America Movil, S.A.B. de C.V. (AMX) Q2 2018 Earnings Conference Call Transcript

América Móvil, S.A.B. de C.V. (AMX 2.90%)
Q2 2018 Earnings Conference Call
July 18, 2018, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the América Móvil Second Quarter 2018 Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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.

Daniela Lecuona Torras -- Investor Relations Officer

Thank you. Good morning, everyone. Thank you for joining us today to discuss our operating and financial results. We have on the line Mr. Daniel Hajj, Chief Executive Officer; Mr. Carlos García Moreno, Chief Financial Officer; Mr. Óscar Von Hauske, Chief Operating Officer. I just want to remind everyone that you can follow our presentation on our webcast link, which you can find on the América Móvil website.

Daniel Hajj Aboumrad -- Chief Executive Officer

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

Carlos José García Moreno Elizondo -- Chief Financial Officer

Thank you, Daniel. Good morning, everyone. Well, in the second quarter, strong employment numbers in the US and some early signs of price increases, including from salaries and wages. What about renewed concerns about inflation and the interest rate increases that would become necessary to stop it.

Ten-year bond yields surpassed 3% in April, and reached the highest level in nearly seven years. Our quarterly yield differential versus other countries -- net on application [inaudible] most currencies, with the dollar gaining 5.9% versus the Euro, 7.6% versus the pound, and 8.1% versus the Columbian peso, from April '18 until the end of the quarter. The Mexican peso and the Brazilian real were also affected by this process, but even more so. The dollar gained 10% against, and 14.7% respectively versus those currencies on account of local events, particularly the reelections.

We added 1.1 million postpaid net subscriber additions in the second quarter, twice as many as last year, including 537,000 in Brazil, 184,000 in Mexico, and 103,000 in Columbia. On the fixed plan platform, we gained 275,000 new fixed-broadband accesses, of which two-thirds came from Brazil and Central America. Our postpaid base was up 8.1% year-on-year, followed by fixed-broadband accesses that increased 5%. We have continued to reconnect mobile prepaid clients with our base of prepaids coming down by 3.1%. But, PayTV accesses, on the other hand, have practically stabilized after several quarters of no disconnections.

Revenues of MXN $257 billion were up 3% year-on-year, 3.2% year-on-year in Mexican peso terms, which current revenue pricing 2% at constant exchange rates, in line with the pace observed the prior quarter. EBITDA totaled MXN $72 billion. At constant exchange rate, it was 4.5%. Posted revenues in both prepaid data and fixed data revenues have [inaudible] slightly higher than 5% as you can see in the chart.

In Brazil, postpaid service revenues continue to accelerate, along with fixed-broadband revenues. On the positive side, we are seeing a leveling off of PayTV revenues, after seven quarters of declines, brought about mostly by disconnections of DTH clients that were very much affected by the severe economic downturn in the country. So, continue to go very well in postpaid, or even better in fixed-broadband, and now leveling off in PayTV.

Service revenue growth in the mobile space was remarkable, both in Brazil and Mexico -- 11.9% and 8.7% respectively. In the US, TracFone's revenue growth came positive again after some quarters of decline, as you can see in the chart. On the fixed-line platform, Columbia and Ecuador delivered better rates of service revenue growth.

Mobile ARPUs shot up by 14% in Brazil, 9.4% in the US, 7.3% in Mexico, and 7% in Ecuador, declining 2.7% in Columbia and 12.7% in Peru in the midst of very intense competition and sharply lower interconnection rates.

While our EBITDA margins remained at 28%, the same last quarter and the prior year, Chile, Brazil, and Mexico saw EBITDA margins rise 3.7%, 2.5%, and 2% response from the year end to the quarter. In both the Dominican Republic and Columbia, margins increased 1.1 points. In Central America, the margins were down 3 points, mainly because of the resolution of an old interconnection dispute with one of the operators. In Puerto Rico, although the margin is still below that of a year ago, there have been a steady recovery of margins from minus 3.5% in the fourth quarter to 9.5% in the first quarter, and 13.6% in the second quarter.

Now, in Mexico, EBITDA jumped up 14.9%, it's been annually increasing nearly 11 years with more operating leverage coming from the continued recovery of service areas, as you can see also in the chart.

Our second quarter operating profit of MXN $32.5 billion, and comprehensive financing costs of MXN $32 billion pesos, mostly on account of foreign exchange losses arising from the depreciation of the Mexican peso versus the dollar -- resulted in a new loss of MXN $236 million for the period.

