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NII Holdings (NASDAQ:NIHD)

Q2 2011 Earnings Call

July 28, 2011 8:30 am ET

Executives

Gokul Hemmady - Chief Financial Officer and Executive Vice President

Steven Dussek - Chief Executive Officer and Director

Tim Perrott - VP IR and Corporate Communications

Analysts

Christopher King - Stifel, Nicolaus & Co., Inc.

Kevin Roe -

Gray Powell - Wells Fargo Securities, LLC

Mauricio Fernandes - BofA Merrill Lynch

Rizwan Ali - Deutsche Bank AG

James Breen - William Blair & Company L.L.C.

Richard Prentiss - Raymond James & Associates, Inc.

Andrew Campbell - Crédit Suisse AG

Operator

Ladies and gentlemen, thank you for holding, and welcome to the NII Holdings Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference call will be available for rebroadcast through the following 2 weeks beginning later today. Domestic callers may access the rebroadcast by dialing 1 (888) 286-8010 and entering the passcode 22959190. International participants may access the rebroadcast by dialing 1 (617) 801-6888 and entering passcode 22959190. [Operator Instructions] I will now turn the conference over to your host, Tim Perrott, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Tim Perrott

Thank you, Erica, and good morning to everyone, and thank you for joining NII Holdings Second Quarter 2011 Results Conference Call. With me on the call today are Steve Dussek, our CEO; and Gokul Hemmady, our Executive Vice President and CFO.

As a preliminary matter, let me inform you that some of the issues discussed today that are not historical will be forward-looking, and as such, should be taken in the context of the risks and uncertainties that are outlined in the SEC filings of NII Holdings, including our 2010 annual report on Form 10-K, as well as the other documents we have filed with the SEC.

In addition, during this call, we'll be discussing certain financial measures that do not conform to Generally Accepted Accounting Principles in the U.S. or better known as GAAP. For a reconciliation of these financial metrics to GAAP, please access NII's Investor Relations link at nii.com.

Before I turn the call over to Steve Dussek, I would like to mention that this call is being webcast and will be available for replay on nii.com and streetevents.com.

I would now like to introduce Steve Dussek, our CEO. Steve?

Steven Dussek

Thank you, Tim, and good morning. Welcome to all of our investors and industry analysts who have joined us today for our call. We hope that you had a chance to review the press release that was issued earlier today, which summarizes our results for the quarter.

Overall, our second quarter results reflect strong financial and operational performance. As we delivered our highest quarterly results for OIBDA in our history, and continued to make substantial progress on the deployment of our 3G networks. Our focus on quality service and attracting valuable customers drove a 36% increase in our OIBDA, compared to the second quarter of last year. Load share and solid ARPU results were indicative of our success in attracting high-quality customers.

Our OIBDA results included the impact of lower interconnection costs, primarily in Mexico where the COFETEL recently ordered significant reductions in mobile termination rates. We are encouraged by the COFETEL's decision, which reflects what we hope will become a trend in our markets toward lower cost-based mobile termination rates that would benefit consumers and enhance our competitive position.

We ended the quarter with 9.8 million subscribers, a 20% increase in our ending subscriber base from a year ago. Nextel Brazil's growth led the way with 205,000 net adds, resulting in a 30% increase in its subscriber base from a year ago. Nextel Brazil continues to drive not only strong subscriber growth, but also exceptional revenue and cash flow growth.

Our net add productions fell below our goals for the quarter, most notably in Mexico. Let me give my perspective on some of the reasons. In Mexico, market conditions remain challenging and growth in the overall market slowed relative to the first quarter. In addition, we made a series of changes to our distribution channels that we believe will improve our cost structure over the long term. But implementing those changes created some disruptions in our gross add productivity in the quarter. We have completed the implementation of these changes, and we've taken additional actions designed to improve our overall sales productivity in Mexico, including adding new distribution channels and restructuring certain rate plans.

We believe that the completion of the changes and related disruptions, coupled with the additional actions we have taken, both contributed to an improved growth trend late in the quarter that has continued into the third quarter.

