News Release

Grupo Iusacell Reports Record EBITDA on Strong Second Quarter Results

July 14, 1999

Ian C. Muir
Director of Investor Relations

Mexico City —

  • Revenues increased 32%, EBITDA up 73% over second quarter 1998

  • 103,000 digital subscribers, up 106% from first quarter 1999

  • 951,000 cellular subscribers, up 73% over second quarter 1998

Grupo Iusacell, S.A. de C.V. [BMV: IUSACELL, NYSE: CEL and CEL.D] today announced record operating cash flow for the first half of 1999. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $615 million, versus $367 million in the first half of last year. The Company's record performance came as a result of strong operating results, including revenues of $956 million in second quarter and total cellular subscriber growth of 26% during the first half of 1999. Iusacell ended the quarter with 951,000 customers and recorded its third consecutive quarter of positive net income.

Driven by robust growth and a continued emphasis on cost controls and productivity, operating cash flow for second quarter 1999 was 73% over that of second quarter 1998. EBITDA margin increased to 35% in second quarter 1999, versus 27% in second quarter 1998. Operating income margin increased from break-even in second quarter 1998 to 3% in second quarter 1999.

"Iusacell's ability to grow revenue and EBITDA for the eighth consecutive quarter is an indication that the Company continues to be well positioned in the increasingly competitive deregulated Mexican telecommunications environment," stated Tom Bartlett, CEO of Iusacell and President and CEO of Bell Atlantic International Wireless.

Operating Performance

Compared to the same quarter last year, revenue was up 32% and the Company's cellular subscriber base grew 73%. Service revenues and long distance revenues increased 46% and 150%, respectively, for the same periods. Due to significant price decreases in handsets, equipment sales dropped 35% quarter over quarter.

"Iusacell continues to pursue an aggressive marketing campaign with the purpose of achieving three goals: retain Iusacell's established customer base, increase penetration in the upper and middle market segments with digital service and grow margins while maintaining market share," stated F├╝lvio del Valle, President and Director General of Iusacell. "We are achieving each of these objectives and are looking forward to welcoming our one millionth customer soon."

While continuing to benefit from growing economies of scale, Iusacell's strategy is now focused on attracting high-usage subscribers to digital and prepaid services. The Company's base of digital contract customers has grown 118% in the past three months. This growth includes an accelerated migration of 33,000 analog contract subscribers in the second quarter, plus nearly all of the 19,000 second quarter contract net adds. The market has reacted favorably to Iusacell's Nuevo Milenio digital packages, which represents a new strategy of simplifying contract offerings and encouraging increased usage. Iusacell expects the balance of the year to show strong contract subscriber growth in all of its operating regions.

Better distribution is a major factor for our subscriber growth. During the last 12 months, Iusacell has increased its points of sale by 145% to 4,800, with 900 full service outlets and an additional 3,900 points of sale for prepay cards. This expanded distribution, together with the VIVA prepay platform, has primarily driven the 103% growth in prepay subscribers since second quarter 1998.

In late March 1999, Iusacell also implemented marketing initiatives to increase usage by and revenues from prepay customers, including a 6% price increase, an activation fee for new prepay customers and incentives to sell higher denomination prepay cards. In addition, the increase in points of sale has facilitated prepay card replenishment. These initiatives have had their intended effect: Iusacell has higher revenue-generating new prepay customers.

The Company's recent decision to extend the life of its VIVA prepay card by 185 days helped retain about 60,000 customers during the second quarter. With Calling Party Pays in place, customers who have used their allotment of prepay minutes but have not activated a new card can retain their number longer and continue to receive calls, generating new incoming call revenue. Prior to this change, these customers' telephone numbers would have been deactivated.

Second quarter 1999 ARPUs and MOUs decreased 11% and 16%, respectively, compared with second quarter 1998, primarily due to the growth of the lower usage prepaid base relative to contract subscribers. Second quarter 1999 ARPUs increased 3% over first quarter 1999 ARPUs mainly because of price increases implemented in late March and increased usage by digital customers. (Second quarter 1999 ARPUs and MOUs were not materially affected by the extension of the life of the VIVA prepay card.)

Cash operating expenses per subscriber decreased to $711 in the second quarter, a 38% reduction from the $1,142 recorded in second quarter last year. This improvement reflects the combined effects of growth in the subscriber base, lower per-unit handset costs and productivity improvements.

Second quarter 1999 net income was $73 million, mainly reflecting positive operating income and integral financing gains, partially offset by increased taxes. This compares with a net loss of $179 million in second quarter 1998. Net income for first half 1999 was $504 million versus a loss of $297 million in first half 1998.

Financial Condition

Capital Expenditures. Iusacell's capital expenditures were US$51 million during second quarter 1999, primarily for accelerated deployment of the digital infrastructure and continued expansion of our analog network to meet the capacity requirements of our strong growth in subscribers and traffic volumes. All cell sites in Regions 5, 6 and 9 now provide digital coverage and Region 7 digitalization will be completed in the third quarter. Based on the success of our accelerated digital migration, we are currently revisiting our capital expenditure plans.

Liquidity. During the second quarter, the Company funded its operations, capital expenditures, handset purchases and interest payments through internally generated cash flow and the use of a US$10 million short-term handset financing facility.