Our operating cash flow in the six months through June, allowed us to cover capital expenditures of MXN $57.1 billion, reduce our net by nearly MXN $15 billion, including the payment of the hybrid bond of TKA that was carried as equity in their books, and contribute MXN $11.6 billion to our pension funds, mostly TelMex.

At the end of June, our standing net debt is MXN $617 billion, which represents a reduction of MXN $11 billion. Again, Telekon Austria bonds considered to be debt at that point. With that, I would like to turn the call back to Daniel and maybe we can begin the Q&A session. Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

Thank you, Carlos.

...

We can begin with the Q&A session.

Questions and Answers:

Operator

We will now begin the Q&A session. [Operator Instructions] And the first question comes from Amir Rozwadowski from Barclays. Please go ahead.

Amir Rozwadowski-Barclays Capital, Inc.-- Analyst

Good morning. Thank you very much for taking the questions. I'd like to focus on Mexico. If we think about EBITDA growth within the region, it seems like you're continuing to deliver EBITDA growth. But perhaps the margin expansion has not been as big as anticipated given the recovery and service revenues. What do you attribute that to? And then, with the election now behind within the country, are there any signals of any potential changes that could happen from a regulatory perspective or anything that you folks are paying close attention to? Thank you very much.

Daniel Hajj Aboumrad -- Chief Executive Officer

Well, talking a little bit about Mexico, I think Mexico is still under a lot of competition. We are still with a lot of promotions in the market -- in the mobile and also in the fixed side. Talking a little bit about the mobile, ARPUs are growing because we are giving a lot more data in our promotions and people are using more data. That's the reason why ARPUs are growing. Service revenues also are growing. I think margins are growing also. So, we have been competitive in the last three years with these big promotions, so we want to still be competitive and let's say change our strategy and move more on the EBITDA side than on the share of market and on the service revenue and on all of that.

So, we still want to be competitive. We have a very cost cutting program in Mexico, and I think that's one reason. The other one, also, in the fixed side, the revenues are not growing as well. We want to grow and also margins are declining a little bit. That's really the reason why our consolidated margin is not going as high as we want.

But, in the thoughts about Mexico and the elections and the new government, what I think is that we just recently had a new telecom law -- maybe six years ago. So, I don't think there's going to be big changes on that. We are one of the countries with the lowest prices in Latin America and maybe in the world. So, in terms of prices, we are very competitive. I think these government -- in my view, on what I'm reading, is that they want more coverage and to give more Internet to all the people. I think it's good. It's going to -- hope they are going to drive more -- they can give new rules to increase a little bit coverage to get more Internet and to give more service to all the people. So, I think -- and my view is that this government is going to try to expand all the coverage in Internet in all the rural areas and all of that.

So, mainly is what I see. In Mexico, most are still growing 10% megabytes of use, 40% is that we are growing in operation, but still we have enough to do in prepaid. In prepaid there is still a lot of penetration with smartphones that we need to do. As I said, we're going to continue our cost control -- not in Mexico, in all Latin America. We have a big target to deliver this year on cost control.

Amir Rozwadowski-Barclays Capital, Inc.-- Analyst

Thank you very much, Daniel, for the incremental color.

Operator

And our next question comes from Rodrigo Villanueva from Merrill Lynch. Please go ahead.

Rodrigo Villanueva Bravo-Bank of America Merrill Lynch SA de CV Casa de Bolsa -- Analyst

Thank you. Good morning, Daniel and Carlos. My first question is related to Brazil. I was wondering if you could share with us why it's driving such strong wireless service revenue growth acceleration. It was 12% year-on-year this quarter, compared to 8% last quarter. We find it particularly strong considering that Vivo and TIM probably are growing wireless service revenues in the low- to mid-single digits. So, I was wondering if this has to do with reclassification of revenues, more to other services? Any answer on this would be very helpful. Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

First, in that question, there is no changes in the reclassification of any revenue. We doubt what we're doing in the service revenue, still we can grow around 9% or 9.5%. So, the growth is in the market. The growth is with the subscribers. And, just to -- when we buy the fixed company in Brazil, we invest a lot in big steps. We go from 5 million households to 27 million households. And we start to invest a lot in the fixed side.

The last two or three years, we have been investing also in the wireless side. We give a lot more coverage in 3G, two years ago in 4G, and today we have the best network in 4.5G. So, people is consuming, people is preferring our network and I think the growth that we're having is in the market. The subscribers are preferring to come to our network and they are using more our network. I think that's really what I see. We have very good infrastructure. We are convergence. That's another thing important. We are the only one who is really, really convergent. So, we're giving to our fixed subscribers mobile, and to our mobile subscribers we're giving also the fixed.