Looking to the future, we are making significant progress toward our planned deployment of 3G networks that we believe are key to our plans to enhance our growth opportunities. During the second quarter, we received the formal award of the spectrum that we won in the auction in Brazil. We are moving toward with the deployment of our 3G network there, targeting a commercial launch in mid-2012.

We are deploying the infrastructure to support our 3G networks in Mexico and Chile, in anticipation of our commercial launches. As some of you experienced in our investor meeting, we have made great progress toward our planned commercial launch of high-performance, Push-to-Talk service on our 3G network in Peru later this quarter.

And finally, we are evaluating the opportunity to participate in the spectrum auction in Argentina scheduled for later this year. We are excited about the new products and services that we will be able to provide our customers on our 3G networks. We believe that all of these efforts will keep us on the path to reach our 5-year goal of growing our subscriber base by more than to 2.5x, while more than doubling both our revenue and OIBDA.

I will follow up with more comments later, but now I will turn the call over to Gokul Hemmady, our Chief Financial Officer.

Gokul Hemmady

Thank you, Steve, and good morning, everyone. We delivered solid operational metric and strong financial results, with record levels of OIBDA during the quarter as we continue to successfully pursue our profitable growth strategy. We believe that our continued focus on the key operating metrics that drive our results will create the most value for our business over the long term.

Here are some highlights for the second quarter. We generated 382,000 net adds bringing our subscriber base at quarter end to 9.8 million subscribers, an increase of 20% compared to the end of the second quarter of 2010.

We generated $1.75 billion in consolidated operating revenues, a 29% increase over the second quarter of 2010. We reported $473 million in consolidated OIBDA, an increase of 36% compared to the second quarter of 2010 and a quarterly record for NII. This amount includes a $17 million reduction in interconnection costs attributable to the first quarter, as a result of the COFETEL's decision to reduce mobile termination rates in Mexico retroactively to January 1. Excluding this out of period amount, OIBDA would have been $456 million for the quarter, up 31% over the same period last year.

Let's take a look at some of the operational results in greater detail. On a consolidated basis, gross adds improved by 9% compared to the second quarter of 2010, driven by customer demand for our differentiated services and stable economic conditions in most of our markets. Consolidated churn at 1.7% was flat, compared to the second quarter of 2010, but up slightly from the first quarter. This represents the sixth consecutive quarter that our consolidated churn has been at or below 1.7%, which remains one of the best retention levels in the region.

Consolidated service ARPU was $51, up $4 on a year-over-year basis, primarily due to the effect of improving local currency exchange rate, as well as strategic pricing increases in Brazil and Argentina. Excluding the impact of the out of period benefit from the mobile domination rate reduction in Mexico, our second-quarter OIBDA margin of 26% is 30 basis points better than the second quarter of 2010. This improvement was driven primarily by the lower interconnection cost for the quarter in Mexico and improving local currency exchange rate. Our second quarter OIBDA also includes $16 million of non-cash equity compensation expense.

CapEx for the period was $304 million with approximately 70% invested in Brazil and Mexico and all 40% invested in our 3G and related initiatives. These initiatives included the ongoing development and deployment of our 3G networks in Mexico, Brazil and Chile and investments related to the deployment of our high-performance Push-to-Talk solution on WCDMA, which we expect to launch in Peru later this quarter.

We also continue to invest in capacity across all of our markets to maintain our strong network quality on item. At the market level, Nextel Brazil delivered excellent segment earnings and good subscriber growth for the quarter. Nextel Brazil generated 205,000 net adds ending the quarter with 3.7 million subscribers, a 30% increase in its ending subscriber base compared to the second quarter of 2010. This performance was driven by an 18% year-over-year increase in gross adds, but slightly offset by higher churn of 1.59% when compared to the same period last year.

While churn increased 15 basis points sequentially, due to higher involuntary churn, it still remains the lowest amongst wireless carriers in the region. Nextel Brazil revenues were $906 million, a 48% increase over the second quarter of 2010, resulting from strong subscriber growth and a 17% increase in ARPU.

The year-over-year improvement in ARPU resulted from the combined impact of stronger local currency relative to the dollar and targeted price increases implemented last year.

