America Movil SAB de CV

BMV:AMXB

Earnings Call Transcript 2018-Q3

[Operator]

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the América Móvil's Third Quarter 2018 Conference Call and Webcast. [Operator Instructions]

Now I'll turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead.

[Daniela Lecuona, executive]

Thank you. Good morning, everyone. Thank you for joining us today in our third quarter of 2018 conference call. We have today on the line, Mr. Daniel Hajj, Chief Executive Officer; Mr. Carlos Garcia-Moreno, Chief Financial Officer; and Mr. Oscar Von Hauske, Chief Operating Officer.

[Daniel Hajj Aboumrad, executive]

Good morning. Carlos, as always, is going to give us a summary of the third quarter 2018 financial and operating report.

[Carlos Jose Garcia Moreno Elizondo, executive]

Okay. Thank you. Good morning, everyone. Well, the continued expansion of the U.S. economy through the summer with strong job creation even in the face of historically high levels of employment ended up pushing 10-year U.S. Treasury yields decisively above 3%, bringing about a new bout of dollar strength that affected emerging markets in general, including several of the currencies in the regions where we operate, more importantly in Argentina and Brazil. This effect was partially offset by the reduced political uncertainty in some countries with their currencies appreciating versus the dollar as their presidential elections were left behind, this is particularly in the case of Mexico and Colombia and already partly through half way in Brazil.

In this context, we gained 1.1 million postpaid subscribers in the third quarter, including 472,000 in Brazil, 184,000 in Mexico and 100,000 in Colombia. Altogether, even after net disconnections of 750 -- 7,000 prepaid clients, we ended up with 339,000 net gains of mobile clients as compared to a net loss of 73,000 clients the prior quarter. This is important because I think most analysts were estimating a reduction of net adds for the quarter. This goes to show the importance of our ongoing commercial effort. In fact, if we look at gross subscriber adds so as to cover for prepaid disconnections, they were up 2.9% compared to the year-earlier quarter with Brazil and Austria offsetting the faster growth, 7.9% and 9.7%, respectively. This, again, is the rate of growth of gross subscriber additions.

On the fixed-line platform, broadband continued to be the fastest-growing segment at 6.2% year-on-year. After adding 284,000 new accesses in the quarter, including 105,000 in Brazil and 93,000 in Central America. In Brazil, with numbers from my math and through August, we've been increasing market share over the last several quarters, practically across the board in the fixed-line platform.

Mobile postpaid is our fastest-growing segment, with 7.6% followed by fixed-broadband at 4.7%. The decline compared to the accesses have leveled off. Mobile prepaid subscribers have continued to come down, and we have gone ahead with daily disconnections, most notably in Brazil.

Revenues were up 2.1% year-on-year in Mexican peso terms and were just shy of MXN 250 billion, whereas EBITDA came in at MXN 71.8 billion and was 7.7% higher than a year before. Compared to the prior year, the Mexican peso appreciated sharply, 15% versus the Brazilian reais, but depreciated moderately around 5% to 6% versus the dollar, the euro and the Colombian peso, all of which has an impact on the Mexican peso value of their respective operations.

At constant exchange rates, service revenues were up 3.4% year-on-year. We break performance in 5 quarters. Service revenue growth improved practically across the board, while EBITDA increased 8.6%, not including the release of certain provisions in Brazil related to legal proceedings associated with taxes. Including divider, EBITDA increased by 13%.

Postpaid mobile revenues led the way with an 8.6% increase followed by prepaid revenues of 7.7% and by fixed-broadband revenues at 6.2% as you can see in the chart. So the main business lines are growing in the neighborhood of 8%, 7% year-on-year.

In the mobile space, service revenue shot up in Brazil and Mexico 10.5% and 9.5%, respectively, with mobile ARPUs rising 13% in Brazil, 11% in the U.S. and 8% in Mexico. And we're gaining more postpaid clients and in the U.S., more Straight Talk subscribers.

Our EBITDA margin, 28.8%, increased 2 percentage points from a year before. Approximately 1 point of the margin is related to the release of provisions in Brazil. Substantially all of our operations posted increases in their EBITDA margins in the period.

Our operating profit increased 23.4% to MXN 35.3 billion. Together with a comprehensive financing income, not cost, of MXN 3.3 billion, mostly driven by foreign exchange gains but also the release of provisions in Brazil, it brought about a net profit of MXN 18.6 billion for the period.

Through September, we funded our capital expenditures of MXN 91.7 billion, reduced by MXN 14 billion our net debt, paid out the net dividends and share buybacks in the amount of MXN 10.4 billion and contributed MXN 15.6 billion to our pension funds.

Our net debt stood at MXN 584 billion at the end of September, down MXN 45 billion from December. Relative to our last 12 months EBITDA, our net debt stood at 2.0x, the lowest leverage ratio we have attained in at least 2 years. So I think that we continue to gain traction in reducing our leverage ratios, and I think that we are very much on track to deliver -- to get to our target of net debt-to-EBITDA of 1.5x in the next few quarters.

