Good morning. My name is Mariana, and I will be your conference operator today. At this time, I would like to welcome everyone to the América Móvil Second Quarter 2020 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Now, I will turn the call over to Ms. Daniela Lecuona, Head of Investor Relations.

Good morning everyone. Thank you for joining us today to discuss América Móvil second quarter 2020 financial and operating results. We have today on the line Mr. Daniel Hajj, CEO; Mr. Carlos García Moreno, CFO; and Mr. Oscar Von Hauske, COO.

Thank you, Daniela. Thank you everyone for being in the second quarter 2020 financial and operating report and Carlos García Moreno is going to make a summary of the results. Thank you.

Thank you, Daniel. Good morning, everyone. Well, toward the end of the first quarter, the financial markets were in disarray; the dollar number in the U.S. collapsed, threatening to work the economic contractions stemming from lockdown measures and that controlling the spread of the COVID-19 virus. In general, we have announced a huge monetary quantitative expansion program. This decisive action not only stabilized the financial markets, allowing for new issuance of securities throughout the second quarter and quelled the excess demand for U.S. dollars that had resulted in its depreciations since then substantially the Latin American currency began to recover with the notable exception of the Brazilian real, which declined an additional 4.3% as to the dollar. Our revenue rate, in the Mexican peso, the Colombian peso, and Chilean peso, all of which have dropped sharply in the first quarter and had a slight recovery possibly in the second quarter in which practically all our region of operation was on lockdown. The containment measures adopted throughout our region of operation were partly on account of closures of shops and trade centers and partly because of the general mobility restrictions of the population. Altogether, we lost slightly more than 5 million connections as compared to last quarter segments with most operations to-date affected by restrictions in Colombia and the telecom market. The disconnections were more important in Mexico 1.7 million, Peru 1 million, and Ecuador and Guatemala at approximately 450,000 each. In contrast, in the Seating segment, we gained 450,000 new Probank clients, with every operation reporting an increase in clients, except for Telekom Austria. There were, however, losses in services, particularly in Brazil, which accounted for 190,000 disconnections, out of a total of 81 million wireless subscribers and 81 million fixed-line RGUs. It is noteworthy that our Colombia operation showed improvement during the quarter. Our second quarter revenue totaled MXN252 million, up slightly from the same quarter the year earlier, with a 0.7% revenue increase in constant Mexican peso terms. Based on performing the U.S. and Puerto Rico, we faced reductions in equipment sales as a result of the confinement restrictions. At constant exchange rates, excluding Argentina, given its higher accounting inflationary methodology, service revenues were up 0.8%. The deceleration in service revenue growth from 5% in the first quarter to 2.3% resulted from the direct impact of service reductions and settlements of the products. Our mobile service revenue growth slowed down sharply from 8.4% to 2.3%. Brazil and Colombia performed well, increasing by 8.8% and 12.8%, respectively. On the fixed-line platform, the impact of COVID was more limited, with revenues declining from -0.7% in the first quarter to -1.7% in the second quarter. In Colombia, fixed-line revenues actually accelerated to 9.9%, up from 9.5% despite the quarter. The decline in prepaid and postpaid revenues was offset by an improving trend as containment restrictions began to be lifted. In prepaid, revenues were affected by the lockdown measures, as most shops were closed, including our own customer care centers. The impact on revenues was significant. In postpaid, customers anticipated economic difficulties affecting their spending habits. Our second quarter EBITDA totaled MXN82.6 billion, up 5.9% in Mexican peso terms with the EBITDA margin climbing 1.7 percentage points to 32.9%. At constant exchange rates, it increased by 3.3%. We foresee further improvements as we continue focusing on reducing costs and hiding better efficiencies.

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

Thanks. Just a question on the very strong performance of margins of TracFone in the United States. You've talked about a re-pricing going back to January. So, I assume that the margin would benefit from some adjustments from the first quarter. So, when we think about Q3 but you don't have that kind of benefit from the first quarter, what should the margins look like in that U.S. business? Can you talk a little bit more about which carriers gave you that benefit? Or is it across the board based on the competition that's in the market?