Broadband -- broadband is growing very good in Brazil. I think we can end this quarter -- I don't remember exactly the number, but maybe it's four times what we grow last year's quarter -- four times in broadband. So, we're doing also very good. And also, we have been the most creative and innovative with good plans in the market. We start with unlimited and then we go to Pasaporte America, then -- and we have been driving good plans and good promotions to all the customers. So, I think that's really what we're seeing in Brazil, Rodrigo.

Rodrigo Villanueva Bravo-Bank of America Merrill Lynch SA de CV Casa de Bolsa -- Analyst

Understood, Daniel. Very helpful. Related to Mexico and the functional separation of TelMex, can you give any update regarding the status of your legal claim? Also, given that that legal claim is ongoing, which would be the next steps regarding this functional separation from your side?

Daniel Hajj Aboumrad -- Chief Executive Officer

No. I think, since we talked last quarter, there is no big changes. I think the functional separation has some dates that we need to accomplish and we need to discuss. I cannot tell you nothing new on that. We're still discussing a lot of the -- to really go in detail on all these rules and policies with this separation. So, we're in that process and I cannot add anything, Rodrigo, on that.

Rodrigo Villanueva Bravo-Bank of America Merrill Lynch SA de CV Casa de Bolsa—Analyst

Okay, Daniel. Thank you very much.

Operator

And the next question comes from Julio Arciniegas from RBC. Please go ahead.

Julio Arciniegas-RBC Europe Limited -- Analyst

Thank you for taking my question. Regarding Columbia, mobile postpaid base has grown, however mobile service revenue declined almost 2% in clients on pricing pressure. Can you give us some color on the pricing dynamics in Columbia? And, regarding the other smaller countries -- for instance, competition is in Chile. Chile's growing, but actually it's far from the 5-10% mobile service revenue in previous quarters. In Peru, for example, mobile service has deteriorated with a decline of almost 8%. Can you give us some color of what are the drivers of such deterioration in these markets? Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

Yes. I think the three countries you are talking are totally different what is happening. However, I'm going to start with Columbia. I think, in Columbia, we're growing our postpaid base. The market is really aggressive in prepaid and in postpaid, so that's the reason why our service revenue is not growing. But, on the other side, we are doing a very good work on the cost side. So, in that side, I think we have a very good EBITDA -- I think one of the highest EBITDA margins that we have. So, in Columbia, prices and competition is tough, but we're doing a very good job there.

We are more or less maintaining our share in the market. I think in that scene, prepaid and postpaid in wireless -- in the fixed side, we're really growing very good, doing a very good work on that. We're growing our net data. We're growing broadband -- I think 8%. We have 8% growth in the fixed side. So, in the fixed side, we're doing good. And, comparative to that side, I think it's going to help us in the future. We're selling postpaid to our customers and we're doing that -- upselling and cross selling that.

Moving to Peru, I thin it's really tough. Sometimes some promotions in the market doesn't look even profitable. It's crazy what is -- the market is really tough. Let's see what's going to be the results of my competitors there, but I think they are also suffering as well. The good news is that we're not losing market share there. We're maintaining our market share. I think and I hope, for the next six months, that the promotions could be a little bit more rational and let's see what is going -- we have a very good network with a spectrum that we have in Peru.

The one that we just bought is giving us good spectrum. We have good quality and good speeds. So, we're prepared to still get a lot of promotions, but I hope that the market will be more rational in Peru. Also, we're reducing our costs and expenses.

And in Chile, we have been growing. Our growth has been declined a little bit, but still growing there. We're going to put more focus in Chile. In Chile, also it's another market that is competitive. We're going to put a little bit more focus to be -- we need to be the challenger there. We need to give more intelligent promotions. I think it's what we're going to do in the next six months, throughout the rest of the year.

Julio Arciniegas-RBC Europe Limited -- Analyst

To follow-up, you mentioned that Claro in Brazil is the only convergent player. What is stopping the other players to implement convergence?

Daniel Hajj Aboumrad -- Chief Executive Officer

We are the real convergent player. We have a very good fixed network -- not being stopped that the other ones could do whatever. What I'm saying is that we really are working as a convergent player. We have our fixed and mobile networks converged. We have our marketing already converged. So, we are really a convergent player. It's one of the reason why it's helping us to grow our revenue in wireless faster than the other ones.

Julio Arciniegas-RBC Europe Limited -- Analyst

Okay. Thank you very much.

Operator

And the next question comes from Matthew Niknam from Deutsche Bank. Please go ahead.

