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America Movil SAB de CV
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Good morning, and welcome to the América Móvil First Quarter 2018 Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Daniela Lecuona, Head of Investor Relations. Please go ahead.
Thank you. Good morning, everyone. Thank you for joining us on our first quarter conference call. We have today on the line: Mr. Daniel Hajj, our CEO; Mr. Carlos García Moreno, CFO; Mr. Oscar Von Hauske, COO; and also from Telmex, Mr. Carlos Robles.
Thank you, Daniela. Welcome to this first quarter '18 financial and operating report. And Carlos is going to make us a summary.
Okay, thank you, Daniel. Good morning, everyone. In the first quarter of 2018, with world economic growth improving steadily and most regions posting solid growth, volatility returned to U.S. financial markets as inflation fears resurfaced in face of tight labor markets and what appeared to be an acceleration of wage increases.
U.S. long-term interest rates rose to levels not seen in over 4 years as the market focused again on inflation risks. In Latin America, the exchange rates were not affected by the increasing U.S. interest rates. And in fact, the Mexican peso became one of the best performing currencies following its depreciation in the fourth quarter of 2017.
We added in the first quarter 1.4 million postpaid wireless subscribers, twice as many as a year before, including 935,000 in Brazil and 181,000 in Mexico. We also gained 427,000 fixed-broadband clients to finish March with 28.6 million accesses, which is 152,000 coming from Brazil and 110,000 coming from Mexico. Our postpaid subscriber base was up 7.4% year-on-year and our fixed-broadband access base was up 4.8% with PayTV accesses down 2.4%, mostly with DTH clients in Brazil. We continue to disconnect more [ two base ] clients. Our base was down to 2.7%.
Our revenues totaled MXN 254.4 billion. In Mexican peso terms, they were down 3.7% from the year-earlier quarter on account of the appreciation of the peso versus other currencies. Correcting for this currency effect, revenues actually rose 2.8% with service revenues increasing 2.1% at constant exchange rates. EBITDA totaled MXN 71.2 billion and was nearly flat in peso terms but up 5.9% at constant exchange rates.
As has been the case in prior quarters, postpaid revenues and prepaid data revenues, together with fixed-broadband revenues, were the main drivers of revenue growth. The main drags came from fixed-line voice revenues, reflecting mainly reductions in long-distance revenues in Brazil and Mexico.
Mexico was the top performer in the quarter with service revenue growth accelerating from 3.3% in the fourth quarter to 6.3% in the first one, continuing with the recovery process we began more than a year ago. In this process, by the way, interconnection charges did not have the most meaningful impact. More than 80% of the increasing revenue that we had in the first quarter relative to the year before had to grow with the normal operation, it was more clients, more revenues from existing clients. Central America followed Mexico in terms of acceleration of revenue growth, going from 1.8% to 3.5% in the period.
Mobile ARPUs increased sharply in Mexico, 11.6% in Brazil -- 11.6% and in Brazil, 10.7% with TracFone in the U.S. posting a 7.3% rise as our Straight Talk plan continued to gain traction. They declined, however, in Peru by 5.6% and in Colombia by 3.4%. The ARPU increase in Mexico was the fourth consecutive one, accompanied by strong net additions in the postpaid segment. The same is true of Brazil, as you can see in the chart.
At 28%, our EBITDA margin was 0.8 points higher than a year before and was the highest consolidated EBITDA margin in 10 quarters, in the third quarter of 2015. EBITDA margins were up more than 2 percentage points in Mexico, Brazil, Peru and Chile from the year-earlier quarter and more than 8 percentage points in smaller operations, like Panama and Costa Rica.
Margins are higher very much across the board, all throughout [ locations ] with a couple of exceptions. Although still down compared to a year before, the EBITDA margin in Puerto Rico exhibited a strong recovery from the prior quarter, increasing from minus 3.5% to plus 9.5%, which reflects the gradual normalization of our operations in the island, partly linked to the resumption of electrical power in most of the territory.
