DIRECTV's Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)

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DIRECTV (DTV) Morgan Stanley Technology, Media & Telecom Conference February 26, 2013 5:30 PM ET

Executives

Bruce B. Churchill - Executive Vice President, Chief Executive Officer of Directv Latin America Llc, President of Directv Latin America Llc and President of New Enterprises

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Good afternoon, everybody. I'm Ben Swinburne, Morgan Stanley's Media analyst. And please note that important disclosures, including my personal holdings disclosure, the Morgan Stanley disclosures, all appear as a handout available in the registration area and on the Morgan Stanley public website.

And with that, I am pleased to be joined, to my left, by Bruce Churchill, EVP and CEO of DIRECTV Latin America. For those of you who may not know, DIRECTV Latin America ended the year with over 10 million subscribers on a consolidated basis, and over $6 billion of revenue for the year, up 20 percent-plus, representing truly one of the fastest-growing media businesses in the world. Bruce, thanks for being here.

Bruce B. Churchill

Thank you for having me.

Benjamin Swinburne - Morgan Stanley, Research Division

Maybe we could start out with an update on the long-term vision for the business. You guys had an Analyst Day almost like a...

Bruce B. Churchill

Almost a year ago.

Benjamin Swinburne - Morgan Stanley, Research Division

Almost a year ago, yes. You laid out some pretty lofty goals long term. Maybe lay those out here, at the audience, and sort of how you're feeling about those today.

Bruce B. Churchill

Okay. So that was last March. That was March of 2012. So we're kind of using end 2011 as our starting point back then. And we had roughly, in the consolidated businesses -- again, we have Brazil -- a business in Brazil, which we own 93% of, and a business in Spanish-speaking South America, which we call PanAmericana, which we own 100% of. Separately, we have a 41% stake in SKY Mexico where our partner there is Televisa. So in a consolidated, the Brazil and PanAmericana businesses, I think, at the end of -- around the time we had the Investor Day, we had a business of about 8 million subscribers. And our view was that we could basically double that business in a 5-year time frame, with pretty strong growth out of both platforms. I think we talked about a business of $10 billion of revenues and $3 billion of EBITDA, and about $1.6 billion or so of CapEx every year.

So that was sort of the 5-year vision back then. We're now actually -- well, obviously, into 2013. So we're a bit of a ways into that. Based on our performance last year, I would say that we remain very highly confident about that plan and that vision. Still believe there's a lot of room for growth in the pay-TV business in Latin America. And pretty confident that we'll reach those kind of numbers and stay within those kinds of parameters by the time we get to 2016.

Benjamin Swinburne - Morgan Stanley, Research Division

Great. Let's talk about 2013. We recently had the earnings call and you laid out your outlook for this year, which is for mid-teens revenue growth, but flat EBITDA. And there's a lot of sort of moving pieces to the guidance, particularly on the margin front. So I'd love to hear you sort of walk people through the puts and takes, and then if you can, boil it down to kind of the underlying trends that you're seeing in the business.

Bruce B. Churchill

Yes, look, maybe the best way to talk about it is in its component pieces. So Brazil is the biggest business. And everything that we've talked about, with respect to Brazil, I think we remain at least as bullish about, if not more so. So we're looking for continued growth in Brazil. In local currency terms, it's sort of well above that market that we've talked about. The margins there remain relatively constant. And if we talk about sort of 30%-ish off margin in that business. And we'd be looking to add, rough numbers, another million or so in Brazil again this year. In PanAmericana, that's made up of a lot of different territories, Argentina, Venezuela, Colombia, Chile, Peru, et cetera. And from a subscriber metric point of view, again, we'd be looking for another very strong year out of that platform. Probably maybe a touch shy of a million subs, but not far off from where they were last year. And on the financial side, what provided I think a bit of the confusion there is that, obviously, there was a large devaluation in Venezuela right at the -- towards the end of January or middle of February. So as a result of that, we had to take a write-down or we will have to take a write-down in this quarter, pretax write-off of about 160 million, and for the cash that we had on hand in Venezuela. And then, obviously, the comps within PanAmericana going to be a little challenging because now Venezuela will be having to compete with itself with a currency that's worth 30% less. So when you take that kind of mid-teens revenue growth, which is in U.S. dollars. So, again, after factoring in all the FX, not just Venezuela, but any other FX issues. And the mid-teen revenue growth, factor in the write-down of the cash and then the comps within Venezuela, which is a pretty big part of PanAmericana, that's where you get to the flattish EBITDA growth. Excluding, let's say, the write-down, we're sort of low double-digits EBITDA growth for the year, OPBDA growth for the year.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. Admittedly unfair question, but I'll ask it anyway. You have been very conservative with your guidance over the last couple of years. You've outperformed. And maybe the market's getting used to you guys putting up these kinds of top line numbers. So it's a little bit of a victim of your own success. But any thoughts you would share with us about how you put the guidance together and the level of conservatism, including currency, which -- there are some questions out there about Argentina and other markets and whether those are something that we should be worried about.