Matthew Niknam-Deutsche Bank Securities, Inc. -- Analyst

Thank you for taking the questions. On the removal of handset subsidies, you've talked about that as a bigger margin tailwind. At this point, as you look across your markets, is there any ballpark estimate you can give in terms of percentage of handset activations that are still coming on with subsidies? I'm just trying to figure out how much of this tailwind is left to go in terms of benefiting your margins. Secondly, on leverage, are there any updates you can give on the path from where we are today to getting to that one and a half turn target in terms of timing? Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

I think we have a lot of countries -- 25 countries with Europe, and each of the market behaves different. Even with that, prepaid is different than postpaid. And in postpaid, is different when you have a contract and when you don't have a contract. So, we aim not to give any subsidies in the future and we are moving on that directions. In some markets -- let's say in Columbia -- there is no more contracts in the postpaid. So, it doesn't make any sense to subsidize there because you can subsidize and then they can move to another company immediately. So, we're trying not to do any subsidy.

In Mexico, still some subsidies in postpaid, no subsidies in prepaid. But, then we're financing the handsets. So, depends a lot on the competition. But I think for the market, not for América Móvil -- for the market -- for all the telecom sector -- it doesn't make any sense to subsidize the handset. I'm sure that competition doesn't want to do it. We don't want to do it. Let's see how we're going to move and how fast we can move not to subsidize anymore handsets.

Today, there is a $1,000.00 handset. So, when five or six or eight years ago, when you subsidize some handsets are $200.00 or $300.00. Today, if you subsidize a handset, it's $1,000.00. So, you have to be very careful on that hand. We are moving in América Móvil not to -- we are financing today in a lot of countries the handset and that is helping us also to take out that subsidy.

Matthew Niknam-Deutsche Bank Securities, Inc. -- Analyst

And on the leverage?

Carlos José García Moreno Elizondo -- Chief Financial Officer

Hola, Matthew. I think it's no different from what we mentioned not that long ago, that we were expecting to pay down debt not less than MXN $2.5 billion for the year. I'd say that where we are exactly in terms of leverage at any given point in time is partly a function of how much debt is paid down and partly a function of the exchange rate. The exchange rate returning in dollar terms the value of your EBITDA and then also the value of your organization. So, it's difficult to pinpoint a number at a specific point in time. I would say that if the exchange rate remains constant, by the end of the year, we would be close to the target or we believe that we might be able to reach it by the first of next year.

But, I think that's the assumption you have to make. At constant exchange rates, even when we expect to pay down the debt and it has already been paid down for part of the year, we should expect to be in a position where we either we will be at or close to the target by the end of the year.

Matthew Niknam-Deutsche Bank Securities, Inc. -- Analyst

Got it. Thank you.

Operator

And the next question will be from Diego Aragao from Goldman Sachs. Please go ahead.

Diego M. Aragao -- Goldman Sachs & Co. -- Analyst

Good morning, everybody. Thanks for taking my questions. The first one is related to the prospects for consolidation in Brazil. I guess there are three kinds of facets that could eventually be consolidated by existing players at this point. So, will you participate on the auction process to buy CEMIG Telecom? And also, how do you see the Brazilian market once this spectrum cap is removed by the regulator? Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

In terms of if we're going to in in CEMIG, I think we're reviewing the data. I think we're in that process today. We don't know still if we are interested in or not. We are in the process and we are reviewing the information. So, nothing to say more than that. If that makes sense for us, and the price looks good for us, then I think we're going to do it. If not, then we won't. Still, we are reviewing all of the information.

In the consolidation of Brazil, I think the consolidation -- everybody's talking about Oi, if they're going to do something or not. We don't know. As América Móvil in Brazil, we're not in a hurry for the consolidation. I think we have everything. We have a good fixed com cable company that we're giving fixed-broadband and TV, growing and in good shape. We're giving DTH also. We're doing fixed wireless broadband and we are really having a very good wireless network. So, that's good for us and we're moving on that direction.

And for the last question, everybody knows that the cap would be for the sale of Nextel. I don't know in which state is that in the government. But, if Nextel wants to be consolidated, or the government wants that Nextel be consolidated, I think they need to move that cap. So a big part of the value of Nextel is the spectrum that they have. I think that's the reason why they are doing that.

Diego M. Aragao -- Goldman Sachs & Co. -- Analyst

Thank you very much for this. Regarding your PayTV business, you mentioned in the release that your revenues from PayTV were almost stable on a sequential basis. So, what's your expectation for this business in the second half? Can we expect this business growing sequentially in the second half? Also, when do you expect the fixed broadened growth together with this potential for stabilization in PayTV to fully offset the weakness from fixed invoice revenue? Thank you.