Operating profits totaled almost MXN 30 billion in the first quarter and were up 7.5% at constant exchange rates. We posted a comprehensive financing income of MXN 913 million as foreign exchange gains of MXN 22.9 billion, driven mostly by the appreciation of the Mexican peso versus the dollar, more than offset our net interest and all financial expenses. Our net profit totaled MXN 18 billion and was equivalent to MXN 0.27 per share or $0.29 per ADR.
At the end of March, our net debt stood at MXN 614 billion. It was nearly flat relative to December but would have been MXN 13.6 billion lower in March had we not had to consider the payment of hybrid bonds in the amount of EUR 600 million by Telekom Austria as incurring new debt. The Telekom Austria hybrid bonds had been considered equity, given they were perpetual bonds, notwithstanding that they would be called -- that they could be called in certain dates. Paying down those bonds, therefore, led to both a decrease in equity and a corresponding increase in net debt on the balance sheet. From the perspective of rating agencies, the hybrid bonds were considered to be 50% equity and 50% debt. Our capital expenditures in the quarter came in at MXN 24 billion.
I think this is all that I have for the summary. I will pass the floor back to Daniel so that we can get started with the Q&A session.
Thank you, Carlos. I think we can start with the Q&A.
[Operator Instructions] And the first question comes from Fred Mendes from Bradesco.
We are seeing -- I have two questions actually. We are seeing a stronger mobile performance in Brazil and in Mexico. Both countries, they are showing a weak fixed business line, also impacted by long-distance calls in the corporate segment. My question is when should we see a reversal of this negative trend? And what do you think could be the drivers for the recovery? Then I can follow up with the second question.
Talking a little bit about Mexico, wireless in Mexico, I think we have a very good quarter. ARPU is growing, revenue is growing, EBITDA is growing. And I think what we have been doing the last year, I think, is very important. I think in Mexico, all the customers has preference for our network, with [ blending ] fees and speed. We just launched 4.5G network. So the perception of our coverage, quality and speed is very good. Also we are working very hard on other projects and to give a better service to all of our customers. So we are changing our customer care centers. We are changing and transforming all to digital. So we are moving on that direction. And I think we're gaining the preference of the customers in Mexico. I think that's mainly what is happening. Other things, I don't hear you very well. What other things that you said that are not doing very good is, let's say, long distance in -- yes, in Brazil, well, long distance is not doing good. I think long distance at the end of the day is going to disappear, so -- national long distance. So we know that all these minutes, long-distance minutes are going to disappear, right? But I don't know if Oscar wants to or Carlos wants to tell also...
Only one point here before Oscar comments on this, our national long-distance revenues, as Daniel says, they are basically condemned to disappear gradually. Good news in Mexico is that a lot of that has already disappeared because we've had the elimination of national long-distance revenues some time ago with the [ telephone ]. So what remains of long-distance revenues in Mexico is now today only 3% of fixed-line revenues. And it is very small and it's only international. And in the case of Brazil, national and international long-distance again is coming down rapidly. But the total today is only 15% of fixed-line revenues. So I think that certainly in Mexico, we should have this drag eliminated probably in the next couple of quarters. In Brazil, it's probably going to be, we thought, maybe a little bit longer, 3, 4 quarters. But it's not going to be that important. Oscar?
No, I will add, if you look at the minutes, long distance is still steady. What is happening in the market is a big price erosion in the market. And we are moving all to unlimited calls [indiscernible]. That's another impact in long distance and it's a trend. I mean, long distance is coming down. So we need to do something to compensate that decline with other services. And that's what we are doing. We are trying to bring new services to add to our connectivity and then to try to restate the revenues with the impact of long distance.
No. And I think it's very clear. And just a follow-up on the same question, especially on the mobile segment in Brazil that you're growing like 8%., the other competitor is growing like 3.5% and expect the other to grow something like 6%. And of course, I mean, you should most likely -- would report the highest growth in this quarter. What is the main driver for this? I mean, are you getting clients from competition that's basically, of course, your ARPU is increasing but also you clean up your base? I mean, I'm just trying to understand the strong improvement in your mobile growth and the drivers for that.
In Brazil, no, you are talking in Brazil?