Segment earnings in Brazil grew to $295 million, a 70% increase compared to the same period last year. Nextel Brazil's results demonstrate our continued success in delivering exceptional growth and profitability and the compelling value proposition that our services offer to our customers. With continued strength in the Brazilian economy, strong operational trends and the new services that we will offer using our planned 3G network, Nextel Brazil is and will continue to be well positioned to deliver even higher levels of profitable growth in the future.

Nextel Mexico delivered strong levels of segment earnings and good overall operational metrics but lower-than-anticipated subscriber growth. Nextel Mexico generated 59,000 net adds for the quarter, ending the quarter over 3.5 million subscribers, a 10% increase in the ending subscriber base compared to a year ago.

As Steve mentioned, we have taken a number of actions designed to improve sales productivity for the second half of the year and beyond. We are encouraged by the improved sales activity in Mexico as we exited the quarter, and do not believe that the lower subscriber growth during the quarter is indicative of a new trend.

We continue to target high-value customers. This focus helped churn remained low at 1.73% for the quarter, an 18-basis point improvement compared to the second quarter of 2010, and only up slightly compared to the fourth quarter of 2011.

Nextel Mexico's revenue up $588 million, a 12% increase compared to the second quarter of 2010, resulted primarily from growth in its sub customer base and a slight increase in ARPU on a U.S. dollar basis. Nextel Mexico's reported ARPU of $48, went up $1 compared to the second quarter of 2010, but reflected a small decline on a local currency basis. Helping to offset this decline, we have continued to gain positive traction around our data initiatives, as well as improved usage levels, resulting from an expansion of our recharge location.

Nextel Mexico generated $223 million in segment earnings during the period, a 9% increase compared to the second quarter of 2010. There were 2 nonrecurring items affecting the comparison of the current quarter's OIBDA with the prior year, including a $17 million adjustment for the reduction of mobile termination rates during the quarter and the refund of $22 million for spectrum fees recorded in the second quarter of 2010. Excluding the impact of both of these items, segment earnings would have been up 12% and margins up 200 basis points over the prior-year period, despite the incremental increase in 3G OpEx investments.

We continue to focus on profitable growth driven by stable ARPU, continued low churn and strong segment earnings. We believe that our Mexican operations are well positioned for sustained growth and profitability over the long term, as we build out on our valuable customer base and evolve to a 3G network that will enable us to deliver more products and services that meet our customers' needs.

Turning now to other markets. During the quarter, Nextel Argentina reported impressive results, generating a 13% increase in its ending subscriber base, an 18% increase in revenues and a 32% increase in segment earnings compared to the second quarter of 2010.

We continue to see improved customer retention in Argentina, with churn improving to 1.54%, a 16-basis point reduction compared to a year ago. Churn improvement has been a key factor driving our customer growth and profitability in Argentina.

Nextel Peru, generated 81,000 net adds ending the quarter with 1.3 million subscribers, a 35% increase in its ending subscriber base compared to the second quarter of 2010. This impressive subscriber growth was generated by a 36% year-over-year increase in growth adds for the quarter. Net adds were down sequentially, compared to the fourth quarter largely due to a slowing in business activity caused by uncertainty related to the presidential elections in Peru. Segment earnings of $8 million is up slightly relative to last year, even as we continue to invest in the deployment of our Push-To-Talk solution in Peru, which is slated to launch later in the third quarter.

Turning to our balance sheet. On a consolidated basis, we ended the quarter with $2.9 billion in cash and investments. Long-term debt at quarter end was $4.4 billion. This amount now includes the Brazil spectrum financing amount of $819 million. Subtracting our cash and investments from our total debt results in net debt of $1.5 billion at quarter end and the ratio of net debt to our updated 2011 OIBDA guidance of 0.9.

Subsequent to the quarter, Nextel Mexico and the China Development Bank signed a definitive agreement, under which Nextel Mexico will be entitled to borrow up to $375 million in financing to help fund the deployment of its 3G network. The financing will be repaid over a term of 10 years and is consistent with our goal of securing attractive financing at the market level.

Turning to our outlook for the remainder of the year, we are excited about the opportunity to pursue profitable growth across all of our markets, and believe our strong financial results for the first half position us to exceed our original revenue and OIBDA goals for the year.