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

When you look at the PayTV business that we have in Brazil, we have the agency networks, the TV and paid TV through cable. As you can see, broadband is growing pretty good last year. Even in ultra-broadband, there is the setting on the market. We have a very good market share there. PayTV in HFC networks -- we are running a little bit the last two or three months. And you look at the paid TV business, even through satellite ATH, as we see in the last three months is that the earnings are stable. The disconnections go really, really down.

So, when we are working DTH, it's to change the mix of the customers in the platform. So, we are more focused in data products in the market and with different conditions to have a good payback of the platform. So, we are not really focused on net apps. We are focused on improving revenues and improving profitability in the DTH market. So, we expect the second half of the year will be more stable than the previous semesters.

Diego M. Aragao -- Goldman Sachs & Co. -- Analyst

Okay. Thank you very much for this.

Operator

And the next question comes from Andre Baggio from JP Morgan. Please go ahead.

Andre Baggio-JPMorgan CCVM SA -- Analyst

Good morning, everyone. One the convergence, we're seeing very good results in Brazil, and you attribute that to the convergence. Specifically, are you saying that people go to data and then use of the fixed broadband with mobile data? Or, is it [speaks Spanish] part of the success? We have not seen greater results listed. I would imagine it would be the first one.

Daniel Hajj Aboumrad -- Chief Executive Officer

Could you repeat the question?

Andre Baggio-JPMorgan CCVM SA -- Analyst

Sorry. The question more clearly is why are the convergence in Brazil working so well? Is it related mostly to broadband and not PayTV?

Daniel Hajj Aboumrad -- Chief Executive Officer

I think that convergence is one part of what is working in Brazil. We're having a very good network. We start from having 5 million home access when we start and today we have 27 million home access. We have been growing in TV and HFC. We're growing in DTH. We have a lot more broadband subscribers. In fixed, we are growing. And four years ago, we start to invest a lot to put a lot of CapEx in the wireless platform. The convergence of all the new technologies that we have in the backbone and all the new technologies that we have -- we have a very good platform in Brazil.

And, I think that's why our customers today, we're having 4.5G in wireless and it's working very good. We have very good speeds. We have a lot more coverage in 4G as we're saying so. That's one part. The other important to have convergence is that a lot of our fixed or TV subscribers, we're moving and giving them promotions on the postpaid, the prepaid, and we're upselling and cross selling. We have a plan called Combo, that is the 3-to-play combo that we're having in Brazil. And we're operating TV, broadband, plus the wireless. So, that's the benefits of having the convergence in Brazil.

But, to have this convergence in Brazil and working good, you need to but a lot of investments and a lot of CapEx. And that's what we kept doing in Brazil for the last year or so. I think, today it's starting to work very good, everything that we do in the last years.

Andre Baggio-JPMorgan CCVM SA -- Analyst

Great. Secondly, is related. In Mexico, we know so far you have not access the PayTV because of regulatory issues. What can you do in order resume the growth in the broadband market? We have seen other players, especially cable players growing a lot in broadband. We have not seen a growth in fixed-broadband users in Mexico. Is there anything that can be done in investments or other stuff?

Daniel Hajj Aboumrad -- Chief Executive Officer

You are right. I think the market is growing and we're not growing in the fixed side. I think we need to correct that and invest a little bit more there and to grow and to have better promotions and be more competitive there. So, you are right. We need to move and first to have a better network to invest more into what we're doing. I hope to have television soon. I'm sure we -- Argentina just get TV, so I think Mexico is the only country where we don't have TV. I'm sure -- I'm hope that we can have TV soon.

Even that, the only -- TV is the only segment of the market where prices are increasing. Wireless is decreasing. Broadband is decreasing. Fixed is decreasing. TV is increasing. So, there is no reason not to give us the TV. So, I'm hope that we can have also the TV. And more TV will help us to grow more the broadband segment in Mexico.

Andre Baggio-JPMorgan CCVM SA -- Analyst

Okay. Thanks a lot.

Operator

And the next question comes from Daniel Federle from Credit Suisse. Please go ahead.

Daniel Federle-Credit Suisse (Brasil) SA CTVM -- Analyst

Hi. Good morning. Thank you for taking my questions. The first one is regarding the cost cutting initiatives. I think it was mentioned that cost cutting initiatives are mostly concluded in Mexico. So, it would be great if you could tell us which regions is to present good upside from cost cuts. Secondly, if you could remind us about the guidance for CapEx for the year and if you see increased investments from competitors, especially Brazilian fiber, to the home and in Brazil in Mexico in the fixed wireless broadbands, as upside risks to CapEx in the coming years?