Well, with this, I would like to pass the floor back to Daniel, and we will begin the Q&A session.

[Daniel Hajj Aboumrad, executive]

Thank you, Carlos. We can start with the Q&A session.

[Operator]

[Operator Instructions] And our first question comes from the line of Matthew Niknam from Deutsche Bank.

[Matthew Niknam, analyst]

Just two, if I could. One on Mexico, you've seen churn stabilize, there's solid ARPU growth. Any updates that you can share on the competitive landscape in Mexico? And then secondly, Carlos, on the point on leverage now with 2 turns, you talked about getting to 1.5 turns in the next couple of quarters. Is that sort of the timing we should look at in terms of a potential acceleration in the rate of shareholder returns once you get to that 1.5 turn target?

[Daniel Hajj Aboumrad, executive]

Starting with Mexico, I think all overall our results in Mexico are very good. Talking a little bit about wireless in Telcel, I think everything that we have been doing on the network, remember that we launched 4.5G, and we are investing a lot in our network has been very successful. I think people is using more and more data and that's the reason why ARPUs are going up. So we -- this quarter, we are more or less in the highest level of service revenue, right? The same service revenue that we have 2 years ago, 2.5 years ago. So all overall, Mexico is doing very good. We are also working very hard on the digital transformation, improving the coverage, improving capacity. And the market, as you know, is very competitive. Still, our competitors are -- in some things are doing very aggressive promotions, but I think we feel comfortable and with everything that we have been doing here in Telcel, quality, coverage, capacity, the digital transformations, our stores, our dealers, I think we feel very, very -- we have very good support to maintain what we have been achieving.

[Carlos Jose Garcia Moreno Elizondo, executive]

But on the leverage, you also represented -- I didn't say the next 2 quarters, I said the next few quarters, but yes, the expectation is that sometime soon -- probably as soon as the middle of next year. It depends on the exchange rates, so it's very difficult to tell you exactly when. But we don't really have any M&A of any significance that we're looking at. So that means that once that we get to our leverage ratio, we basically don't have any other way out for our cash other than shareholder distributions, which is the question. So yes, once we hit our target, I mean, the absence of M&A, which we're not -- will be looking at, then we have to speed up our shareholder distributions.

[Operator]

Our next question comes from the line of Leonardo Olmos from Santander.

[Leonardo Olmos, analyst]

My question is on 5G. Last week we saw some statements on -- about MXN 1 billion in Dominican Republic being the first one in Mexico to launch 5G. And in Brazil in Futurecom, Claro is very advanced on 5G tests this week. So my question is regarding 5G. Regarding if the investments begin in 2019 or '20 or '21, how do you see it impacting the long-term guideline of $8 billion CapEx? Can it be sustained? Can it be fitted into that $8 billion? Or should you expect in those years some type of increase in CapEx?

[Daniel Hajj Aboumrad, executive]

So I think what we said in Dominican Republic and everything that we have been doing and what we're going to do, it doesn't change a lot the guidance that we have in CapEx. I think we can sustain our $8 billion or $8.5 billion in CapEx for the next few years, and we're going to launch 5G when we feel it's the right time to do it. But we are doing a lot of things to launch 5G. So we are not -- the networks are not this way. So you wait until you decide to launch 5G, no. We are virtualizing our network right now, putting fiber-to-the-node, more and more fiber all around Latin America. So all these things that we're doing right now are preparing to launch 5G. So that's not something that we are going to do and then we are going to spend more money. The money and the CapEx that we're spending right now, part of this CapEx is to -- we do that photonic and more and more of these technologies that we're doing, so we are not thinking to change the CapEx, okay? We're buying some frequencies in some countries. So we are every day improving our networks to do 5G in the future.

[Leonardo Olmos, analyst]

Very good. And on the other side, on the side of opportunities. Also on Futurecom, you mentioned -- sorry, Brazil's management mentioned about IoT, Internet of Things, and opportunities in some specific verticals, specifically agri business. So how do you see the B2B opportunities for América Móvil? I know in Brazil as a whole, we've 4.5G or 5G. Do you see the mix changing more to B2B?

[Daniel Hajj Aboumrad, executive]

Well, our new network of 4.5G, I think at the end of the year, I -- probably we're going to have 4.5G in all of the countries where we operate. So the ones that we already have like Mexico, Dominican Republic, Brazil, all those places, I think that people is using more and more data. So when we talk -- the last question about ARPUs in Mexico, it's because people is -- the megabytes of use, let's say, in América Móvil are growing around 80%. So people is using more and more data, and that's the reason why people is spending a lot to start growing, no? So it's very important. The networks in the terms of IoT, we think that we're going to do a lot of things in IoT. We have a good platform of IoT. We have a good platform for the verticals. We are doing the cloud, and we are doing all these new services. And we are being successful. So we prefer to do all the -- I think América Móvil today is the company that -- we are, one, prefer to be the first ones in our country to do all these services. I think what we need a little bit more is that these countries start to be more digital that we have more e-government or more services in health or more services in other things, but we are prepared for everything. Brazil is doing very well in that scenario. So I think we are in the right way to do that.