Bruce B. Churchill

Look, I don't know how many businesses get criticized for projecting 2 million net adds and then saying you're being conservative. So I can see the point that probably the market has been much stronger in recent years than even we have anticipated. We probably also been better able to capture market share than we have anticipated. So it's probably maybe a fair criticism to say that if those things aren't going to change, why wouldn't we do better. I guess the flip side is we do have -- these are emerging markets, they're a little bit more volatile, a little more difficult to predict. And so, I think, when we look at all of those factors, including currency and market conditions and GDP growth and all the things that we factor into it, we feel comfortable with giving out that guidance at this point. If something turns out to be dramatically different, we'll let you know.

Benjamin Swinburne - Morgan Stanley, Research Division

Great. When you were talking about your 5-year outlook from a year ago, you mentioned capital spending. And one of the big questions also coming out of the call are your capital spending plans in Latin America, both this year and next year. Can you just talk about the $2 billion you're planning to spend this year? Kind of what's in that number and how we should think about the puts and takes going forward.

Bruce B. Churchill

Yes, well, still, the biggest component by far and away, is subscriber related. So that's a combination of, obviously, gross adds, sales, for the new customers that we get. As well as any upgrade spending that we may incur as a result of moving people, let's say, from -- let's say, a low-end, one-box package to something where they may have a couple of boxes or more often -- and more often, it's probably -- such as in Brazil, where we've had quite a lot of success upgrading people to HD. So maybe they've been in a standard-def package for a while, we upgrade them into an HD box, they keep the second box for the second TV and we give them a new box. But that's 70% of the $2 billion. The other thing that's been going on, because of all the rapid growth is, frankly, we have outgrown our infrastructure. So we've outgrown the infrastructure from a kind of customer service point of view. So there's a fair amount in there, probably -- if you were to look back a couple of years, it might be 100 million more this year than it was a few years ago, in kind of core kinds of systems and infrastructure type investment. And then, in addition to that, we're building 3 satellites. So we've got actually 2 satellites coming out, in process, being built for our PanAmericana platform, which I think we announced a couple of years ago. And I've talked about this I think for a couple of quarters, but I now believe we are genuinely very close to getting a deal done for a new satellite for Brazil. And that's all about adding additional capacity and particularly as HD becomes more popular in Latin America as it has in the rest of the world, and the need for just more capacity to deliver, frankly, the same number of channels, as well as growth.

Benjamin Swinburne - Morgan Stanley, Research Division

What's the launch timing plan for those 3 satellites? It's usually...

Bruce B. Churchill

PanAmericana, I think it goes up in the tail end of maybe it's the first quarter of next year -- of 2015, actually. Tail end '14 and '15. Then the second satellite for PanAmericana is actually a backup. So that doesn't add any more additional capacity. Brazil would be probably about 3 years from now. But in each case, when you talk about adding those satellites, you're talking about adding a couple of hundred additional channel capacity. So it's a lot of capacity. These are big birds and should maintain us for the foreseeable future. And then, as I mentioned, we'll have backup, so you're also operating with a safety net there.

Benjamin Swinburne - Morgan Stanley, Research Division

I don't know if you wanted to update us at all on Q1 trends. Here we are halfway through the quarter. Or if you're in good shape, we'll move on to the next.