As we have discussed today, our net adds for the second quarter put us below our subscriber growth targets at the midyear point, so we recognize that we face a significant challenge as we work to improve our phase results and reach our goal for total subscriber growth for the year.

However, we believe that the actions that have taken to improve our sales productivity will result in improvements in our subscriber growth in the second half and position us within range of our goals.

Accordingly, we are confirming and adjusting our 2011 guidance as follows: We are maintaining our guidance for 2011 net subscriber additions at $1.7 million. We are raising our 2011 full year revenue guidance to $7.1 billion, up from $6.6 billion. We are raising our 2011 full year OIBDA guidance to $1.7 billion, up from $1.6 billion. We are raising our 2011 capital expenditure guidance to $1.7 billion, up from $1.6 billion to reflect land incremental investments in our 3G network and the impact of stronger local currency exchange rates on those investments.

As always, this guidance is predicated on stable economic conditions and exchange rates in our market.

Now, I will turn the call back over to Steve for his closing remarks.

Steven Dussek

Thank you, Gokul. As you just heard, our financial and operational results for the first half of the year, highlight our continued commitment to our profitable growth strategy. We generated strong year-over-year growth in revenues, OIBDA and subscribers. And we are encouraged by the improving subscriber growth trend we experienced in Mexico as we exited the quarter. We have one of the most valuable customer bases in the business. And we are among the fastest-growing wireless companies in the world.

Our success is due in large part to the dedication and commitment of all of our employees. I want to thank them for their efforts and continued focus on consistently delivering strong results. As we look forward to the second half of the year, our team will continue to concentrate on solid execution in our business, while we build our 3G network and system infrastructure and prepare for our upcoming 3G launches.

We remain excited about our outlook for the year, and our entire team is dedicated to achieving our plan and realizing our goals.

Operator, we'll now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Chris King with Stifel, Nicolaus.

Christopher King - Stifel, Nicolaus & Co., Inc.

Just was wondering if we could drill down a little bit into the quarter, obviously, put up a very strong operating cash flow number in the quarter even with the prior-period adjustment. But also obviously, had some net add headwinds in a couple of markets as you discussed in your prepared remarks. Just was wondering if you could drill down a little bit on both of those trends that we saw in the quarter? And give us perhaps a little bit more flavor for what we should expect and how the second half of the year, of what kind of trajectory we should expect on both of those fronts going into the back half?