[Operator]

Our next question comes from the line of Diego Aragão from Goldman Sachs.

[Diego Aragão, analyst]

Two questions, if I may. The first one is a follow-up related to your business in Mexico. You mentioned that prepaid revenue grew almost 11% year-on-year, while your postpaid expanded by 7% on a yearly basis. So my question is, how can -- can you share these numbers? And how these numbers would compare to the past 2 quarters? I mean, I just want to understand whether or not postpaid and prepaid are accelerating or decelerating on a sequential basis.

[Daniel Hajj Aboumrad, executive]

I think we are accelerating a little bit. We have 2 quarters also with good growth. In the first quarter, second quarter are also quarters that we have good growth in revenues in Mexico. And this one is also a good one. So people is using, people is -- we are the preferred network for the customers in Mexico, and we are selling a lot of data and people is happy with that. We also have the World Cup and people use a lot data because of the World Cup. But I think people is happy with the network that we have. We have a very, very good speed, a lot of capacity and very good coverage. So by far, we are the best network in Mexico.

[Diego Aragão, analyst]

Perfect. So just to make sure that I understood it correctly, so this 11% growth in prepaid, we should expect the trends to continue going forward, right?

[Daniel Hajj Aboumrad, executive]

Well, yes. Yes, we think we can expect the same trend for the fourth quarter. And we are growing at a very good pace right now.

[Diego Aragão, analyst]

Okay, perfect. And my second question is related to Brazil. Can you provide further details on the one-time items counted in the quarter? I just want to understand whether margins could eventually benefit from lower provisions in the upcoming quarters. And also, if you don't mind to provide more colors on the PayTV revenue dynamic in Brazil, when do you expect, for instance, to see broadband revenue growth to fully offset the structural headwinds from both long distance and PayTV?

[Daniel Hajj Aboumrad, executive]

I'm going to talk a little bit about the market in Brazil and their results in Brazil. Oscar can add something. But what I see is, if you compare our results quarter -- year-over-year, we are growing. I think as we have our EBITDA is growing, our revenues are growing. So we -- right now, we -- I feel that we have the best platform in Brazil. We are modernizing our network. We're working a lot on giving more for LTE capacity in more rural areas. So I think we're working a lot in the convergent network that we said that we're working. We're very advanced on that. And all overall, if you see year-over-year, we're gaining market share in postpaid, we're gaining market share in broadband, we're gaining market share in PayTV. Even that the PayTV is losing as they -- and we have disconnections in DTH, our cable TV is also growing. So I think in the commercial side, we're doing very well. Even in the corporate business, I think we're doing also very strong. So in the commercial side in Brazil, I feel very comfortable on that. And in terms of the digital transformation that we're looking, we're investing in our stores, we're investing in platforms, we're working in pay per lead. So we're trying to improve a lot all this digital. So we are selling more and more digital. So we feel that we are working, but I cannot see -- of course, this quarter is -- we don't see -- we does not have the same growth that we have been having the last quarters in terms of EBITDA. But in year-over-year, we're growing in EBITDA, and we're doing very good. So Oscar can talk a little bit more about the networks and a little bit more about the market share. So Oscar, in Brazil, and how you see the market?

[Oscar Von Hauske Solís, executive]

Sure. If you look at the total fixed market revenues, they are decreasing. I mean, the total market is increasing 3.4%. We're decreasing less than the market. But if you look at the breakdown of the revenues, in fixed-broadband, we are growing 12% revenues. Of course, in cable TV, we are steady, I mean the revenues are not growing. We have the E-Plus satellite TV and mainly is coming for the best connections and the fact of the best connection is on collection. The people cannot pay, so we need to disconnect some of the DTH customer because this program was really focused on the VT market of the population and as you can see, the economy is not very good in the past. So when we look at the economy, the trend of economy looks better than last quarter, so we will respect that increase of revenues coming from a better economy in the country. And on the corporate market, as the economy is, there is a lot of price erosion. I mean, if we do look at the units, the approach, we are steady in units, but it has been a lot of price erosions in the marketplace. So that's it, but as Daniel mentioned in mobile, we are getting as well a market share, so the blended, we believe, there is the right path to grow the revenues. And we are working in cost efficiencies. I mean, as Daniel mentioned, the digital transformation, we want to digitalize all the customer interactions. We are really focused in reducing car expenses, like energy, all different sources or expenses. And we are investing in the network. We believe that photonics is going to bring us a lot of bandwidth in the network. We are still doing the integration of all the networks to have a simple, a unique, a fine network in Brazil. So we see a good future in Brazil.

