MEXICO CITY —
Grupo Iusacell (BMV: IUSACELL, NYSE: CEL and CEL.D) today announced an end of third quarter 1998 subscriber base of 661,562 cellular customers, a 96% increase over third quarter 1997.
Net customer additions for the current quarter grew 74% to 98,137, compared with 56,560 net additions during the same period last year, helping Iusacell achieve a seventh consecutive quarter of successively higher net customer additions.
With reported quarterly revenues of 719 million pesos, a 39% increase over third quarter 1997, Iusacell achieved a 1998 third quarter gross margin of 491 million pesos, or 68% of revenues, which compares favorably with 340 million pesos, or 66% in the third quarter of 1997. Third quarter 1998 revenues include 28 million pesos that represent amounts due Iusacell for interconnection services provided to the wireline operator under a local interconnection regulation anticipated to be finalized prior to year end. In that regard, Fulvio del Valle, President and Director General of Iusacell, said, "We are very pleased with the Cofetel's commitment to resolve the PCS, long distance and local interconnection issues by November 30. This not only had a positive effect on the third quarter results, but will also benefit future profits and cash flow and allow us to move forward with the implementation of Calling Party Pays in early 1999."
EBITDA reported for the third quarter was 213 million pesos, or 78% higher than the comparable quarter in 1997, and included a 42 million peso benefit consisting of (1) lower interconnection costs of 14 million pesos and (2) the accrual of reciprocal interconnection revenues of 28 million pesos. Thirty-one million pesos of this benefit relates to prior periods as a result of the retroactive application of the anticipated interconnection regulation to June 1, 1997, as previously agreed with the wireline operator. Reported EBITDA margin for the current quarter was 30%, compared to 23% for the third quarter of last year.
The reported operating loss was 843 million pesos for the current quarter and was adversely affected by the non-cash writedown of the carrying value of the Company's investment in its 450 MHz fixed wireless project. As disclosed on October 21, such writedown amounted to 850 million pesos and has been included in depreciation and amortization. Excluding this charge, the reported operating profit for the period would have been 7 million pesos.
Iusacell reported a net loss for the third quarter of 1998 of 1,261 million pesos, which includes the non-cash 450 investment writedown of 850 million pesos and a foreign exchange loss of 499 million pesos, compared with a reported net income of 94 million pesos in the third quarter of 1997.
In the third quarter of 1997 the Company settled certain issues with Telmex, resulting in a reduction to revenues of 44 million pesos and a decrease in cost of services of 55 million pesos in that period. Excluding these effects, the operating loss and EBITDA for the third quarter of last year would have been 48 million pesos and 108 million pesos, respectively.
"In spite of recent world market effects on Mexico's economy, Iusacell continues to meet our expectations, particularly in net customer growth," said Tom Bartlett, CEO of Iusacell and President and CEO of Bell Atlantic International Wireless. "We believe that Iusacell is well positioned to address the global financial crisis that is affecting economies in Latin America. Although we do not know to what extent Mexican consumer spending will be affected, the Company still expects to exceed its subscriber forecast for year end. While there is an expected reduction in the rate of growth of GDP in Mexico next year, we believe Iusacell's customer growth should continue at an aggressive level."
Mr. Bartlett added, "Mexico is one of the stronger emerging market countries and has one of the lowest teledensities in the western world. With that comes tremendous opportunities. Over the next five years, we believe wireless telephony will be the predominant way in which Mexico will increase its teledensity and meet unsatisfied demand. We welcome the new competitors as they will help develop untapped markets, further open the telecommunications industry and support the expansion of the wireless market."
Mr. Del Valle remarked that, "The Company has continued with its customer service improvement program, resulting in a record low monthly contract churn for the third quarter of 1998 of 2.39%, compared with 3.03% in the third quarter of 1997, an improvement of 21%. Cash operating expenses per subscriber for the third quarter of 1998 have declined 37% compared with the same period in 1997, with subscribers per employee increasing 84% in the current quarter over the comparable quarter of last year.
"The Company continues to promote contract packages and, as a result of our new digital services and network capabilities, we have realized an increase in per customer usage in our contract base. The success of the VIVA prepay card and system has helped grow prepay subscribers by 23% in the third quarter. We have also seen increased usage on a per prepaid subscriber basis of 30% as a result of additional features of the new VIVA platform. Further, in the third quarter of 1998, our long distance business showed an increase in minutes of 27% over the second quarter of this year and our long distance network will have over 2,500 kilometers of fiber connecting 53 cities by year end.
"Iusacell is continuing with its aggressive schedule to overlay CDMA digital technology in its network and the Company expects to have full optimization and deployment in all major cities of its four operating regions before the end of the year. In only four months since launch, the Company has contracted over 12,000 digital subscribers in Mexico City. We are also moving ahead with PCS, having paid the outstanding US$47 million balance of the auction prices as required on September 30. Deployment in northern Mexico, including the key cities of Monterrey and Tijuana, will begin in 1999. During the third quarter of 1998 the Company invested US$105 million in capital expenditures, primarily for the cellular network replacement and CDMA overlay, PCS license fees and further expansion of our long distance network."
Howard F. Zuckerman, CFO of Iusacell, noted: "This quarter's recording of the financial effects of the anticipated local interconnection settlement and the Company's revaluation of the 450 MHz project represent positive steps toward improving future profitability. Further, we remain focused on improving EBITDA in order to support the continuing growth of our business."
Mr. Zuckerman also expressed his satisfaction with the progress of the recapitalization and restructuring plan announced in August, stating: "We have increased our equity with the conversion of the US$71.5 million drawdown under the subordinated convertible facility with Bell Atlantic, the new holding company has been formed and we are moving forward with the exchange offer designed to simplify Iusacell's capital structure. We look forward to the greater liquidity of our shares once the exchange offer is completed and market conditions improve."
Grupo Iusacell is a leading independent telecommunications company in Mexico. It is the wireless cellular service provider in four of Mexico's nine regions in the central portion of Mexico (including Mexico City) covering a total of 67 million POPs - representing 69% of the country's total population. The auctions won for wireless services in regions 1 and 4 in northern Mexico cover an additional 11 million POPs, or 11% of Mexico's total population. Since February 1997, the Company has been under the management and operating control of Bell Atlantic which owns, through its subsidiaries, 47% of its capital stock.
Unaudited Third Quarter Operating Highlights At or for the three months ended September 30
1998 1997 Change Cellular Subscribers (EOP) 661,562 338,300 96% Operating Loss - (million) - Ps. (843) Ps. (37) - EBITDA - (million) - Ps. 213 Ps. 120 78% Net Subscriber Additions 98,137 56,560 74% Avg. Monthly MOU / Sub 83 104 (20%) Avg. Monthly Rev / Sub Ps. 334 Ps. 462 (28%) Average Monthly Contract Churn 2.39% 3.03% (21%) Paging Subscribers (EOP) 23,252 12,969 79% Number of Employees 2,142 1,919 12% Subscribers Per Employee 290 158 84% Cash Operating Expenses / Sub Ps. 893 Ps. 1,412 (37%)
Note: This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward- looking statements contained in the Private Securities Litigation Reform Act of 1995. Discussion of factors that may affect future results is contained in our filings with the Securities and Exchange Commission.
(1) All monetary figures are in Mexican Pesos and restated as of September 30, 1998 in accordance with Mexican GAAP unless otherwise stated.