In Brazil. Yes, perfect.
Look, we have been working a lot in our coverage, again in our capacity, in our quality. We have been investing a lot over the last 2 years. And I think we have a very competitive network today. We are the only ones to have 4.5G. So the speeds that we are giving in Brazil are good, are important. So in that sense, we're working good. And I think we are moving in the right direction. Brazil is 100% penetration. So if you're going to get -- or more than 100% penetration. So if you're going to get that customer, is it going to be a customer from other companies, or if it's in postpaid, coming from prepaid? So those are the 2 places where you can get customers, coming from prepaid to postpaid or from other carriers. So well, that's where we are. And in Brazil, people, they are aiming for very good quality. And I think we're giving good quality at this moment. So we are preparing. We want to give the best possible quality. Our mobile data is growing a lot, so we're moving a lot subscribers from 2G to 3G to 4G to 4.5G. So all these subscribers are going to use more and more data. And also that's something that is helping us to increase revenues.
And our next question comes from Andre Baggio of JPMorgan.
So I want to know a little bit more about the impressive improvements in the revenues in Mexico. Can you comment a little bit more on the pricing strategy and the other levers that you have been using that may continue in the future?
I don't hear you very well. Can you repeat...
Sorry. Talking about the improvement in the ARPU and the growth in the Mexican mobile. And then what's the levers for that?
Yes, I think ARPUs are growing. But remember that 2 years ago, when we started with the unlimited plans, ARPU gets down. People will get unlimited minutes. So people start to use a lot of minutes after they spend less money. The prices were very competitive. And today, what is happening is prices are still very competitive. There are people using more and more data, so more and more data, more and more minutes. And that is what is making our ARPU grow. In Mexico, megabytes of use are growing around 100%. So those growths -- because we have a good base today, so the 100% growth in megabytes of usage are very good growth.
And I think one thing that is important, Andre, is it's growing in data but it's also growing voice. If you look at voice, minutes of use in Mexico are already nearly 500, the highest here in the continent over the years. And as Daniel said, data expansion has been tremendous. It's 100% increase year-on-year, which is much more than we see practically [ on everything ].
Can you talk a little bit about the structure of the Brazilian cable? Because it used to be growing very well, Net Servicos. And now it's together with fixed-line and voice and with long distance. But can you talk a little bit the performance of the cable in Brazil? How is it going? And how we should expect about cable in Brazil?
Well, through the years, we've been building a lot of home passes in Brazil. I think we have a great coverage with a great technology in Brazil. And you see that we've been working in a triple-play environment as we're working through the years. But right now, we are focused as well in broadband with a very good speed. I think we have a very compelling offering in the market. As you know, voice is coming down. When you look at the breakdown of the revenues in net, fixed-line is growing, voice is decreasing like 12%. When you look at broadband, it's growing 10% revenues. And PayTV, that was decreasing a little bit, what we saw in the last quarter. But in cable, it's improving PayTV as well. So we expect that with the recovery of the economy, we will see different figures in net. In addition to that, we need to complement that offering. We are focused as well in small business through cable companies. And as well, we are adding a new service, that's cloud, in the offering in order to improve the ARPUs on the cable side.
And the next question comes from Alejandro Gallostra from BBVA.
I'd like to know what your thoughts are on the wireless broadband service that some of your competitors are using. Do you think that the technology is ready to be competitive in the mass market and if this is something that you plan to do in the future or if you would wait until you deploy 5G? What are your thoughts on the wireless broadband service overall?
Well, I think what they are giving is -- I think the wireless -- the broadband wireless service is competitive when you don't have a big service. And if you have fiber, I don't think it will never [ going to compete with ] the broadband service. But there are still a lot of places where we don't have fiber or competition doesn't have fiber or there's no fiber in some places. So I think in those places, that will be interesting to give the wireless broadband services.
Do you think that maybe once you deploy 5G, then the wireless broadband service could be more competitive and you would make it available to the mass market?