[Daniel Hajj Aboumrad, executive]

And adding something more. I think that at the end of this year or beginning of next year, we're going to modernize all our wireless network. All of our cell sites that we have over there are going to be modernized and ready to have 5G fiber. So fiber-to-the-node, the new technology. So all of that we are doing, and I think at the beginning of next year, we're going to have more than 90% of our cell sites modernized. So there's a lot of things that we are doing, and we're preparing -- this company is not going to be for 1 quarter, it's going to be for the next 20 years. So that's right. And in terms of the taxes, Carlos can explain a little bit of it.

[Carlos Jose Garcia Moreno Elizondo, executive]

Yes. In terms of this release of provisions, those were the provisions that have been created in Claro, separate from Telmex as regards the famous PIS-COFINS acquisition has been the part of the base for the determination of ICMS taxes. The Claro won the legal proceedings on a definitive basis, and we are basically having a release of reserves that on a net basis is equivalent of our platform with BRL 1 million in this quarter. This is basically what we are showing here and that is -- that explains a significant part of the increase in the margin in Brazil to 35%. So that's basically -- the basic for this release of the legal provisions -- of the accounting provisions.

[Operator]

Our next question comes from the line of Alejandro Gallostra from BBVA.

[Alejandro Gallostra de Arnedo, analyst]

First, we're seeing a remarkable strength in margins of your Mexican operations. So I was wondering how much of your traffic has already been migrated to VoLTE? And what are your expectations for 2019 or the next few years and the type of efficiencies that you obtain from this migration?

[Daniel Hajj Aboumrad, executive]

I think voice on LTE -- I don't remember exactly the number of customers, but we have been migrating that since the beginning of this year. We have our network ready, and we have a good quality. We don't want to launch before because what we want is to have the best quality there. And I don't remember exactly, Daniela can give you the number later. But -- I don't have it. But we have been working with VoLTE. It depends a lot on the number of handsets that have that technology. So that does not depend only on what we want. Also, on what handset has that technology. Remember that different as the U.S., we're selling also handsets $100 or $80 handsets that doesn't have that technology. So it depends a lot on the number of handsets that have that technology.

[Alejandro Gallostra de Arnedo, analyst]

Daniel, but is this one of the drivers behind the improvement in margins? And do you think this will begin to help you in the years to come?

[Daniel Hajj Aboumrad, executive]

No, I don't think that's -- I cannot say that in Mexico there's only one thing that we are doing that is increasing the margins. I think you need to see Mexico all overall. We are, as I said, working very hard and investing a lot in our networks. We were the first one in 4.5G. We have the best throughput, the best quality, the best coverage in data, in 4G. Also, we have the best -- by far, we have the best -- in our customer care centers, we have the best services. We have been digitalized all of that. We have a very good network of distributors, good retailers. So all overall, we feel very comfortable in Mexico and I cannot say that there's only one thing. We are competitive in the market. Also, the market has been also aggressive. You know that in Mexico, we have one of the lowest prices in the world, not in Latin America, but in the world. As I said last time, I don't have the measure today, but we are much lower than what the U.S. is selling over there. So it's a very competitive market. And well, we are competing there. And with very good quality is what I said. People is choosing our network. Some people is leaving and then is returning with us because all of the things that we are saying. So that's -- they are testing other networks and then they are returning with us. And that's what you could see all this year.

[Alejandro Gallostra de Arnedo, analyst]

Okay, Daniel, and because of these things that you're implementing, do you still see room for further margin improvements not only in Mexico, but also across the region? Are you really confident that you will be able to keep improving your margins?

[Daniel Hajj Aboumrad, executive]

I don't know in the short term if we can improve margins, as we have been improving the margins in the last 2 years. And of course, I think in the long term, we're going to increase margins. But I cannot say tomorrow, no. While next quarter is a very important quarter in terms of sales, it's the Christmas sales and when you sell more, then you have more expenses, but I think we are looking to increase our margins in 2020, 2021. So we are not looking only short term, we're looking long term as well.

[Alejandro Gallostra de Arnedo, analyst]

Okay. Daniel, and my second question. It seems that competition from OTT players is intensifying with Netflix showing a good performance, especially inside the U.S. And for example, Roku getting authorization for selling in Mexico. So how that we should -- if you give us more color on the performance of your Clarovideo platform? What your strategy is? And how do you plan to compete in the OTT?

[Daniel Hajj Aboumrad, executive]

Well, remember that we have our Clarovideo, and we're selling our Clarovideo this over-the-top platform, we're selling all over the Latin America, but also in some countries, we are selling, I think Netflix is also -- as you're saying, Netflix is a complement for us. So in Brazil, we're going to start selling also Netflix and a lot of our customers has Netflix. We have -- Oscar can explain a little bit, but in Clarovideo, we have other services that we can sell, HBO and Fox, but...