Steven Dussek

Chris, this is Steve, thanks for the question. First of all, as you noted, as I mentioned in the opening comments, we recognize that if we did miss our own expectation on net adds -- overall throughout the company. Various reasons that contributed to the miss, let me start first of all with Mexico where the primary reason for nets being lower than what we expected was related to our less in terms of our gross add loading throughout the quarter. And I'd say that, that loading was impacted really by 3 factors. First is as I've said, we made some changes and modifications within our distribution channels, most notably in the indirect side, which did cause some short-term disruption. We made these changes really with the long-term view in mind that these would better have a positive impact both on our long-term growth and on our cost structure going forward. So we created these changes, these modifications, which created this disruption, which took a little bit longer in terms of time for the channels to absorb and integrate into their operating mode. So probably first and foremost, weave to the factor of the changes and modifications within our channels contributed to the gross add loading challenge. The second factor I'll talk about is the competitive environment. The competitive environment in Mexico continues to be challenging, but it always has been for us. And in Q2, we did see a bit more intensity in the competitive world, created through primarily, through new promotional activity. Again, this situation isn't new to us. We've competed very effectively in these periods of heavier promotional activity in the past, and we expect we'll continue to do so. And to that end, let me say to address your question of kind of going forward in the second half of the year, that we did say in our comments and that as we exited the quarter in the latter part of June primarily, we saw that the -- a lot of that disruption had subsided and we experienced much better growth trends towards the end of the June period. And we have seen those trends continue into early Q3. So we do believe that the market overall will remain competitive. It will always be somewhat challenging, but again, I would just stress that we've been very successful in getting our fair share of the postpaid incremental growth there, and we expect we'll continue to do so. And we're very excited that with the launch of our 3G network coming up and the new products and services we'll be able to bring those high-value customers that we target, we're going to be very well-positioned to continue our profitable growth strategy into the second half and into the future. So really, those are the 2 primary factors. And then the third factor is just the overall macroeconomic environment. And what we've seen, not only in our numbers but in others' numbers that have been reported, we have noted that the sequential growth from Q1 to Q2 has been somewhat lower for most to everybody. And again, I know in the postpaid section, we still strongly believe that a lot of that growth is coming in the form of data cards. So we are very confident that we continue to get our share of the incremental postpaid growth -- voice growth in the market. So that's Mexico. Let me just speak briefly about Peru net adds as well, because they were below our expectations. And we did see, as Gokul mentioned in general, market slowing beginning right before the presidential election and continuing after the election and quite frankly, still in place. I think there's a real strong latency attitude within the business community, they're waiting to see how president-elect Humala's approach to the market growth shapes out. And who he appoints in to key cabinet positions. We have seen a couple of early positive indicators of his approach with some of his recent announcements, but most notably the retention of the president of the central bank. But we really need to see how this unfolds over the next 30 to 60 days, and what his policy, how that's expressed and how that is absorbed. But overall, our business still remains strong in Peru. And we're optimistic that over time this -- I guess, the impact of this election and that part of the temporary holding pattern that businesses find themselves in would begin to loosen up. But again, we don't know when that will occur. We know when he's going to come out to talk about his policy in an inaugural address and continue to make appointments. So we'll be watching that very carefully as we progress through the quarter. So when you look at -- those are really the 2 primary areas of -- that related to our lower than expected results of the net adds side. And it also addresses the competitive environment for you. So hopefully that gives you a little bit more color.

Operator

Our next question comes from the line of Gray Powell with Wells Fargo.

Gray Powell - Wells Fargo Securities, LLC

I just have a few quick ones. So the commentary on the improved run rate out of Mexico is encouraging. Can you just give us a little more color on exactly what you're doing in the distribution channels? Is it -- I know it's indirect sales, but is it like more storefronts or kiosks, direct, indirect salespeople? I guess I'm just trying to get a sense as to like what your distribution looks like today versus maybe what it looked like 3 months ago or the beginning of the year?

Steven Dussek

Yes. It's largely the primary channels are largely the same, Gray. We've looked at a couple of new and introduced a couple of new internal channels within, some within our retention group and more outbound telemarketing, if you will, into our base and created those channels. So when you look at the overall, the number of distribution channels, they've stayed relatively the same with this modest increase. What we've done though is we've really tried to more de-risk ourselves on the indirect side with some of the modifications we made. And we've introduced some additional new dealers into the channel. And we've also done and taken some steps in -- with some of our rate plans. But really, the primary changes in distribution really, there are 2, there's one on the changes and modifications and then the introduction of a couple of new channels and plans internally, as I mentioned. So those are really the -- if you look back 3 months ago to -- I mean, look at today, those are the -- probably the most notable changes. We've got more recharging locations as well within our channel, that continues to move at a good pace. So those are really the primary differences if you want to look at a 3-month ago comparison to today.

Gray Powell - Wells Fargo Securities, LLC

Got it. That's very helpful. And then just -- I mean Mexican ARPU trends, on a local currency basis were actually better than what we've seen in a while, which was a little bit of surprise, just given the commentary and competition. Just how should we think about our ARPU trends in Mexico going forward?

Gokul Hemmady

Yes, Gray. So we are encouraged by what we are seeing with the ARPUs in Mexico. I think the drivers are things that we've discussed in the past. We are seeing some really good penetration of our base with smartphones. And I think we've discussed in the past that the ARPUs on those smartphones, whether it's BlackBerrys or Android-based smartphone, the ARPU is almost more than doubled that of our base ARPU. That combined with some of the recharge locations that we had, all of that has created good traction on ARPU, and so we are -- we feel pretty encouraged with ARPU. And we've seen that over the last 2, 3 quarters. As we move along, I mean, we clearly will have to wait and see. Steve talked about some of the competitive issues in that marketplace, but we feel good about the ARPU trends as we move along for the second half of the year. I think it will be expected to be in the region of what we've seen in the second quarter, of course, adjusted for any exchange rate moments -- but movements, but on a local currency basis, I think you should expect Mexico ARPU to continue with the strong strength on data, smartphones, recharge location and those kinds of things. Maybe slightly offset by some of the competitive pressures, but I think stability is the way to probably think about it going forward.