Yes, 5G but also with 4.5G. With 4.5G, we can give very good speed. So we have 4.5G, I think we can give a very good service, a wireless broadband service in the house. In Austria, we're giving -- we have a lot of customers with broadband service. They are using around 30 MB of capacity. I think it's good, it's easy to move. People can take it from one address to the other one, just move from an apartment to another one. So it's good. I think it's going to be a good service in the future, this one.
And my second question is a follow-up on the Telmex expectations beyond the long-distance revenue discussion. Are you ready to give us more color on the impact that you think that the functional and legal separation would have on your business in the long term?
Yes, please, Carlos -- Carlos can talk a little bit about the...
Yes. Actually, what we have at this moment, it's the -- in March, we received -- the IFT issued the resolution and the terms and conditions for the separation of Telmex. In this resolution, it establishes that Telmex and Telnor will have 2 years to implement the separation order. The resolution establishes a calendar and obligations to deliver information and to make -- and to take some steps regarding the separation. We don't agree with the separation. Therefore, we will be -- it will be challenged in accordance with the applicable laws. But given that it's compliance is mandatory, and therefore, Telmex and Telnor will start to take the separation process pursuant to the terms and conditions established by the IFT. That's what we have at this moment.
And the next question comes from Leonardo Olmos from Santander.
My first question is regarding CapEx. What will be the main CapEx uses in the future in the coming years in terms of geography or in terms of infrastructure that you're seeing?
In terms of geography, I think it's difficult to say. I think we're putting CapEx where we need it. The big countries are the ones that are using more CapEx than the other ones, let's say, Brazil, Mexico. Colombia is another one. But we're putting CapEx all around Latin America. In Central America, we're putting CapEx and it's working very good. We're growing very good our fixed-line business over there. So we are doing -- we're putting our budget. Today, our budget is MXN 8 billion. I think we are going to accomplish that budget. And I think with all these investments, I think we are going to be ahead of our competition and we can be very competitive in all the countries.
Great. And my next question is regarding content. What type of content acquisition would make sense for América Móvil? In a very general way, I'm asking. And eventually, should we see more movements on content for the company, like we saw in the Olympics or something like that?
We don't have right now any company that we're reviewing on content that makes sense. What we're doing is you know that we have Claromúsica. We have Clarovideo. We have the channels in Colombia, some things in Internet here. So we're developing some content. So I think we are developing some content more than buying content. Other content that we could buy, and we're buying for all the cable companies, PayTV, HBO, Fox, Turner, all of that. So I think we're in that idea and nothing to buying any company.
And the next question comes from Amir Rozwadowski from Barclays.
I wondered if we could touch base on the Mexico wireless market once again. It seems like the benefit that you guys are seeing from an ARPU perspective is increased data usage versus any sort of change in pricing concessions that are taking place in the market. Is that a reasonable assumption? And then the question I have following is if we think that, that's the case and given where data usage is going, how do you see the propensity for ARPU to continue to improve off of current levels? Do you see some opportunity for it to continue to do so, even if the competitive landscape remains the same? That would be helpful.
Well, it's a big question, a long question. So what I can tell you in Mexico is that, as I said, we have -- 2 years ago, we entered in a very dynamic market. We reduced prices a lot between reduction, unlimited, so our ARPUs decreased. I don't remember, but maybe our ARPUs decreased 2 years ago around 25%. So what we're seeing right now is that these ARPUs that gets reduced 2 years ago are coming to the levels that we used to have on that time. And they are coming because people is using more data. And they are -- let's say, in postpaid, prices are very competitive. We have prices with a lot of data, so people is using more data on that. So they are jumping to new plans. They are jumping to better plans with more data. Being prepaid, we have our cards with some amount of data. So they are using that and they are renewing a new card faster because they are using data. So as people moves from 2G to 3G and from 3G to 4G and 4.5G. I think all of them are going to use a lot more data and then we are going to have a better -- there's more applications. There's a lot more things to do with the data. So people is using that. And it's not only in Mexico. You see that in postpaid in Brazil, we're growing also. All around Latin America megabytes of use are growing a lot. At the market, the market is still very competitive. I'm not seeing any increase of prices for the last year. So it's been very competitive in the wireless market. I don't know if there's going to be an increase or a decrease. But what I can tell you is that the market is competitive. We have very, very competitive -- as I told you, we have lower prices in postpaid than in the U.S., let's say, so much better prices than in the U.S. So I don't think we are going to reduce more the prices. I don't know. I don't know how the market is going to behave in the next months. But we feel that very important that the customers are -- the perception of Telcel in the market is very good perception. So we have very good coverage. We have very good quality. We have very good speed. We have the best network in the market. And that counts a lot.