[Oscar Von Hauske Solís, executive]

Yes, yes, yes. We include that we call add-ons in Clarovideo. So we have HBO, we have FOX+, we have Crackle and we have Nickelodeon, NOGGIN is for kids. So we are selling -- adding to our Clarovideo these what we call add-ons that are different providers of streaming over-the-top. So we are bundling all these products within our Clarovideo platform.

[Daniel Hajj Aboumrad, executive]

So I think it's important all over the tops, and I think we're bundling our services with over-the-top. So...

[Oscar Von Hauske Solís, executive]

Yes, to get to a customer all that canapés together in a successful way.

[Alejandro Gallostra de Arnedo, analyst]

So -- could you please explain us where are the...

[Daniela Lecuona, executive]

Alejandro, I'm sorry, we have to move to the next question. [Operator Instructions]

[Operator]

[Operator Instructions] Our next question comes from the line of Rodrigo Villanueva from Merrill Lynch.

[Rodrigo Villanueva, analyst]

My first question is related to Mexico. I was wondering if you could share with us your thoughts on the court ruling in Mexico that ordered Telcel to compensate other carriers for anticompetitive practices. And is there any potential amounts that you could share with us? And the second question is related to the U.S., I think you have -- you still have around 3 million subscribers that are still using SafeLink. And I was wondering if you could tell us if you expect to disconnect all these subscribers at some point in the future?

[Daniel Hajj Aboumrad, executive]

In the first question, Rodrigo, it says that, that much claim from one of our competitors that is derived from an old proceeding related to interconnection disputes. It is based on a resolution from the competition commission that has been revoked by a court for the benefit of Telcel. So we believe there are no basis for damages and the ruling does not provide a specific amount. So we don't know about amount. And we have appealed the ruling, and we will initiate additional procedures given certain irregularities that we have detected on such procedures. So that's, at this time, is the only thing that -- the only comment that we have on that. And on the second question is on TracFone. What was your question on TracFone?

[Rodrigo Villanueva, analyst]

Sure. Daniel, so basically, it seems to me that you have been disconnecting your SafeLink subscribers, but you used to have around 3 million. The question is if you expect to keep disconnecting the subscribers or probably migrating them to other brands?

[Daniel Hajj Aboumrad, executive]

Yes. In SafeLink, we have two different subscribers. They are subscribers that are consuming a little bit more than the other ones. So maybe part of these subscribers are disconnecting the ones that are the lowest ARPU are the ones that are disconnecting. We are still selling SafeLink. So we are not canceling the sales of SafeLink. But we have been more cautious on where we sell, how we sell and the subsidies that we're putting there. We're trying to be profitable since the beginning. So we're focusing in the states in SafeLink that are the highest ARPU. So that's where we're focusing. And well, we have been seeing that we have a lot of disconnections of these customers, but in the other side, we have been very successful with our other brands. So if we talk a little bit about TracFone, I think, this year, TracFone has been very good because all overall, we are not achieving exactly the same EBITDA as last year, but we're growing a lot. So we have a good pace of growing. If you take out Straight Talk, I think we are going to end -- I hope, we're going to end our year having a little bit of gains in some subscribers. So we are thinking that for next year, we can sell more. So in TracFone -- and we're still with that, we're having a very good EBITDA margin. So...

[Oscar Von Hauske Solís, executive]

And Rodrigo, just to add to that. As I mentioned at the beginning, ARPUs in the U.S. were up close to 11%. And that's basically a reflection of what Daniel is saying. We have been gaining a lot of new Straight Talk clients that are very high ARPU clients. They are on average totaling $40, $45 per client. And we have disconnected -- continue to disconnect some of the SafeLink clients. So net-net, we've been getting an improvement in ARPU, that I think is quite remarkable.

[Daniel Hajj Aboumrad, executive]

And sorry, that's not only Straight Talk, we have also good apps on Simple Mobile in the Wal-Mart family. So we have some brands of high ARPUs that we have been growing very good, Rodrigo.

[Carlos Jose Garcia Moreno Elizondo, executive]

And also one thing that a customer also with -- what I mentioned in the ARPU. If you look at rate of growth of service revenues, it was 1.5% year-on-year, which is better than what we have had for at least 5 or 6 quarters. It was already positive last quarter, but today, it continues to accelerate, and we are expecting a good quarter in the fourth one. And likewise, in the case of EBITDA, in all of the last 5 quarters, I think -- or 6, EBITDA was showing significant growth. Now it is growing 3.2%, okay? So it is again recovering. So positive growth on revenues, positive growth on EBITDA, and we expect this to continue going forward.

[Operator]

Our next question comes from the line of Arturo Langa from Itaú BBA.