Well, I think we had a very strong quarter in TracFone, not only in the carrier costs, but I think we also had a very strong performance in sales and net adds. I think we had more than 200,000 net adds in the quarter. The U.S. prepaid market is growing well, and we had a very good quarter. We have discussions and revisions with our cost carriers for the cost of service, and we have a reduction in the cost of service which we've been negotiating throughout this year. I believe that you will see further benefits in the third and fourth quarter as well. We're working with all of them to optimize our performance.

So, Daniel, did the margin help come from some credit adjustments from backdating the pricing from the first quarter? Or is that really the new margin that you're going to operate at this 15%?

No, we're adjusting based on what we have going into the second quarter, around $130 million in the second quarter from this effort to optimize performance and a $65 million from the first quarter. So, those are the relevant numbers, and I think we will see roughly the same in the third and fourth quarters.

I have three questions, if I may. The first one is, if you could please elaborate a little bit more on the potential alternative to create value from your towers. Would you be considering the spin-off as you did with Tele sites or transactions? And also, are you considering to do this with the vast majority of the 60,000 towers you currently own?

On the towers, Rodrigo, the only thing I can say is, we own 60,000 towers in Latin America and in Europe, and we are analyzing the different alternatives to create value for shareholders and to reduce our debt. We don’t know yet if there will be a spin-off or if we’re going to sell them. We are analyzing what will be the best course of action for these 60,000 towers. We still don’t have any concrete plans yet.

The second question is related to Huawei. We have some tariff measures around the world including Brazil, continuing to stop using Huawei equipment for networks. This increased pressure from the U.S. government. Do you think this could extend to all LATAM markets? And could you please share with us any potential strategic alternatives that could reduce the negative implications for AMX from a potential Huawei ban in LATAM?

We are not hearing anything today regarding a ban on Huawei in the rest of the Latin American countries. We are aware of some discussions in Brazil, but nothing formal has emerged. There are ongoing talks about 5G, and as of now, we have not made formal decisions regarding our 5G strategy. We have alternative vendors like Samsung and Nokia if necessary. We think Huawei provides excellent technology, but we are prepared to use other vendors as needed.

Understood. Thank you very much. And the final question regarding operating performance in Colombia. As Carlos mentioned, it was pretty strong considering the COVID crisis. I was wondering if this has to do with a drop in competition in Brazil and LATAM and if you expect the competitive environment to change in Colombia considering that Northern Partners acquired the operations of Avantel.

We have made substantial improvements in Colombia over the past two years, not only in one segment. We’re improving in postpaid, prepaid, corporate customers, and broadband services, including TV. It’s the only country where we have growth in TV as well. Our organizational structure has changed positively, and we have made significant investments there. So, I don’t think it’s just one factor driving our performance; it’s a combination of all these variables. We anticipate that with a new competitor entering, there will be more competition in prepaid and postpaid, but we are ready to compete effectively.

My first question relates to the mobile business. You mentioned deceleration in mobile revenue growth, which was similar in both prepaid and postpaid segments. Could you provide a further explanation of why that was the case and perhaps additional breakdown?

Yes, prepaid and postpaid are different markets and they behave differently. For example, in Mexico, we have more than 50% of our service revenue in prepaid and 40% in postpaid. That's why we've seen greater impact in revenues due to the pandemic. In April and May, many stores were closed, making it hard to sell prepaid plans. In Brazil, we have approximately 25% prepaid revenues, so we're not experiencing as severe a decline in postpaid. However, people are naturally trending towards lower-priced plans during this time and being careful regarding their expenditures.

Given the pandemic pushing people to work from home, the demand for bandwidth in homes has increased significantly. Many people are taking classes, working from home, and streaming videos, which has driven demand for more broadband services. That’s contributing to our growing net adds across countries.