Operator

Our next question comes from the line of James Breen with William Blair.

James Breen - William Blair & Company L.L.C.

Just couple of questions, just trying to clarify some of the MTR changes throughout the quarter. Can you just go through again where you reported EBITDA was? And then what you saw from the onetime MTR from the first quarter? And what you sort of estimate that quarterly impact was this quarter?

Gokul Hemmady

Sure, James. So MTRs in Mexico, as I think we've said in our prepared remarks, $17 million that was booked in the second quarter relates to a first quarter adjustment. So the COFETEL rates coming down from approximately a MXN 1 to MXN 0.39 is retroactive from 4th January. So the first quarter impact, if you will, that we have accounted for in the second quarter is $17 million. And so, we will see approximately that kind of run rate as we go through kind of the second half of this year on a quarterly basis.

James Breen - William Blair & Company L.L.C.

Okay. And then with the CapEx number going from $1.6 billion to $1.7 billion, how much of that do you anticipate is just currency translation into the U.S. dollar?

Gokul Hemmady

I would say approximately half to more than a little slightly over half is estimated. I think the balance as we continue to go full-steam ahead as we launch Chile later this year and then Mexico and Brazil in the first half of 2012, and so we are doing everything to get that launch as we expect. And so a part of the adjustment is really related to some of that.

James Breen - William Blair & Company L.L.C.

I guess, just one last one. It appears that you're scheduled to launch -- your full launch of 3G in Peru in August. Any indication there so far, given what little bitty you have of potentially higher ARPUs associated with those plans?

Gokul Hemmady

I think it's early to say but as we launch 3G and with the high-performance Push-to-Talk, I think in the initial stages, one would expect that we are going to target high ARPU plans and that's clearly the track that we're going down. So again, I think we'll have to wait and see as we launch. But you're right, it is -- that is certainly our plan as we go and launch 3G in Peru.

Operator

Our next question comes from the line of Rick Prentiss with Raymond James.

Richard Prentiss - Raymond James & Associates, Inc.

I'm doing a couple of calls today, hopefully this hasn't been answered. The mobile termination rate, getting back on Jim's question there. Can you update us as far as what's going on in Brazil? We've been hearing that step [ph] function down in Brazil is starting to gain some traction for a multiyear period. If you would remind us again about roughly what kind of percent of your revenues the mobile termination rates in Brazil represent?

Gokul Hemmady

Absolutely, Rick. Yes, I mean, I think as you've heard, there are -- there's been some talk about this being addressed by Anatel maybe in the month or so. We'll have to really wait and see whether that happens, but I think the most important part from our perspective, is that any deduction in mobile termination rates is a big positive for us. We've said in the past that we have many more outgoing calls, obviously, because of the nature of our business. And interconnect cost in general, as a percent of revenue in Brazil, are kind of the mid-high teens, so above, it's kind of anywhere from 16% to 18%. And so if you just do the math on a 10%, what a 10% reduction in mobile termination rate does for us, everything else remaining constant, that's a big huge positive for us. So we clearly are looking forward to it, but timing I think is all dependent on when this release actually happens.

Richard Prentiss - Raymond James & Associates, Inc.

Okay. Second question, on your update to guidance. I assume that includes the mobile termination rate change in Mexico for the full year impact. Did you modify any of your FX assumptions for what you've previously had baked into your guidance?