Bruce B. Churchill

Why don't we move on to the next topic.

Benjamin Swinburne - Morgan Stanley, Research Division

Can you take us a little bit through the region. And you mentioned Brazil as being the largest market, but it's probably not the only part of the story in Latin America. Where are the big growth numbers you're seeing today outside of Brazil? And at least talk a little bit about Brazil as well?

Bruce B. Churchill

Right. Well, let me start with Brazil. Brazil is the biggest market. It's 60 million homes. Pay-TV penetration is still very low in Brazil, among the lowest in the region, it's about 27%, 28%-ish at the end of last year. So we've seen -- that has gone up from probably 21%, 22% a year ago. So it was a good 5 percentage points increase in penetration in the market in just a year. So that's pretty significant growth. And then in PanAmericana, which is roughly 50 million, a touch above 50 million homes, the penetration is obviously quite varied, because it's not just one place. I mean, I think it averages out to a touch above 30%. But you have anywhere from, let's say, Argentina, where it's north of 60%, mid-60%. All the way down to Peru and Ecuador, which might be in the high teens or 20% or something like that. So it's a broad variety within those markets. But I think, even in the relatively high penetrated market, like Argentina, we've seen quite a lot of growth. We added quite a number of subs in Argentina last year, particularly with our prepaid product. And then I would think the other country that we've talked a lot about and remain very excited about, in PanAmericana, is Colombia. And that's a market that actually has more homes than Argentina, which I don't think people appreciate. And it's a market that's obviously gone through, up until recently, some pretty tough times. But in the last 4, 5 years, has become more stable, just in general, as a country, obviously, but particularly in our industry. The industry has become more formalized, some of the regulatory structures have become more favorable to us. So we're very bullish about the potential of Colombia as well.

Benjamin Swinburne - Morgan Stanley, Research Division

And then on Venezuela, I know it's a business where you have to manage a little differently, but it's also a profitable business for you.

Bruce B. Churchill

Yes, I mean, Venezuela -- it's good news and bad news about Venezuela. In Venezuela, we have 1.5 million subs. We're the market leader. We're a little bit below the 50%, 45%-ish share. It's a very profitable market for us, has very good margins. We have historically managed it now, pretty much, I think, since I've been involved and since the currencies been restricted, for -- the one item that constrains our growth is the ability to get cash out of the country to buy boxes. That's pretty much it. And that's how we've managed it for the last 5, 6 years now. And in spite of all of the constraints, there are mechanisms that will enable you to get cash out. So we do, do that. We reinvest it in the business. It's continued to grow for us. The flip side is that, as a result, it's a big nice profitable market. And when you get hit by something like the devaluation that we did earlier this month, it has maybe a disproportionate impact. But look, it's still a very good market for us. And we tend to take the long-term view on these things. And I do think that the day will come when Venezuela will look a lot like a more normal market, shall we say.

Benjamin Swinburne - Morgan Stanley, Research Division

Right. A lot of the growth you're seeing now, and I think looking forward, are as you move sort of down the economic stratas in these markets, can you tell us about how you're attacking the middle markets in various countries and sort of what that means to the economics and returns of your business?

Bruce B. Churchill

Yes, we've done it in a very conscious way. It's not just about lowering prices. You can't offer the same thing for less money. That is a good way to go broke, right? So what we have done is we -- historically, I would say, up until maybe 4 or 5 years ago, the pay-TV business in Latin America was very much for the A, B households, a little bit more high-end households. And we took a view that penetration in those households was getting pretty high, probably not a lot of growth potential. And so we really tried to refocus our business on how do you serve the C sort of more middle market and D class customers. So it really meant starting from beginning to end in terms of the whole business, in terms of renegotiating with programmers on what packages -- what programming would go in these packages so that we could afford to make them at lower prices. Some cases, we have deals with programmers where we actually pay them less for the same channel on a low-priced package than we do on a high-priced package. And they're willing to do that because it's growth for them. It's renegotiating your dealer contracts, commissions and all of that. It's rethinking how you do customer service. Some cases, even installation. In some countries, our prepaid customers do self-install. But the idea is that our net investment, then, in those lower-end customers, reflects the fact that they get a low -- we get a lower monthly fee from them. And therefore, when you compare the paybacks for the IRRs, or however you want to measure it, we try and manage it in such a way that they're all relatively within the same band. So that we're relatively indifferent to whether we get someone at this price point or that price point because the investment is generally less at the lower price points so the return is the same. And that's very much how we think about it. Now, having said that, I'd love for everybody to be an HD customer and paying me $100 a month. But that's not the market. So you really have to get into that segment if you want to grow.