That's very helpful. And a quick follow-up, if I may. If we go back to your Analyst Day last year, there was a lot of discussions around the potential opportunity for cost savings across the portfolio of geographies that you're seeing. Can you give us an update as to where you stand relative to your initiatives and what type of opportunities there might be for further cost savings across the board?
We have big projects all around Latin America. That's why you are seeing that revenues are growing, but EBITDA is growing more than our revenues in mostly all of our countries is because we have -- there is a lot of different projects in terms of costs. We have efficiencies, cost control, better technology, digitalization, so there is a lot of projects that we have all around Latin America, and they are being successful. So we can tell you that we're gaining and having the benefit of all these projects at this moment.
No. No. Of course, we said in Mexico, I mean there is a number of initiatives, short-term initiatives that we're working on. But we're also developing most amazing term plan to bring down structural costs more rapidly. So you will be seeing the impacts of these, short-term initiatives certainly this year. But we expect to have some other reductions over the following years that are more for structural nature and that we'll be seeing the result of which we've seen in the medium-term.
And the next question comes from Julio Arciniegas from RBC.
My first question is regarding Brazil. We see that for example, in Brazil Telefónica, in Brazil Oi, all of them, they're announcing further FTTH deployments. Does AMX plans to upgrade their cable network in those areas where they are going to be competed against fiber to the home? And my second question is regarding to Colombia. I see that, for example, mobile service revenue in Colombia, they have deteriorated in Q1 '18. Can you give us some color of the competitive landscape in mobile in Colombia?
I'll get the first one, mobile in Colombia, I think it's very competitive. This first quarter was a very competitive market there, and I think in prepaid and postpaid, in wireless, in fixed, we're doing very well. But I think, things are getting stable, and I hope we can see a better market. What we need there is to -- that people use more and more data, that we have more revenues, because voice is going down in price and also in consumption, so what we need is that data will move faster, and people will have to consume more on that. In Brazil, about the fiber, Oscar, I don't know if you can...
Well, you know that our cable network is fully digitalized. So what we've been doing is in the A segment, in ultra-broadband, we already deployed DOCSIS 3.1 that people believe that is a very competitive technology. And this year, maybe we will go to another series and on that series, maybe we will use fiber in Brazil, but as you know, we have already 207 million home passes with cable. They're fully digitalized, so we feel that we have a good technology there and the expansions we were analyzing we use fiber or we use -- keep using copper.
Can you give us some color on the scope, for example, of how many households would the company expects to -- I don't know, to upgrade to fiber to the home, I mean, is this fiber to the home or fiber to the carrier network the company's thinking about doing in Brazil?
Yes, we expect to build 1 million home passes in the next 12 months. And depending how closer is the cable network that we'll choose, if we go all the way to fiber to the home or we will go fiber to a cabinet but, as you know, in cable companies, the DOCSIS 3.1, that fiber is pretty close to the households, so moving the fiber from the node to a household in the network is what -- is going to be pretty easily for us, because we already operate all the network in Brazil.
And the next question comes from Walter Piecyk from BTIG.
Just a question on the Supreme Court ruling from last year that started to get you guys paid on those termination fees. How does that work in Mexico, because there's been a report on Bloomberg that as part of NAFTA negotiations that AT&T was pushing the governments to see if they can somehow circumvent that Supreme Court ruling. Is that even possible in Mexico?