Gokul Hemmady

Yes, Rick. So before I answer that question, I just want to clarify one thing. I may have mistakenly, in my prepared remarks, said that our updated increasing guidance on OIBDA was $1.7 billion, in fact it is $1.75 billion. I just want to make sure that I clarify that. Now to your question, of course, when we look at guidance, as we look -- sit here at this point, we are looking at the business very holistically and say what our all the variables that go into our forecast for the balance of the year, whether it's FX, mobile termination rates, the kinds of the environment that we are seeing from a macroeconomic perspective, as well as from a competitive perspective. As well as the fact that you should expect that for the second half of the year, we will be ramping up our CapEx as well as 3G OpEx investments in Mexico and Brazil. And so we've taken all of those things into account. I think it's fair to say that we've made some adjustments to our FX forecast based on what we are currently seeing and some of the forecast that are out there from many sources.

Richard Prentiss - Raymond James & Associates, Inc.

And then the final question on the CapEx side, any update as far as what you think it's costing to build the 3G networks in Mexico, and more importantly, Brazil where there is some greenfield that you have to build as well?

Gokul Hemmady

Sure. So I think as you know, based on the experience with Peru, we came in much lower than the $10. We were somewhere in the $7 to $8 range. But as we've said in the past, we expect Mexico and more importantly, Brazil, as you point out to be higher than our experience in Peru. We still, based on everything that we are seeing up to now, we still feel pretty good about that $10 per POP CapEx estimate for us. We plan as you know, to launch around $40 million to $45 million POPs in each of those markets in 2012. And I think we are right on track as we move along and see the spend coming in at those kinds of levels.

Operator

Your next question comes from the line of Mauricio Fernandes with Bank of America Merill Lynch.

Mauricio Fernandes - BofA Merrill Lynch

Two quick questions. First is, I know you're now accounting the Brazil spectrum payment as a debt, but how do you expect to pay it? Are you raising debt? Have you raised debt? And then will pay the Goldman at some point towards the end of the year? Or not will finance with what the Goldman is providing? And then secondly, given the MTR cuts in Mexico, have you modified, as far as these changes you have implemented to increase net adds, have you modified the pricing plans accordingly to perhaps include more off-net minutes and again benefit from the MTR cut?

Gokul Hemmady

Mauricio, so on the debt, yes, as we said, we've taken about $819 million in spectrum financing from the government. I think you know that there's no interest or principal payment in the first 3 years, there's no prepayment penalties. So we will look at all options over the next 12 months or so. We think there are some attractive local currency financing options that we've already started working on in Brazil, that will get us much more favorable terms. You've seen some of the other operators in the past, options also do similar kinds of things. So we will explore those things, exact timing is unclear but our sense is that, that refinancing offsets the spectrum financing will probably happen over the next 12 months. So we'll certainly take advantage of the good rate that we see with some of the other options there locally. With respect to your question on the MTR cuts in Mexico and have we made any changes to our pricing plans? We have not made any changes right now. It's quite unlikely that you will see us making -- we may make some fine tuning adjustments here and there, but it's unlikely that you'll see make any of those changes in the short into medium term. Again, we'll keep our eyes and ears very close to what's happening in the marketplace and the competitive situation and all of those things and make necessary changes as we move forward. In general, with our rate plans, but no plans right now to make any of the changes.

Operator

Our next question comes from the line of Rizwan Ali with Deutsche Bank.

Rizwan Ali - Deutsche Bank AG

Just a quick question on the Mexican MTR, just want to clarify that, has mobile termination rate for terminating on AMX network have changed only? Or are you also being a lower rate to Iusacell and Telefónica? I know the traffic going to Iusacell and Telefónica is pretty low, but still...

Gokul Hemmady

Yes. So you're right. There's one, I think the major positive impact is with AMX, but it is across the board with all the carriers. So it's not just with AMX, the benefits that we are talking about $17 million, as well as a similar run rate going forward include termination traffic on not just AMX, but to other carriers, too.

Rizwan Ali - Deutsche Bank AG

And my second question is, I mean, in your guidance you mentioned that part of it is changes in your FX assumptions. So the question is I mean, would you say that the bulk of increase in your guidance is because of the FX changes in FX assumptions? And if that is the case, then I guess it's fair to assume that your underlying CapEx number increased because if you're using a stronger local currency, your CapEx should've gone down as opposed to going up. So that means in lower currency you're probably spending a lot more on CapEx?