Benjamin Swinburne - Morgan Stanley, Research Division

And now I know you're not using prepay as your exclusive way to attack this market. But prepay plays a role. Can you talk about that within PanAmericana?

Bruce B. Churchill

Yes, it plays a role in PanAmericana. It hasn't really -- interestingly, we've tried it in Brazil, hasn't really caught on. We have a bit of a different take on it in Brazil. But, in PanAmericana, you sell them -- basically the way the prepaid works is they walk into a store, like a Walmart, effectively, or with a number of different retailers. They buy a kit. They can either go -- and sometimes we arrange for installation, sometimes in some countries they do it themselves. But that kit would include the satellite dish and the box and it's got a card in it and all the wires you need. They go home, they get it installed, it's got one month's programming on it. And then through either by returning to that store or by a scratch card system, or even in some cases, through telephone, they can re-up their subscription as it starts to run out. And it's been a very successful model. Obviously, it's hugely successful in the mobile phone business. So, we're really, I think, the ones that have been the most successful at it within pay television. And it's actually the returns in that business are very good. Because our experience is that while people do go in and out, and we track it quite carefully. But if you look at, sort of over the last given 90-day period something in the range of 80% of the people that have been, that have an account have been active.

Benjamin Swinburne - Morgan Stanley, Research Division

They come back.

Bruce B. Churchill

So, they keep -- they go in and out, exactly. And once you get your money back the first time, the rest of it is all gravy.

Benjamin Swinburne - Morgan Stanley, Research Division

Sure, yes. What is it about Brazil you think where that hasn't...

Bruce B. Churchill

Well, I think part of it is that Brazil, because of its historic -- long history with high inflation, that the banking -- the consumer banking system in Brazil is a lot more sophisticated than it is in the rest of Latin America. And so a lot of those customers are just in -- more of them are in the banking system, and therefore, are more used to paying bills on a monthly basis and having debit cards or automatic debits or that sort of thing. So the concept of a prepaid within pay television didn't work. It works in mobile, just didn't work for us in pay television. What we have done instead, in Brazil, is that we do sell boxes to consumers who just want to get free-to-air services, we call it Livre, which means free. And they have no ongoing relationship with us. We make a very small profit on the box. But a lot of them later -- we know who they are because they have to in order to get the box activated, they have to tell us. And if they're not a subscriber, they just get the free-to-air channel. But we're quite successful upgrading those on a regular basis. A lot of them later become postpaid customers. So it's kind of a hybrid prepaid in a sense that they are the ones who make the upfront investment. And then when they come to us, we actually -- we don't have to roll a truck. We just activate the card.

Benjamin Swinburne - Morgan Stanley, Research Division

Interesting. And is there any -- I mean, are you paying content costs for those free-to-air networks?

Bruce B. Churchill

Not while they're free-to-air, no. Not when they're a free-to-air customer. Only when they become a pay customer.

Benjamin Swinburne - Morgan Stanley, Research Division

Sticking with Brazil, but maybe shifting over to the competitive landscape. I don't know if you would agree, it feels like your most competitive market -- in other words, a lot of competitors. But you've been able to maintain or even grow market share. Can you talk about the competitive landscape? How it might be changing and how you're managing to do what you're doing there?