I mean, that's been a demand on the part of our competitors. I think it might be the case. So that's something that is enforced, I will -- when Supreme Court ruling is already out there, I think it's something different. I think it's a stand-alone legal framework, which in this particular case, has ruled for [ price or ] price, that when a supplier delivers something, he's entitled to get something back for it for the delivery. So I think we don't expect to see any changes and this process is going through all the motions got all the way to it -- Supreme Court as we know, and we've had this ruling, which is, by the way, completely consistent with what you're seeing all over the countries, what we have in Mexico I think for -- the time before this ruling was literally an aberration.
Doesn't make any sense that your competitor doesn't pay for your network. But talking a little bit about the Bloomberg report, just to let you know that, in Mexico, the growth in revenue that we have this quarter is mainly by other reasons. It's not because NPR. NPR is only 15% or 10% of the 12% growth that we have. So the growth is because people is using more data. We have more customers. They are using more minutes, share of market. I don't know what -- but there is not -- the NPR is not the majority of the growth of Telcel this quarter.
Got it. And then just my second question is on capital investment. I know, Daniel, on the last call, you talked about investing MXN 8 billion for the year. If we look at the first quarter, it was down compared to last year. I assume that means you're going to continue to ramp over the course of the year. But specifically in Mexico, as far as new cell-site builds, when you look at the results of Telesites, it look likes it was a little lighter. Do you expect to ramp the new site builds in Mexico? And is there an opportunity perhaps to do a similar transaction with Telesites or someone else in any of your other market to monetize some of the tower assets that you have in maybe Colombia or somewhere else?
We don't have any plans at this moment to do other ones. So I'm not saying no, but we don't have any plan to do anything at this moment. We're not growing -- we're growing towers, but we're not growing too many towers because with that, would you remember that we bought a lot of spectrum last year and that we're using that spectrum, so you have a spectrum, then you don't need too much towers. We have 18,000 towers in Mexico so it's a lot of towers that what we have. So what we're doing is putting new technologies, we're launching our 4.5G network, so it's new technology in the same towers that we have. Of course, we're still growing in coverage and we're going to put maybe 300 or 400 sites in new rural areas or extensions in the main cities, so those are the places where we are growing, but we have a pretty good coverage in Mexico with what we have right now.
And the next question comes from Carlos de Legarreta from GBM.
I know you already addressed the functional separation but I don't think we've talked about the access to PayTV market. As I understand, the March resolution from IFT basically denies this possibility, so I would like to understand what are the actual growths that you have at this point in time to gain access to this market in Mexico?
With the asset separation the day it's out, that what's out, that the [ IFT ] send us. There's no PayTV license included in the asset separation. So we're still discussing with them and we're still interested in having TVs. The only place in the world that we're not allowed to have TV, so I hope they understand, and that they can give us the TV license. We're fighting for that.
The next question comes from Cesar Medina from Morgan Stanley.
I had 2 questions. One related to competition in the U.S. There's been a significant decline in margins, so I wanted to see what the forecast would be. And then the second, if you could comment on the Red Compartida and what type of developments are you seeing now that the project is operational for, I guess, 30% of the market?
Well, on Red Compartida what I understand is that they are launching in some places, and that they are going to do these wireless -- fixed wireless broadband, and I don't have anything more than that. I think everybody's going to compete on that segment. We're going to compete on that segment. So we are preparing our offers, and we're competing there. And the other question was?
U.S. market.
U.S., it's a good question. I think I'm happy with the way, platform is evolving this quarter. I think last quarter, if you can see, the EBITDA was very high. The first quarter of last year was very high, because the growth that we have been carrying stopped a little bit. I think if you can [ indiscernible ] the growth of TracFone this quarter, you could see that in the lifeline, the plans that were subsidized by the government, SafeLink are the ones that are going down. And the Straight Talk, that is our main plans, are going up, so you could see that the plans where we're putting advertising, that are good ARPUs, are starting to grow, and I feel that this quarter, we have a better response than what we had in our budget. So we're starting to grow again. We have better plans. Last year, we need to renegotiate to make new plans in the market, so I think we are ready this year to start growing. Yes, of course, growth means not the same EBITDA that we used to have last year, but still, I think the EBITDA was good. We're going to be careful with the EBITDA. We want to have a profit in the company, but also it's very important to have growth, and the growth we see it in the first quarter, and we're going to see the growth in all around the year. So I'm feeling very comfortable on what -- on how platform is developing.