Gokul Hemmady

Sure. So I think you're right, our increase in guidance has -- there is a pretty good FX impact on it. There is also the impact of the mobile termination rate, which we have not taken into account when we first gave guidance. And then of course, as I've said before that we've had a real look at the business as we sit here and looked at our forecast for the balance of the year, and that includes many, many other variables. Now with your specific question on kind of FX, stronger local currency, as you know part of our -- some part of our CapEx is in local currency and some part is in dollars. And so as our rates appreciate in local currency, we are going to have an increase kind of dollar CapEx, if you will. And that's what we've reflected in our guidance. We've changed it from $1.6 billion to $1.7 billion, and I would say that $100 million increase in CapEx side, is I would say almost half of that is related to the fact that exchange rates have appreciated.

Rizwan Ali - Deutsche Bank AG

One last thing, do your forecasts now incorporate potential reduction in mobile termination rates in Brazil?

Gokul Hemmady

No.

Operator

Our next question comes from the line of Kevin Roe with Roe Equity Research.

Kevin Roe -

Two questions, first on Brazil. Gokul, could you give us an update on the competitive landscape there? Any changes in the quarter and your expectation for ARPU trends in the second half? And on 3G, could you update us on handset availability ahead of these launches, both volume and variety, any change there?

Gokul Hemmady

Sure. So competitive landscape in Brazil, Kevin, I don't think I would say -- from time-to-time there are promotions in the marketplace in general with the 4 large carriers that are in that marketplace, I would say that it is of a highly competitive marketplace. So I wouldn't say that over the last 12 months the competitive landscape has gone to any major shifts or changes. So that kind of our perspective there. In terms of ARPUs, we continue to do exceedingly well on ARPUs. You've seen our -- even in this quarter, our local currency ARPU relative to second quarter of 2010 is higher. I mean, it's higher by about a 1% or 2% or so. So I think that we feel good about that, that combined with the growth. And the continued low churn even though was up sequentially a little bit because of involuntary churn, it's all of those things put together, combined with the strong margin performance for Brazil, we feel good about it. In terms of what we see for the second half in terms of ARPUs, we see stability to maybe slight increases. We'll continue to see that, that's been the trend over the last 12 months, plus in Brazil. And I don't think we are doing anything in the marketplace that is really any different from what we've done over the course of the last several quarters. So we continue to see very strong growth there, low churn and then somewhat stable to increasing ARPUs in local currency.

Steven Dussek

Kevin, on your question on the handsets at available to launch on 3G, I think as you were in Peru and you saw, I think that you could at least see and touch and feel a number of those handsets. But as we look at in the third quarter, we're looking at approximately 3 to 4 handsets that launch in that third quarter, early fourth quarter time frame. In the middle of the low tier and then one up in the mid-to-high tier. And there was an additional phone coming in the latter stages of Q4. So the total in the 4 to 5, between now and the end of the year.

Kevin Roe -

And volume shipments, you're comfortable you'll be able to meet projected demand?

Steven Dussek

Yes.

Operator

And our last question comes from the line of Andrew Campbell, with Crédit Suisse.

Andrew Campbell - Crédit Suisse AG

I was wondering if since the Peru investor day, if you have any additional color on the technology deployment with 3G? In particular, I think there was still some additional testing to be done in terms of the integration of the technology with the existing network? So I just wondered if you had any update on that regard?

Steven Dussek

Yes, Andrew, it's Steve. Thanks for the question. Yes, we've continued to make that right on track with our progress there. And things are looking as we expect. So no changes, no delay. Really looking at the product as you saw and the experience that works and works well. So launch is on track and product development on track.

Tim Perrott

Okay. Well, Erica, I think that's all the time we have today for questions on the call. Steve, do you have any wrap-up comments?

Steven Dussek

No. Just again, wanted to thank everyone for participating this morning. I know it's a pretty busy schedule out there with numerous calls, so we appreciate your interest and your questions. And we look forward to getting back with you at the conclusion of our third quarter. So thank you, again, for your time, for your interest and we'll talk to you soon.

Operator

This concludes the NII Holdings Second Quarter 2011 Earnings Conference Call. Thank you for your participation. You may now all disconnect. So have a great day.

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