Bruce B. Churchill

Yes. Look, I'm not sure I would agree it's our most competitive. I think it's the market that gets the most attention because it's so big. But so, obviously, there's us there. Just as there is in probably every other major market, there's a big cable company. In this particular case, the cable company is owned by Telmex or América Móvil. And then, in addition to that, Telefónica and -- Telefónica, the Spanish company; Oi, a local Brazilian company, both have DTH products; and then GVT has a hybrid satellite and broadband product. So you're right, it's pretty competitively intense. Having said that, I think where we are better positioned, what I've talked about over the years is, frankly, as television specialists, our product is better. It's the same product that we have here in the U.S., albeit a bit modified for local market conditions. But I think our -- the product is better. I think our brand is more aspirational. So we have a very good presence in the market in terms of people wanting to buy our product. We have won the best service -- customer service award in the industry for 10 straight years. So we're clearly way ahead of the competition on that. So it's a lot of the same components that I think DIRECTV subscribers here in the U.S. are familiar with, that Sky has in Brazil. And, as I said, we face -- the same would be true with PanAmericana. I mean, you go to any other territory, there's generally a big cable guy, often owned by Telmex, not necessarily. Telefónica is generally there. Then there may or may not be another local telco. But it's pretty competitive around the region. We've gained share pretty much across-the-board.

Benjamin Swinburne - Morgan Stanley, Research Division

Is the competition tougher at the lower end of the market because that's where the growth is?

Bruce B. Churchill

Yes, for sure. I mean, the telcos kind of got into it a little late in the game, and they definitely are more aggressive at the low end. Typically, from a telco you can't -- you really can't buy their service unless you're buying it as part of a bundle. But they have, to be -- you can look at the numbers. I mean, they're public, but Telefónica lost subscribers last year in Brazil, in a market that grew, what'd I say, like 21% penetration to 25%. It's 20%, I mean it's a pretty big -- it's kind of amazing, actually. It'd kind of be hard to do even if you set out to do that. But -- and then -- Oi is -- not made big dents in the market. I think the real toughest competitor is probably Net, as you might imagine. So like a lot of telcos, I think some of these companies, they think of television as an add-on, and the experience reflects that. We don't think of it as an add-on, it's what we sell.

Benjamin Swinburne - Morgan Stanley, Research Division

Any thoughts on what DISH is up to with the orbital slots down there and how that may play out?

Bruce B. Churchill

Tough to handicap. I mean, I think it's been, gosh now, 1.5 years, I think since he bought that slot. I think it was August of 2011. Occasionally, you hear rumblings about something. I don't know of anything specific. I have to say, the longer that he waits, I think the harder it gets. I think it would be difficult, at this stage of the game, to come in from a standing start. You really have to find a local partner. I don't know who that would be.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. I just want to give you the opportunity to talk about SKY Mexico even though you don't consolidate the business. It's a meaningful business and one that's done well, generates cash flow for the company. What are the dynamics in that market for that business?

Bruce B. Churchill

Well, they have had explosive growth in the last several years, really driven by their [indiscernible], which is their prepaid product. And their price point is actually the lowest. I mean, it works out to roughly $12. I mean it's a quite inexpensively priced product. Now, the real advantage or one of the real advantages we have there is, obviously, our partner is Televisa, which is the strongest content provider in Mexico. And so we have the Televisa programming in our [indiscernible] product, which DISH, which is sort of the other competitor at the low end, doesn't have. And so the growth in Mexico has been quite dramatic. Now, in their case, it's led to a quite dramatic drop in the ARPU just because the growth has been so huge. And they're at, now, north of 5 million subscribers as well. They added one point -- I think 1.1 million last year. But it hasn't really hurt their profit margins. I mean, in fact, of all the businesses, I think they're about as profitable, I would say, as our Venezuela business. It's a very -- they have very good margins and have, because of their position in the market, have really been able to carve out a place for themselves in terms of programming costs and those sorts of things. So I remain very bullish about Mexico. People -- anecdotally, I was there last week, people feel very good about the Mexican economy, and the change and reforms that are going on. And I think people are generally have a pretty favorable outlook about Mexico in general and I think that bodes well for pay television.

Benjamin Swinburne - Morgan Stanley, Research Division

What are the mechanisms that leads to the cash distribution for you guys? How sort of predictable is that?

Bruce B. Churchill

It's something we talk to shareholders kind of in the beginning of the year and look out over the year and kind of make a plan of when we think it may make some sense. But it's not a kind of regular monthly thing. It's a little lumpier than that.

