajj for final remarks.
I just want to thank everybody for being in the call. Thank you.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect your-