Daniel Hajj Aboumrad -- Chief Executive Officer

In terms of the CapEx, I think we've got the MXN $8 billion and we still think we're going to do MXN $8 billion CapEx for América Móvil. So, I think that's -- no changes on that. In Mexico, about fixed wireless, we are also doing fixed wireless. We start in April. I think we had until today 30,000 fixed wireless subscribers. I'm not sure so exactly, but between 20,000-30,000 subscribers is what we have. And, I think it's a good product. It's a product in some places it's going to work very good. We're doing that also in all Latin America. It's not only in Mexico. Between Europe and Latin America, I think we have like 800,000 fixed wireless subscribers, so that's not a new product for us. All the investments that we have been doing is contemplating this product on that investment.

On your other question, on cost cutting, the cost cutting plan never ends. We finalize phase one or some projects, but we're starting other projects. So, for the next three years, I think we are going to be really focusing on cutting costs, and not only cutting costs, to move to the digital part. Moving to the digital part and the digital transformation is going to help us to reduce more and more costs. There are two types of costs -- what you renegotiate and what you take out from the company. And the other one, all the digital transformation we're doing and it's going to take us one, two, or three tiers in some places. That is going to give us a lot of synergies and a lot of costing -- it's all around Latin America and in Europe also.

Daniel Federle-Credit Suisse (Brasil) SA CTVM -- Analyst

Perfect, Daniel. Thank you.

Operator

And the next question comes from Walter Piecyk from BTIG. Please go ahead.

Walter Paul Piecyk, Jr.-BTIG LLC -- Analyst

Thanks, Daniel. The smartphone financing -- is that available across all of your markets or just Mexico. And, when someone does a handset financing, do they also get a discounted service plan?

Daniel Hajj Aboumrad -- Chief Executive Officer

No. It's not only Mexico. The countries that I remember is Mexico, Columbia, Peru, Argentina -- I think Ecuador also we're financing. So, I think we are financing in a lot of countries, and moving to all of the countries. I think it's important. And what seems the -- our customer is they don't have to pay. Sometimes we get promotions. The important thing here is that they're going to pay small -- a little bit up front and then small installments through 12 months or 18 months, and that will help that they get the better handset or the handset that they want. So, that's more or less -- and we include that in the bill. So, they're going to pay the rent plus part of the handset that we have. That's being really good.

Walter Paul Piecyk, Jr.-BTIG LLC -- Analyst

Got it. So, is the mix of customers on financing been very high? Has that inspired people to upgrade their phones faster because they have to make smaller payments?

Daniel Hajj Aboumrad -- Chief Executive Officer

Yes, yes. Sometimes that, or the other ones is they get a better handset -- the handset that they want, that they move from 3G to 4G because of that -- or from 2G to 3G because of that. So, there is a lot of good things -- financing. You need to be very careful on the bad debt. Not because sometimes they get something that they cannot pay, so you need to review very good what your customer and what would be the credit for that customer. But, I think it's a very good program.

Walter Paul Piecyk, Jr.-BTIG LLC -- Analyst

Thank you. Just on the capital return policy, your dividend payments have been steadily increasing every year. One year, you had a special dividend maybe, but it's been up a couple of pennies a year. When we think about -- when you hit the target leverage ratios, is the dividend just going to grow at that same rate and the capital return is primarily going to be focused on share repurchase, or could the growth in the dividend also accelerate?

Carlos José García Moreno Elizondo -- Chief Financial Officer

As you pointed out, in part we only gave two times an extraordinary dividend. And those two times were basically on account of certain expenses that had been planned mostly regarding M&A that didn't come through. So, we had more cash than we intended at the end of the year. Basically, for us, it's paying an ordinary dividend that's meant to go alongside net income, and then the rest of the distribution is basically done throughout the year by way of share buybacks. I don't expect that we are going to change this process going forward. I think that we will continue to increase our ordinary dividend alongside our profits. We will retain the share buybacks that have been named by means of distributions through the shareholders.

Walter Paul Piecyk, Jr.-BTIG LLC -- Analyst

Thank you, Carlos.

Operator

And the next question comes from Leonardo Olmos from Santander. Please go ahead.

Leonardo Olmos-Santander CCVM SA -- Analyst

Good morning. Thank you for taking my question. Related to prepaid strategy in Mexico, competition is very fierce. AT&T, for example, has offers that probably tackles the high-end client, with up to 2 gigabyte plans, in some cases even cheaper than the postpaid megabyte cost. And Telcel has now offers that range from 60 megabytes up to 5 gigabytes on prepaid. So, what's your overall strategy on prepaid? Do you want to tackle the low-end clients and also the high-end client? What's the overall view you have there?