[Arturo Langa, analyst]

I just have one brief question. Could you please give us some color on the strategy you plan to follow in the wireless market in Brazil? And I ask this because it looks like competition is heating up with more aggressive offers, and I just wanted to understand how you think about positioning the brand, positioning the network? Where do you try to differentiate yourself versus Vivo and team? Maybe you could just provide some color on that, it would be very helpful for us.

[Daniel Hajj Aboumrad, executive]

Well, the first thing that I can tell you is that this year and last year, we have been improving a lot of our coverage. So we are growing a lot of our coverage. Our 4G coverage, our data coverage is that we have been growing a lot, our coverage. And we also are giving a lot more speed and quality. If you check the quality with the regulators, you are going to see that the quality of our networks is the best one. So we have been improving a lot the quality of ours. So we are not going to compete only with price, we are competing with price, and we are going to be as aggressive as the market demands. But in the other side, we are giving a very good -- very, very, very good the quality of the network. In the other side, what we are also doing is, we are not only selling wireless also, we are selling combos now. We are selling wireless plus broadband or we are selling to our subscribers of PayTV, our postpaid service. So we are doing these combos, and we have been very successful. So if you are saying, we are only going to compete with price, no. We are going to be competitive, and we are going to be competitive as the market demands. So we're competitive, but in the other side, we are going to try to give something else to our customers in terms of quality, coverage, speed and combos and all of those things.

[Arturo Langa, analyst]

And just on that point, are you comfortable with the market share that you currently have in Brazil? Or do you think this could increase a little bit?

[Daniel Hajj Aboumrad, executive]

We have been increasing our market share in Brazil. And I think we can increase a little bit more. So market share is important also, ARPUs are important. And so I cannot say that we want and also if there's -- we have been increasing in mobile our market share around 1.5 points in service revenues. So I don't -- we really don't care about the market share in subscribers, we care about revenues. So market share in revenue is the important part for us.

[Operator]

Our next question comes from the line of Daniel Federle from Crédit Suisse.

[Daniel Federle, analyst]

My first question is regarding EBITDA margin in Brazil. We see that the recurring EBITDA margin expansion was not that strong as we saw in the past few quarters. So my first question is, is there any cost pressure that is affecting margins in the third quarter in Brazil, any specific points? That's the first question. And if I may, to use my second question to brief clarification to the first one, it was said that the company is not looking at any significant M&A. The question is, could you consider that Claro is not interested in Nextel in Brazil? And the second clarification is the guidance for $8 billion to $8.5 billion in CapEx, that includes the Spectrum acquisition or it doesn't include the Spectrum acquisition?

[Daniel Hajj Aboumrad, executive]

The first one is $8 billion to $8.5 billion in CapEx, it includes in our budget, includes Spectrum. And let's see what are going to be the prices for the Spectrum. But for us, it's including the Spectrum. So we can increase a little bit depending on the prices, but we think that today it's -- that's our view and our vision is not that the government shouldn't sell the Spectrum at the high prices, but they should expect big investments in the country. So that will be the best thing to do in the Spectrum side. In the EBITDA in Brazil, as I told you, of course, we have less growth than what we had been doing in the first and the second quarter, but we have a good growth against last year. So I'm not worried about first and second quarters. So I'm not looking at the EBITDA and the margins. I think that will recuperate. I'm sure that our growth will recuperate in the future. What we are looking is, we have more -- we're doing important commercial efforts in Brazil. We have a little bit more of bad debt also in Brazil. So I'm not really looking in the short term, I'm looking in the long-term. And what we're doing in Brazil in the long term is we're consolidating our platforms, we're consolidating our networks, we're investing a lot to modernize the networks, we are improving our commercial distribution and our digital transformation. And that requires a little bit of -- at the short term, more -- and a little bit more of expenses. But I think I'm feeling very comfortable in Brazil. And if Brazil starts to grow as a country again, then you're going to see that we are going to be well prepared to take part of this growth in the future. So that's more or less. And Carlos wants to add. So...

[Carlos Jose Garcia Moreno Elizondo, executive]

Sure. You have to put it in context, Daniel. I think it's -- if you see mobile service revenues, they were nearly at the same pace as last quarter. I think they are the fastest of any operator in Brazil today. They are the -- one of the -- the second best in the last 10 quarters, I think, nearly identical to last quarter. On the fixed-line side, you see service revenue has been declining for quite some time, but this is the best showing in the last 3 quarters. So you seem to see -- you begin to see a deceleration, a stabilization of the decline of fixed-mobile revenues. So yes, they are still down, but they are around 3.2%. They were down 4.5% 2 quarters ago. So that's, I think, something that is also important. On the cost side, I don't think that there's anything that we can report now. Maybe if there's something, we can discuss it with you and Daniela later, but at present we don't really have anything identified.

[Daniel Hajj Aboumrad, executive]

All are done, all are done. What I mentioned at the beginning, which is that growth have been doing very, very well. But year-on-year, the growth up in Brazil, up nearly 9% -- 8% to 9%. And that this is the net result -- this is sequentially, by the way, sequentially. So there's an increase sequentially, and there's an increase vis-à-vis the prior year. So the commercial effort is ongoing, and it's ongoing on a very strong basis.