And just to add to that, Daniel said, platform revenue had been -- the rate of the growth had been declining for some time, as Daniel said, very much led by the disconnection of SafeLink clients. And this has to do with changes in the way this programs is run by the government, so we needed reclassify clients more frequently, and this was not something that we were prepared for initially. But what you can see is that there's been a turnaround in this revenue decline, so now we are growing sequentially compared to the prior quarter. And I think this is a second -- a new direction for the company in terms of revenue growth. We're doing really well, as Daniel said, with the Straight Talk program. That's selling very well from a new plan, used to have no plan, we don't need [ look ] on unlimited data. Now they do have one unlimited portion of the data which sells for about $50, if I remember correctly, which already has gained a lot of traction.
And the next question comes from Christian Crosby from JP Morgan.
So I just wanted to ask around the euro-sterling hybrid issues you had outstanding at the parent level. First off, can you just kind of talk about how you see hybrids generally within the cap structure here, is that something you may want to increase over time? And what is the range credit you get? And then just as a more specific follow-up, you have EUR 900 million up for call in September. It would great if you could give us any early thoughts about how you might look to address that?
If you will, with the hybrid bonds, as you know, they were issued with different call dates and as you point out there is one that is coming up I think in September for EUR 1.1 billion deal. I think at the time that we issued the hybrids, we wanted to get some temporary support on capital. We were expecting to bid for some company, including KPN and Telekom Austria and at the time, we needed some support. I don't believe that we need the support anymore. And we have been delevering, and we'll continue to delever. So no, we don't have any plans to go to the markets this year, not for anything, including not for refinancing our hybrid bonds. We intend to pay down debt, all the debt that we can pay this year.
And the next question comes from Daniel Federle from Crédit Suisse.
The first one is regarding the Mexican market. We saw the IFT announcing new quality measures for mobile services that should be effective beginning of next year, so my question is, if are you expecting any significant change in competition or market conditions with these new quality measures as of January 2019? And my second question is regarding handset subsidies in Mexico. If there's a space to reduce further subsidies in the region?
On the quality measures in Mexico, I don't think we have any -- we have big time quality measures, and I think we want to, I think that's something that we're looking for in order to give the best quality to our customers. So that's what we're aiming for, and I don't think there's going to be big changes there. Hopes, there are no big changes there, and the other question? The subsidies, well, what I think -- what we want is to reduce subsidies all around, so but subsidies means competition and that's something that we need to see country-by-country. What América Móvil will be very happy to reduce, and we're reducing a lot our subsidies all around Latin America, and it's something that doesn't make sense. I think it's better to give better price and better service to your customer than to subsidize the handsets. So we, in the other [ side], there are coming new 4.5G phones, with better technologies, expensive phones, so well, that's the story for the last 10 years, so that's what we're looking and what we're being careful for.
And the next question comes from Diego Aragão from Goldman Sachs.
I have 2 follow-up questions. Sorry, if I missed something from your open remarks, but my first question is regarding the function of separation. What can you share with us at this point regarding this new legal entity in terms of the size? I mean, just want to have some sensitivity around the size of the business. And the second question is regarding CapEx. You mentioned the 4.5G launch in new markets like Mexico and Brazil, but I noted that your CapEx is pretty much stable on a last 12-month basis. Can you help us to understand and eventually, help us to quantify if -- is there any CapEx efficiency opportunity in here?
Well, CapEx is very important. I think to maintain the company in good shape, you need to -- there's a lot of technologies coming, more households to pass, there's a lot of things. So we'll include Austria, we'll include Dominican Republic, Central America, Mexico, Brazil, Ecuador, so CapEx is important, and we're going to invest as we need it. Of course, we are in a process of renegotiating all the contracts, and we're going to try to find better technologies, better prices, and that's the work that we do every day. So in terms of CapEx, nothing. We're going to invest the MXN 8 billion. I hope we can have some efficiencies, but always we have, MXN 8 billion plus or less 5%, so we are not so sure how we're going to end but it could be plus 5%, less 5%. So I don't know exactly that in the functional separation, Carlos can explain again, what he explained at the beginning of the conference?