The US$85 million short-term bank bridge facility, under which the Company borrowed US$75 million, was refinanced today by long- term bank facilities with a total availability of US$98 million, guaranteed in part by the Export-Import Bank of the United States.

Debt. Interest-bearing debt as of June 30, 1999 totaled US$464 million, representing a US$55 million increase from second quarter 1998. This additional debt was used to finance part of the digital network deployment. All of the debt is U.S. dollar-denominated, with maturities averaging 3.3 years. Iusacell's debt-to capital ratio was 48.0% at the end of the quarter, versus 52.2% at June 30, 1998.

Other Business Developments

Restructuring and Recapitalization Plan. On July 6, Iusacell commenced its exchange and rights offers in the United States and Mexico, pursuant to which shareholders will be able to exchange their Iusacell "D" and "L" shares for "V" shares of a new holding company on a one-for-one basis and subscribe to additional "V" shares at a ratio of 0.194115 per exchanged "D" or "L" share. These offers are scheduled to expire on August 4, 1999. In addition, at the expiration of the exchange offer, the new holding company expects to launch secondary and primary share offerings for a combined 125 million shares (12.5 million American Depositary Shares). The gross proceeds of both the rights offer and primary offering, estimated at a total of US$44 million at today's market price, will be used to finance network investments. Once all of the offerings are completed, the Company's public float should more than double and will represent up to 20% of total outstanding shares.

Calling Party Pays (CPP). CPP was implemented on May 1, 1999. In the first two months we have experienced an increase of 5% in traffic, with a slight increase in the percentage of total calls that are incoming calls. These results are in line with Iusacell's expectations. We expect to see continued growth of incoming traffic volumes.

Year 2000 Compliance. The Company is on schedule to have substantially all required modifications and replacements for mission critical systems and internal network elements implemented by the end of third quarter 1999. Two-thirds of planned internal testing of systems has taken place, and the Company will continue internal testing for systems throughout the balance of the year. External billing system interoperability testing has recently been completed. The Company believes network interoperability testing with Telmex is not cost-effective, but foresees no Year 2000 problems since the protocols for signaling and interconnection do not involve date-related information.

The Company's major product vendors are making available either Year 2000 compliant versions of their offerings or new products as replacements for discontinued offerings. In certain instances, vendors have not met original delivery schedules, resulting in delayed testing and deployment. At this time, the Company does not anticipate that such delays will have a material impact on the Company's ability to achieve Year 2000 compliance within the scheduled timeframes.

PCS. The Company plans to deploy PCS services in Region 4 in the first quarter of 2000. The Company expects to raise the additional funds required for deployment through a combination of vendor financing and a debt offering later this year. Grupo Iusacell is a leading independent telecommunications Company in Mexico. It provides wireless service in four of Mexico's nine regions in the central portion of Mexico (including Mexico City) covering a total of 67 million POPs (population in markets served), representing 69% of the country's total population. The auctions won for wireless services in regions 1 and 4 in northern Mexico will allow the Company to 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 Corporation which owns, through its subsidiaries, 47% of the Company's capital stock.

Unaudited Operating Highlights

Second Quarter
First Half
  1999 1998 % Change 1999 1998 % Change
Revenues (millions) $956 $722
$1,812 $1,405
Gross Margin (millions) $646 $478
$1,197 $917
Operating Income (millions) $31 $1
$32 $2
EBITDA (millions) $330 $192
$615 $367
Net Income (Loss) $73 ($179)
$504 ($297)
Cellular Subscriber Base 950,887 550,569
950,887 550,569
Net Cellular Additions 107,558 76,297
195,512 150,446
Paging Subscribers 27,826 20,006
$27,826 $20,006
Avg. Number of Employees 1,775 2,011
1,839 1,973
Avg. Subscribers per Employee 497 253
457 239
Avg. Monthly MOU per Subscriber 74 88
75 91
  Contract 158 147
157 142
  Prepay 30 42
31 47
Monthly ARPU $331 $373
$326 $386
  Contract $800 $697
$773 $684
  Prepay $87 $113
$88 $131
Average Monthly Contract Churn 2.42% 2.49%
2.39% 2.67%

Integral Financing

Second Quarter
First Half
  1999 1998 1999 1998
Net Interest Expense ($40) ($61) ($85) ($117)
Exchange Gain (Loss) $38 ($216) $242 ($420)
Monetary Correction Gain $102 $102 $381 $241
Total Integral Financing Gain (Loss) $100 ($175) $538 ($296)

Revenue Breakdown

Revenues by type of service and the period-to-period
comparisons are as follows:

Second Quarter
Second Half
  1999 % of Total 1998 % of Total 1999 % of Total 1998 % of Total
Monthly Fee $354 37.0 $283 39.3 $670 37.0 $548 39.0
Airtime Consumption 204 21.4 237 32.8 458 25.3 459 32.7
Long Distance 125 13.0 50 6.9 232 12.8 102 7.3
Value-added Services 67 7.0 39 5.4 129 7.1 98 7.0
Other 127 13.3 (8) (1.0) 152 8.4 (20) (1.5)
Total Service Revenues 877 91.7 601 83.4 1,641 90.6 1,187 84.5
Equipment Sales & Other 79 8.3 121 16.6 171 9.4 218 15.5
Total Revenues $956 100.0 $722 100.0 $1,812 100.0 $1.405 100.0

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, Iusacell claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Liti