[Daniel Federle, analyst]

Could you comment on the Nextel points? When the...

[Daniel Hajj Aboumrad, executive]

You remember that, we're always open to all the opportunities. And when Carlos said that we don't have a measure, Carlos if you want to add to that.

[Carlos Robles, executive]

Okay. No. You think -- what I said is correct. I mean, we are not looking at anything of any significance in M&A and I don't think there's anything else to say.

[Daniel Hajj Aboumrad, executive]

And open to all alternatives in Latin America or in Europe, no, in the sense of as a telecom house.

[Operator]

Our next question comes from the line of Andre Baggio from JPMorgan.

[Andre Baggio, analyst]

So my question is a follow-up on the competition like investments. You have been doing a great job in Mexico, so that's referred to some trends that's in couple of years ago. So is it a function of orders not being aggressive? Price is a function of you reducing again the recharge of the prepaid cards. And so can you give a little bit more color on what's going on in Mexico that's backed this stronger performance?

[Daniel Hajj Aboumrad, executive]

I don't understand the question.

[Andre Baggio, analyst]

Like, if there's any difference in competition?

[Daniel Hajj Aboumrad, executive]

I think -- I don't think there has been a lot of -- even new promotions, I think in the market in Mexico, we have been having new promotions. Even that we have more televised market in term because the prices are too low. We feel having some new promotions and new things. So the market is still very, very competitive. And I think -- I've been telling that before, I think some of the things that customers prefer from us or from Telcel is because of the coverage, quality, capacity, customer care centers, the digital transformation that we're doing that the people is happy when they go to a Telcel center and you attend him very fast, very good. So online that we have been doing a lot on online. But mostly, mostly, it's our network that is superior than all the other networks in Mexico.

[Oscar Von Hauske Solís, executive]

And Andre, just to add to that, I think -- we have continued to invest in the network, as you know, and it is in fixed and in mobile. And as you know, we are obliged to give capacity even to our network competitors. So it indicates that all our competitors today have access to a network. They are roaming on our network, and this traffic is also helping us. So we are investing a lot. We are making sure that the network is available almost everywhere, and that it has sufficient capacity. And I think that we are also having good revenues as a consequence of that.

[Andre Baggio, analyst]

Perfect. And the second question I have is that we do have a new administration in Mexico, so do you think that you could have a better chance of applying it to a PayTV license now that with the new government? Or do you think that the new government is going to make any change that's meaningful for your business?

[Daniel Hajj Aboumrad, executive]

No. As you know, Telmex has formally requested regulators for many years the elimination of the restriction providing its concession. And I think it's time for the regulators to take steps for promoting competition in a really heavily concentrated TV market. So that's the way we feel, that's the way we think. And I hope that the regulators will take that step and decide to give us the TV. So that's our view.

[Andre Baggio, analyst]

Sorry, so in essence, I understood that you had to formally apply for something, so it's just on the hands of the government, it's not on the hands of América Móvil, the next step?

[Daniel Hajj Aboumrad, executive]

I think it's on the hands of the government right now...

[Andre Baggio, analyst]

Perfect.

[Daniel Hajj Aboumrad, executive]

And the regulators, yes.

[Andre Baggio, analyst]

Yes, the regulator.

[Operator]

Our next question comes from the line of Maria Azevedo from UBS.

[Maria Tereza Azevedo, analyst]

The first question would be on your FTTH strategy in Brazil and overall geographical expansion plans, if you can comment a little bit on that? And with more visibility on the macro and political side, would you consider intensifying your fiber rollout and even considering a potential M&A of regional fiber players? And then the second question, if I can circle back on the competitive environment in Brazil, you recently added more data and zero-rating apps. Do you believe that the market is moving towards an unlimited data plan environment?

[Daniel Hajj Aboumrad, executive]

Yes. Well, about fiber-to-the-home, as you know, within AMX, we have cable companies mainly. When you look at Brazil, Colombia, we are really a cable company. So we are using 3.5, and we reach very, very good high speeds for fixed-broadband. And in all the new cities that we are doing, we are using fiber-to-the-home. We are using GPON technology. In Mexico, we already have home passes with GPON as well in Puerto Rico, Dominican, Argentina and in Peru. So the focus is to cover, really, ABC-plus market with fiber and the rest with cable or copper. So we have a program from the next 2 or 3 years to really achieve that we will cover the ABC-plus market with a very high technology fiber-to-the-home, and to upgrade all the networks to boxes 3.1. All the countries in the platform, the network is already available to the leader 3.1. So we are ready to really have good speeds. In Brazil, as you know, in the segment of ultra-broadband, we have a very good market share. We have 50-something market share. So I think the network is ready to roll out. And to be honest, what we do is to make the economic balance to really move to fiber-to-the-home and to use as much as we can operating the copper network. So this is the strategy that we are following within AMX. Yes, and you talked about the increase our data in Brazil, and we were going to do unlimited data. Well, we don't know if we're going to reach the unlimited data in our plans. But right now, I think the plans are very strong plans and giving a lot of data. So very competitive plans what we have.