Daniel Hajj Aboumrad -- Chief Executive Officer

I don't get all your numbers, but you're seeing in the prepaid market that it's becoming more aggressive so everybody's getting more data to the prepaid clients. It's really what is happening, so we don't want to cannibalize prepaid to postpaid or postpaid to prepaid. So, we need to be careful not to give more in prepaid so our postpaid customer will go to prepaid. So, there is a segment. It's still aggressive, the prepaid side. I think sometimes, on some promotions of our competitors, doesn't make any sense and they are going to see that in the revenue because they can get a lot of subscribers, but they are not consuming a lot. So, we're really being looking very closely to the market and we're going to be aggressive what doing intelligent promotions. So, that's the only thing that I can tell you.

Leonardo Olmos-Santander CCVM SA -- Analyst

Thank you very much. On Chile, the spectrum disputes on 700 megahertz and 3.5 gigahertz, how do you see that dispute? How do you see that ending? Does that affect your long-term investment plans for the country?

Daniel Hajj Aboumrad -- Chief Executive Officer

Most resolutions -- one from the regulators who are bending the 3.5, and one from the Supreme Court from the 700 option that we've had -- create a lot of uncertainty for the future development and for our future investments. So, we're still evaluating a series of factors and talking to authorities to find viable outcomes. So, we are evaluating taking these matters to an international arbitration, but we still don't know exactly what we're going to do. But, these types of things are going to reduce a lot the investment in Chile. More for the new technology. The 3.5 and the 700 -- we're going to use it for 5G or 4.5G. So, if they are not going to do that, then the country per se is going to go back in terms of investments in new technology. So, we are still reviewing what are our options. There is, of course, and international arbitration that we can go there.

Leonardo Olmos-Santander CCVM SA -- Analyst

Thank you very much, Daniel.

Operator

And the next question comes from Arturo Longo from Itaú BBA. Please go ahead.

Arthur Longo Ferreira -- Itaú BBA -- Analyst

Thank you for taking my question. In Mexico, could you give us what the gigabytes of use per month were in the second quarter and maybe how that compares with the first quarter of this year and maybe the second quarter of 2017? That would be very helpful. Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

I don't have that information and we don't give that information. But, megabytes of use in wireless were growing strong with more than 70% or 60%. I don't have the number, but we're growing very strong in our megabytes of use. These new networks that we're putting because we have 4.5G Mexico, Brazil, and other countries -- Austria. These are making our subscribers use more and that's very good.

Arthur Longo Ferreira -- Itaú BBA -- Analyst

Okay. I understand. Thank you.

Operator

And the next question comes from Carlos Legarreta from GBM. Please go ahead.

Carlos Antonio de Legarreta Diaz-GBM Grupo Bursátil Mexicano SA de CV Casa de Bolsa -- Analyst

Thank you. Good morning. Going back to the question on potential policy changes in Mexico, we know that the new government wants to foster universal coverage. But, have you had any discussion with them as to how that is going to funded? I believe they're talking about a social coverage fund. Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

No, we haven't had any discussions with the government yet. No, we don't know exactly what we want to do. I hope what they should do is to talk with the companies and give incentives to the companies to cover all those areas. But, we still don't know exactly what and how they are going to do it.

Carlos Antonio de Legarreta Diaz-GBM Grupo Bursátil Mexicano SA de CV Casa de Bolsa -- Analyst

Right. That makes sense. Thank you.

Operator

And the next question comes from Cesar Medina with Morgan Stanley. Please go ahead.

Cesar Medina-Morgan Stanley & Co. LLC -- Analyst

Hi. Thanks so much for the call. Could you please give us some update on your PayTV plans in Argentina? I understand that it was launched earlier this year a pilot program that prices were below market levels. Any updates as to whether or not you want to low out more or the speed or what type of coverage can we see on this product later for the year? Thank you.

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

As you know, we have the license to deliver PayTV in Argentina. We already have the home process in Argentina with fiber to home. It's a unique and excellent network to deliver very high speeds in broadband. So, as in Brazil, we're developing a combo proposition to the market and will include a fixed line, broadband, and PayTV. Of course, in the broadband we have the network to deliver very good high-speed Internet. And PayTV is the first content that we have a full IT offering in PayTV. This consist of -- will include a linear TV, VOV, time shift TV, and capture TV all included in our unique, simple guide to the market. We have piloted this in some areas in Buenos Aires, so we expect that we will have a great product to deliver in the market.

Cesar Medina-Morgan Stanley & Co. LLC -- Analyst

Thank you.