Benjamin Swinburne - Morgan Stanley, Research Division

Let me turn to a couple of strategic questions, then we'll see if the audience has any questions for you. Obviously, a lot of focus on the Brazilian market, the triple play market, GVT is something you've talked about and Mike talked about a lot. Let me start with that one and how you think about -- Mike's laid out sort of how you guys think generally about acquisitions. But as the person running this business, how does triple play fiber businesses feel to you as a synergistic fit into what you do there already?

Bruce B. Churchill

Yes, well, I think, as I've said before, could be nice to have, is not a got to have it, right? I mean we've done pretty well without triple play so far. And I could argue that even my colleagues in the U.S. are still doing pretty well without the triple play so far, in spite of what many people in this room might have said over the years. Not you, but others. So, but having said that, I think of myself, well, geez, effectively, if I could control a high-quality network, it's somewhat akin to U-verse, it's that kind of an architecture. It has a pretty -- much broader footprint than that. That could be strategically very interesting. Now consistent with what Mike had said in the past, you wouldn't do it at any price. So in spite of what I guess has been widely reported in the newspapers over the last 24 hours, people -- I have a house in Santa Barbara I'd like to sell, but just because I'd like to sell it doesn't mean anyone wants to buy it at the price I want. So we'll see where that goes. So you have to get it at a price that you think is reasonable and adds value for shareholders. And you have to structure a deal in a way that doesn't completely ruin your flexibility on other issues. So it's a complex situation and it's ongoing and we'll see where we go with it.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. On the wireless side, also a little bit triple play related or double play related, what are you doing in Brazil with your spectrum?

Bruce B. Churchill

Well, we, as you mentioned, we have spectrum now that covers roughly 1/3 of the country's GDP. 2.5 spectrum. We'll be launching -- we started originally in Argentina a couple of years ago with a test. We then rolled it out a bit in Brazil in 2011. We had hoped to be a little farther down the road than we are. Largely it's an LTE technology that -- we started out with WiMAX and then LTE came along, so we're moving towards LTE. And frankly, the product that was delivered to us in 2012, which we had hoped to roll out, the software product was not quite up to performance that we had been promised or that, frankly, we thought would be required. So we delayed our plans. We have now resolved those problems. We have also -- close to bringing in a second supplier. So I would say that we have -- what we had hoped to accomplish in 2012, we'll do in 2013. Now, the amount of investment here, as I've said, I think I said in our Investor Day, is sort of in the $50 million to $75 million. So it's part of that number I gave, but it's not a big part of that number. The CapEx number, yes. And so -- and since we'll be spending a lot of this year building out sites, it's not going to be a revenue -- having any meaningful revenue effect this year. So it's going to be in the following years before we see anything. But I think we were able to take this year and take a much more kind of tactical focused look at the cities that we have spectrum in. And we don't have any universal service obligations. There's no build-out requirements. We can literally go neighborhood by neighborhood and say these are the neighborhoods that we want to address, where we know we have Sky subscribers, like to sell them a bundled product and provide a service that we think is a great service that matches up with our reputation. So I remain actually quite hopeful about the potential of that. And I think within a market like Latin America, where the quality of broadband is very low. I mean, people -- you see a lot of numbers about broadband penetration, but I would caution you to be, to probe a little deeply and really understand what people mean by broadband and what -- when somebody sells you a broadband subscription in Latin America, they may sell you 2 megs, but that means you're lucky to get 125K. I mean, it's a very different situation. And so I think, in a market like that, a wireless service is in fact very competitive. And in particularly, in certain cities and our ability to target those cities. So the returns should be quite good.

Benjamin Swinburne - Morgan Stanley, Research Division

Are there any meaningful OpEx or start-up losses in 2013?

Bruce B. Churchill

No.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. All right, why don't we see if we have any questions in the audience. There's one right up there, if you just wait for a microphone, he's running.

Unknown Analyst

Two questions. Can you just run through any regulatory issues in the various countries you operate in that are on your radar screen for the next couple of years? And then, second, can you talk about any experience you have migrating customers from prepaid or your lower tiers up through to the higher-tier products?