Yes. As I mentioned, we have 2 period. The IFT established a 2-year period to make the functional separation. Some of the -- IFT established terms and conditions for the separation. Therefore, at this moment, we are working on the assets and the other elements that will have to be transferred to the new entity. And we will, in the next 2 years, as we follow up, we will be giving information, as we have it, no? So we don't have at this moment any information that we can share with you. Not too much to share on that.
And the next question comes from Rodrigo Villanueva.
Daniel, Carlos, my question is related to the spectrum auctions in Mexico. Apparently new reports are suggesting that AMX didn't participate in the 2.5-gigahertz spectrum auction, and I was wondering if this is because you already acquired spectrum last year from MBS or because you were blocked by the government? And I was also wondering if you know who were the 2 companies that participated in these auctions?
I don't know who are the 2 companies that are going to participate. What I read in the news is that Altán is going to be out, is not out. So we are not there, so maybe it's going to be Telefónica, and not Altán, the ones that are participating, but I don't know. Why we don't participate? Well, first, because we have enough spectrum at this moment. So we just bought 30-plus -- 30, 1 year ago. But in the other side, they don't block us, but they don't give us the same equal conditions, so we don't have equal conditions, and we are not so enthusiastic for the spectrum, then we decided not to participate. So that's, say, easy, clear decision that we shared, yes?
Understood, very clear, Daniel. And my second question is related to the arbitration claim against the Republic of Colombia. I was wondering if there is any update on this respect? And also, it seems to me that the $1 billion that you paid could be tax deductible, is this the case?
Yes. I think it's going to be tax deductible. Carlos can talk a little bit more on that. And -- please, Carlos?
It is a tantamount to an impairment. It's basically [indiscernible] that's [indiscernible] on account to having to pay Columbia [ a new ] obligation in exchange for nothing. And that's basically -- accounting wise, it's expense -- it's an expense and expense should be tax deductible. We have the ruling statements from various independent major accounting firms that confirmed this independently, so I think that we're going to take it -- that I think that's it.
Understood.
The junction the we have for the government, no news. I think it's going to take some time. It's in process and nothing new that we can discuss at this moment.
Got it. So in the meantime, you would be just taking advantage of the deductibility of this payment?
Well, we already paid, so we paid last year, so yes, of course, we are going to take advantage of that to be deductible and depending on what happens and let's see what is going to happen, no, with the ruling.
And the next question comes from Richard Dineen from UBS.
Just maybe a clarification to an answer on an earlier question on Mexico MTRs. Daniel, I think you said 15% of the 13% Mexico mobile service revenue growth was from the change in MTR. So around about 2 percentage points of that 13% growth was from the change in MTRs. And if that's correct, I guess, we should expect that kind of a benefit to recur for the remaining quarters this year, if I heard you correctly?
Yes, and if Carlos wants to get...
No. Nothing more to add. I think that you're right.
Fantastic. And then maybe just a quick follow up, perhaps for Carlos Robles, just on the ULL situation in Mexico. I remember the unbundling rate was set by IFT, I think it was MXN 0.68 per port, which seemed very low. Just wondering what the status is of that? Have you challenged that? Is there a scope to challenge it, because I guess that rate could have a bearing on how many competitors take advantage of ULL and how aggressive they can be on price? So any update on the status of the ULL offer would be really interesting.
Regarding the unbundling, what I can tell you is that it started during 2016. We have been offering these services to all the competitors that have asked for it. And yes, the tariff that the IFT established, we think that our -- out of the international comparison, they are well below the international comparison. And we are taking the legal means regarding this, so therefore, in the future, we may have some [ notes ] above that, yes.
And this concludes our question-and-answer session. I would now like to turn the conference over back to Daniel Hajj for any closing remarks.
I just thank everybody to being in the call and see you next quarter. Thank you. Thank you, all.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.