Operator

And, ladies and gentlemen, we have time for one more question, and that will be from Richard Dineen from UBS. Please go ahead.

Richard Dineen-UBS Investment Bank -- Analyst

Thanks very much for taking the question. Daniel, how does AT&T's acquisition of Time Warner potentially change the strategic picture for M&A globally and in Latin America by integrating content and distribution? You guys are the biggest PayTV distributor in LatAm. You've made some direct investments in things like the Olympics as well as some original content, I understand, for Claro Video. Over the longer term, do you see yourself needing to become more of a content producer, either organically or via M&A, or do you think that's something you can do mainly by buying third-party content? That would be very interesting to hear your thoughts on that. Thank you.

Daniel Hajj Aboumrad -- Chief Executive Officer

I think acquiring Time Warner, they are acquiring content. And how it's going to affect us in Latin America, I don't think is going to affect us. At the end of the day, we're having content. They need to sell that content to everybody. Even that -- in their wireless companies, they need to buy content from other ones because that's not the only content in the world. So, they having part of the content and they are going to sell, I'm sure they are going to sell to the other ones this content and we're going to buy from them. But, we also are going to buy from all the other ones that are producing content. So, I don't think it's going to affect the market in Latin America. That's more or less what I'm thinking.

There's enough content. There's going to be more production of content and everybody's going to have the access to all the content. There's a lot of paid TV content. Oscar, do you want to add something?

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

That's right. We use a lot of content from different venders. One of them is HBO and Time Warner. We have a lot of competition as well in the paid TV market. So, they have to be competitive to us and to our customers. I think it will be a system that will have check and balance in the market.

Daniel Hajj Aboumrad -- Chief Executive Officer

We have more than 25 million paid TV customers in the region and we're buying --

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

They're buying linear content that is going from broadband to on-demand content. They have to be competitive in the market.

Daniel Hajj Aboumrad -- Chief Executive Officer

And there is a lot of companies producing content -- Netflix and all of them. There's a lot of content in the market.

Richard Dineen-UBS Investment Bank -- Analyst

You've made direct investments like DLA, Ora TV, and commissioned some original drama for Claro Video. What do you see as the strategic benefits of producing your own content or buying it from third parties -- if you see any advantage in having your own in-house content.

Daniel Hajj Aboumrad -- Chief Executive Officer

No. In Columbia, we're producing our own content, our news. We're thinking to do something also in Argentina. In Mexico, we do no TV. We're producing some content. And other content we're buying. So, I don't think it's one -- it's not limited circles. One is complimentary to the other one. So, I think there is going to be a lot of content. Companies are going to produce their own content and they're going to buy from everyone the content now.

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

We already did some TV series as well for Claro Video.

Daniel Hajj Aboumrad -- Chief Executive Officer

That's also.

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

In Mexico.

Richard Dineen-UBS Investment Bank -- Analyst

That's great. Thank you, Daniel. Thank you, Oscar. That's helpful.

Operator

And this concludes our question-and-answer session. I'd like to turn the conference back to Daniel Hajj for any closing remarks.

Daniel Hajj Aboumrad -- Chief Executive Officer

Just thank everybody for being in the call and thanks for the group here. Thank you.

...

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 62 minutes

Call participants:

Daniela Lecuona Torras -- Investor Relations Officer

Daniel Hajj Aboumrad -- Chief Executive Officer

Carlos José García Moreno Elizondo -- Chief Financial Officer

Óscar Von Hauske Solís -- Chief Fixed Line Operations Officer

Andre Baggio-JPMorgan CCVM SA -- Analyst

Leonardo Olmos-Santander CCVM SA -- Analyst

Amir Rozwadowski-Barclays Capital, Inc.-- Analyst

Julio Arciniegas-RBC Europe Limited -- Analyst

Walter Paul Piecyk, Jr.-BTIG LLC -- Analyst

Carlos Antonio de Legarreta Diaz-GBM Grupo Bursátil Mexicano SA de CV Casa de Bolsa -- Analyst

Cesar Medina-Morgan Stanley & Co. LLC -- Analyst

Daniel Federle-Credit Suisse (Brasil) SA CTVM -- Analyst

Diego M. Aragao -- Goldman Sachs & Co. -- Analyst

Rodrigo Villanueva Bravo-Bank of America Merrill Lynch SA de CV Casa de Bolsa -- Analyst

Richard Dineen-UBS Investment Bank -- Analyst

Matthew Niknam-Deutsche Bank Securities, Inc. -- Analyst

Arthur Longo Ferreira -- Itaú BBA -- Analyst

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