[Operator]

Our next question comes from the line of Cesar Medina from Morgan Stanley.

[Cesar Medina, analyst]

I have two questions. The first one was what are the trends that you are seeing in your own market share of broadband in Mexico? And then second, what should we expect for the margins in the U.S.? I mean, 7.1%, I mean, it's a bit low relative to the improvement that we saw in the second quarter. So I appreciate your comments on both questions.

[Daniel Hajj Aboumrad, executive]

No. If we talk about U.S., I think you have to check as you compare against last year, this year, we are growing more than what we have been growing last year. So you need to check every tap loss the growth that we have in our subscribers. So I think we are reducing our EBITDA a little bit, but we are growing our subscribers. I think taking out SafeLink, we hope that we can be positive in net adds this year. So that's the reason of why our EBITDA is a little bit. In this quarter, our EBITDA is even a little bit higher than what we have last year's quarter in TracFone. So -- but all overall, I think this year -- totally this year, TracFone is going to grow much more than what we have been growing last year.

[Carlos Jose Garcia Moreno Elizondo, executive]

And I think you have to consider that TracFone's EBITDA is very seasonal. So if you look at, for instance, in the second quarter, EBITDA was down 22% year-on-year, but in this quarter, EBITDA is up 3% -- 3.2% year-on-year. So there's a very big change from minus 22% to plus 3% from one quarter to the other, okay? And this is basically because of seasonality, you have to also correct for that.

[Daniel Hajj Aboumrad, executive]

And in Mexican broadband. In Mexico, it's a way that's -- I also mentioned it. Mobile is a very competitive environment. So we are -- we're already shaped our offering in the marketplace to deliver more bandwidth, more speed than our competitors. And we are adding on all the Clarovideo over-the-top offering in order to compensate the way that we don't have PayTV. So I think it's a way that we see the competition. So the network is really prepared. So we have a growth opportunity network with fiber-to-the-home and as well we operate all the network to VDSL to deliver more speeds. And we are getting closer to the fiber in order to really have good speed all across the network. So that's the environment that we see. And then we are setting up this new products in order to be competitive in the marketplace.

[Cesar Medina, analyst]

So relative to the question that was asked before, would you assume that if you get a PayTV license eventually, you're going to get more market share on the broadband side rather than you see from the commercial?

[Daniel Hajj Aboumrad, executive]

Well, it's -- we have all the elements to be competitive in that space.

[Operator]

And due to time constraints, our final question today will come from the line of Mauricio Fernandes from Merrill Lynch.

[Mauricio Fernandes, analyst]

Daniel, just a follow-up, and I apologize for repetitive subjects of Brazil margins. But to Carlos' point, revenues were actually up sequentially in the quarters during this year and still the pace of EBITDA margin -- actually, EBITDA margin itself was down in the third quarter. So it must be cost related. And it doesn't look like even though with a little tougher competitive dynamics, it's doesn't look like competitive dynamics were not based on Carlos' comments. So is there anything that -- is there any cost item, is there anything that has already been achieved that is no longer available that would scope or make the EBITDA margin expansion less than before, than what we were seeing in the last couple of quarters?

[Daniel Hajj Aboumrad, executive]

No. No, I don't think there's nothing specific on that sense. And as I told you, Mauricio, I think we cannot see quarter-over-quarter. I think what we're doing in Brazil is going to be successful. And you're going to see better growth in the future quarters. So I don't -- we're growing 10% our mobile revenue. We're growing a lot our broadband. In TV, we're losing less than the market, all overall the market. So we -- in revenues, we're doing okay. And specific some costs that we have known, I don't know if we have something specific in this quarter, but I think if you see all over year-over-year, we're doing good.

[Carlos Jose Garcia Moreno Elizondo, executive]

I haven't identified specifically anything, Mauricio, about it. If we found out, we'll let you know.

[Daniel Hajj Aboumrad, executive]

And the growth in subscribers -- also some important things is the growth on subscribers, we're growing more, Mauricio, in subscribers. So we're spending a little bit more on the commercial side. So that's the only thing that we can see at this moment.

[Operator]

Well, now I turn the call over to Mr. Hajj.

[Daniel Hajj Aboumrad, executive]

Thank you for being in the call. Thank you, everybody, for being in the call. Thank you, Carlos, Oscar and Daniela.

[Oscar Von Hauske Solís, executive]

Thank you, all.

[Carlos Jose Garcia Moreno Elizondo, executive]

Thank you. Bye-bye.

[Operator]

This concludes today's conference call. You may now disconnect.