Bruce B. Churchill

Sure. Well, regulatory, obviously, in media, you're a very high regulated business. There's nothing on the horizon that I'm particularly concerned about. I don't think that we're particularly targeted in any way. I think in many ways, we're considered a local company. So we don't have that stigma of being a foreigner, foreign company. And I think we just -- there's a lot of regulations in all these countries that pretty much all businesses deal with. I mean, I don't know if you're alluding -- possibly there was a kind of kerfuffle sometime in the last year where there was some discussion about Brazilian tax increases. I don't know if that's what you're alluding to, but that seems to have gone away. And these kinds of things come and go all the time. It's just part of doing business in any country, and particularly, the media business in any country. On the upgrade front, we actually are quiet systematic about it. And I would say we're probably the most successful in Brazil, where we have a quite systematic way of taking customers and upgrading where we can. I mean, I think of our -- we have almost now 1.5 million HD subscribers in Brazil. I think I'm right when I say roughly half of those have come from upgrades, not just from sales. So if not more even. So we are pretty systematic about it, and we often use -- many of these countries you are allowed increases, to increase prices once a year. So you take the price increase but when you notify them about the price increase, you say, look, instead of taking a price increase and just getting what you got, why not take in even a little bit more and then get more than what you had. And we do quite a lot of that. And that's really what -- if you were to look at our ARPU over the last several years, even though we've had quite a lot of growth in the middle market, in those lower-priced packages, in FX terms, our ARPU has not -- it's come -- we've sort of guided everybody to flat to down, and that's kind of what it's been. But unlike Mexico, where it really came down, in Brazil and in PanAmericana, it's been fairly steady because of our ability to take the existing base and continue to upgrade them when we can. It's a bit of a fine line. You obviously don't want to over-upgrade. But the returns on upgrades tend to be very good.

Benjamin Swinburne - Morgan Stanley, Research Division

We can probably do one more question, if there's a quick one.

Unknown Analyst

Can you talk about some of the investments you're making on the programming side, to differentiate yourself from competitors?

Bruce B. Churchill

Yes. We probably do more than anybody else in the market. We have done a lot in sports, as you might imagine. We have been, for a number of years, the licensee of La Liga Española, the Spanish soccer league, which is -- in many cases, it's probably always the most -- the second-most popular league in the local market, with the local league being the most popular and then the Spanish League. We did, however, recently, starting in this coming season, we're going to be the licensee for the English Premier League, for Spanish-speaking South America and Mexico. So we try and take those international sports rights opportunities and do a couple of things. One, we can leverage our scale across the region. Because they tend to be sold as a regional buy. So it's difficult for someone who operates in only -- either a smaller scale or only operates in a single market to compete with us in that regard, particularly if I can partner with my colleagues in Mexico. And then the other thing we often do, which I think we're quite good at, is we can take rights which are maybe not so exclusive and therefore not that expensive, something like the Olympics, for example, that we did this year. We had nonexclusive pay rights. We've done this, actually, with the World Cup the last several times. We buy rights that are widely available. But then what we do is we create a separate channel around the event, and then we differentiate. And what we present is different than what everybody else is presenting. So in the case of the London Olympics last year, the Olympics were on all the free-to-air guys, and they paid a bomb to do it. I mean, we paid a very modest amount of money. We had a crew there. But we sent them around and followed every single Latin American athlete. So any time a Latin American athlete was competing, we covered it. Because the footage is free. I mean, once you pay for the rights, you get everything. And that's how we focused our broadcast and I think made it much more relevant to our audiences. And the ratings that we had on our channels were very high. So there's a lot you can do with not a lot of money to differentiate yourself, if you're kind of -- if you think about it. And I think that's, again, where we're different than the telcos. Telcos don't think about it from a television point of view. They just -- to them, it's just more bits, but to us it's television.

Benjamin Swinburne - Morgan Stanley, Research Division

We're in overtime, but I think if we have another question, we can take it.

All right. Bruce, thanks very much. Thank you, everybody.

Bruce B. Churchill

Thanks for having me.

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