I have two questions. The first is, could you provide some insight on how things evolved throughout the quarter? You've mentioned a decline in prepaid; could you elaborate on prepaid and postpaid behaviors as we ended June? It would help us understand how trends are shaping up for the third quarter.

In prepaid and postpaid, during April and May we saw a significant decline due to the lockdown. As economies begin to reopen and retailers open, prepaid revenues are showing signs of recovery. Still, some countries are recovering faster than others. In the postpaid side, customers are reducing their plan sizes due to their spending behavior, but I'm confident that consumer demand will return over time. Regarding M&A, we are aware of the situation around Oi in Brazil, and we are interested in the assets. It would be a good fit for our company, and we intend to participate in the auction.

First, can you walk us through the main pillars for such strong performance in the Brazilian mobile market? How do you see the growth compounding?

We're performing well across all segments in Brazil, including mobile and fixed. Our management strategy is aggressive; we are enhancing our coverage and network quality, which enables us to grow our market share effectively. Our relationships with customers and the infrastructure we're providing are also key in delivering value.

And regarding your margins, how do you see the trends impacting American Movil? How well do you expect to benefit in terms of margins going forward?

Our margins are improving, and we attribute this to the growth of service revenues while equipment revenues have decreased. We are also making significant efforts to reduce costs through various means, including digitization of services and operations. Overall, we expect our margins to continue improving as we adapt to changing market dynamics.

It's important to note that we have significantly reduced costs with many of these actions being permanent. Our recent focus has been on digitization which is set to reduce operational costs further. Margin growth can vary by region, but we’re generally seeing positive trends.

I have two questions. Could you provide a better understanding of these strong net adds for Telmex, especially on broadband? Is the penetration of service increasing, or are you gaining market share from competitors?

You’re correct; penetration is increasing, and we are indeed gaining market share. We sell both fiber and copper services, and we are experiencing growth from both channels. Our net adds reflect a combination of improved service and competitive pricing.

If you allow me to follow up, do you have guidance on the percentage of your network in Mexico that is FTTH?

About 25% to 30% of our network today in Mexico is already FTTH. Our focus now is on migrating existing customers over to this technology and increasing penetration.

Could you provide clarity on your CapEx strategy for 2020, especially in Brazil? Do you see any room to be a little more rational with spending this year?

We have been reviewing our CapEx, and yes, we plan to reduce it from our original forecast, but we are still assessing how to adapt to traffic and sales behaviors. We remain flexible in our approach.

In terms of capital allocation priorities, would you also consider a potential network spin-off?

We are not considering a network spin-off at this moment. There are scenarios where shared networks make sense, especially in rural areas, but we have no current intention to spin-off any part of our network.

Could you provide some insight into the new agreement and whether it is a consequence of the T-Mobile and Sprint merger?

I don’t think it relates specifically to that merger. The reduction in cost is largely related to our ongoing discussions with carriers about having better terms in the market. We have been engaged in these discussions every year.

The broadband additions of 64,000 don’t seem robust given past quarterly performance. Do you think there’s a difference in the term policy that could explain this?

Yes, we did change our collection policy as we looked to streamline our operations and leverage our networks more effectively.

Could you provide color on what percentage of margin expansion comes from lower equipment sales in comparison to cost savings?

We have achieved significant reductions in costs, including negotiations on CapEx and overall operational expenses, but I don’t have specific percentages. We’re more focused on driving overall market improvement.

Regarding your Mexican operations, could you give an update on the launching of 5G?

In Mexico, the 5G launch will be delayed as testing will take place at the end of this year. Full commercialization will likely occur next year.

Given the recent market entries, are you planning to address the potential competition with more aggressive pricing strategies?

We have competitive offerings in the market. We’re prepared to respond to any increased competition with additional marketing and brand support. I'd just like to thank everyone for being on the call. Thank you.

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