Consolidated Financial Results
Worldwide, convergence is clearly one of the main contributors to the development of societies.
It provides benefits across economic sectors as it multiplies growth, opens up new possibilities,
and, of course, raises the level of competition. This new era is just starting in Mexico while in
most countries it has been present for more than four years.
In nominal terms, TELMEX has reduced rates on all of its services for 25 consecutive quarters.
According to Communications Outlook 2007, TELMEX’s average residential rates are fourth
lowest among all countries that are members of the OECD.
Our current rate for 1Mbps broadband service is 260 pesos (plus VAT), equivalent to 26 pesos per 100 Kbps unit. Of the members of the OECD, Mexico is among those with the higher growth
rates for broadband services. Specifically, TELMEX has expanded at an annual rate of 73.2%
and now serves 2.4 million users. That represents approximately 60% of the market, excluding
broadband services offered by cellular companies. Penetration for broadband service has risen
close to 15% of homes compared with approximately 9% in June 2006.
Mexico requires more computers in homes to increase Internet access. Currently, four out of
five homes do not have a computer. This is why TELMEX is offering computers and broadband
Internet access at attractive prices.
TELMEX introduced a computer sales program to the market with desktops that can be acquired
in monthly installments starting at 173 pesos (plus VAT) over a period of 36 months without the
obligation of acquiring Internet access. This initiative seeks to provide more homes with computer
equipment. To date, TELMEX has made it possible for customers to buy more than 1.3 million
PC’s.
At the end of the second quarter, TELMEX had 18 million 202 thousand lines in service,
representing 23% of a market of more than 80 million fixed and mobile telephone services in
Mexico. Of TELMEX’s lines, approximately 8.3 million are in markets segments with competition
where cable companies are also beginning to offer telecommunications services. The remaining
9.9 million lines that represent 54% of total lines are in segments without competition and rural
areas. These customers generated revenues of approximately 6.966 billion pesos (22 percent of
total revenues), an operating loss of 119 million pesos (a negative operating margin of 1.7%) and EBITDA of 1.716 billion pesos.
In the second quarter, consolidated revenues reached 45.7 billion pesos, 1.9% higher than
the same period of 2006. Revenues from the operations in Mexico totaled 32.3 billion pesos,
an increase of 1.6% compared with last year’s second quarter. In Brazil, revenues totaled the
equivalent of 11.8 billion pesos (2.1 billion reais) in the quarter, 3.0% higher than the same
quarter of 2006. In the other Latin American operations total revenues were the equivalent of
1.6 billion pesos.
Consolidated EBITDA (1) totaled 18.8 billion pesos, a decrease of 1.7%. Cost reductions
in Mexico were not enough to offset the decrease of unit revenues from voice services. The
results also reflected the impact of the integration of the cable TV companies in Colombia. The
consolidated EBITDA margin was 41.2%. Consolidated operating income totaled 12.7 billion
pesos, an increase of 2.9% compared with the second quarter of 2006.
Majority net income in the quarter totaled 8.0 billion pesos. In the second quarter, earnings per
share were 41 Mexican cents, an increase of 24.2% compared with the same period of last year,
and earnings per ADR were 75 US cents, an increase of 27.1%, compared with the second
quarter of 2006.
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