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Executives

Gokul Hemmady - Chief Financial Officer and Executive Vice President

Steven P. Dussek - Chief Executive Officer and Director

Tim Perrott - VP IR and Corporate Communications

Analysts

Andrew T. Campbell - Crédit Suisse AG, Research Division

James D. Breen - William Blair & Company L.L.C., Research Division

Christopher C. King - Stifel, Nicolaus & Co., Inc., Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Mauricio Fernandes - BofA Merrill Lynch, Research Division

Will Milner - Arete Research Services LLP

Kevin M. Roe - Roe Equity Research, LLC

NII Holdings (NIHD) Q3 2011 Earnings Call October 27, 2011 8:30 AM ET

Operator

Good day, ladies and gentlemen. Thank you for holding, and welcome to the NII Holdings Third Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to our host, Tim Perrott, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Tim Perrott

Thank you, Simon, and good morning to everyone. And thank you for joining NII Holdings Third 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 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 measures 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 P. Dussek

Thanks, Tim, and good morning to everyone joining our call today. As you can see in the press release that we issued this morning, we delivered another quarter of strong subscriber growth while continuing to make progress on the deployment of our 3G networks. Our focus in providing quality service led to a strong subscriber growth as we added 433,000 new customers to our network during the quarter. We have grown our customer base by 19% over the past year, crossing the 10 million subscriber mark. We were especially pleased to see improved subscriber growth in Mexico, where our net adds more than doubled relative to the second quarter.

We generated $381 million in OIBDA for the quarter while continuing to invest in the development of our 3G networks. We achieved a key milestone with the launch of our Push-to-Talk service on our 3G network in Peru. This new capability positions us to continue to offer our customers the best Push-to-Talk experience in the industry while supporting a range of new features and functionality. These new features include handsets and mobile broadband with data speeds that are up to 50x faster than those that are available on our 2G service.

We launched our first handset with this new capability just a few weeks ago in our direct and indirect sales channels, and so far, we have seen good customer acceptance of the product. Over the coming months, we will broaden our handset portfolio to 4 devices, including 1 smart device, and expand the distribution of these new handsets to our retail outlets.

We also made significant progress in the deployment of our 3G networks in Brazil, Mexico and Chile. In both Brazil and Mexico, we are currently planning for mid-2012 commercial launches of our 3G service in key markets. In Chile, we are continuing to push forward toward our goal of a commercial launch of 3G services in early 2012. Finally, we made significant progress on our marketing plans with the refresh of our brand image and our retail sales and service locations.

As you may know, the Nextel brand in Latin America is recognized by customers as the premium wireless brand. Our new identity unifies our brand across our 5 markets under the slogan "Your world. Now," building on our reputation of providing the highest quality wireless experience. As we invest in our business to expand both the services we offer and the customers we target, we believe that our new image and channels will enhance our position with our current customer segments and broaden our appeal to new high-value customers in the region.

So overall, we are making great progress with our plans to deploy 3G. We are very excited about the investments that we are making in our brand and our network, positioning us to significantly expand our addressable market and remain one of the fastest-growing wireless companies in the world.

I will follow up with more comments later. But right now, I will turn the call over to Gokul Hemmady, our Executive Vice President and CFO.

Gokul Hemmady

Thank you, Steve, and good morning. During the quarter, we generated excellent subscriber growth and good operation metrics despite uncertain economic conditions. As you know, we translate our results to U.S. dollars using the average foreign currency exchange rate during the quarter. Our reported financial results were impacted by the weakening of local currency exchange rate late in the quarter. While we cannot conclude what happens in the foreign exchange market, we can and will continue to concentrate on the drivers of the business, like our performance against our key operating metrics. We believe this focus has served us well when we faced challenging conditions in the past and offered the best opportunity to create value for our business over the long term.

Here are some highlights for the third quarter. We generated 433,000 net adds, bringing our subscriber base at quarter end to 10.2 million subscribers, an increase of 19% compared to the end of the third quarter of 2010. We generated $1.75 billion in consolidated operating revenues, a 21% increase over the same period last year. And we reported $381 million in consolidated OIBDA, an increase of 5% compared to the third quarter of 2010.

Let's take a look at some of the operation results in greater detail. On a consolidated basis, gross adds improved by 14% compared to the third quarter of 2010, driven by strong demand for our differentiated services, particularly in Mexico, where we successfully addressed the distribution issues that we faced earlier this year. Consolidated churn of 1.78% was up slightly on a sequential basis, driven primarily by an increase in involuntary churn. Consolidated service ARPU was $49, up more than $1 for the third quarter last year, primarily due to the effect of year-over-year improvement in the average local currency exchange rate for the quarter, as well as strategic price increases in Brazil. On a sequential basis, ARPU decline by $1 due to weaker local currency exchange rate and intensifying competitive conditions, particularly in Brazil.

Our third quarter OIBDA margin of 22% was lower sequentially due to the combined effect of some items that was specific to the second and third quarter. The quarter specific items affecting sequential margins include incrementing customer acquisition costs associated with strong subscriber growth in Mexico in the third quarter, costs associated with the launch of our new brand identity during the third quarter and the onetime catch-up benefit we recorded in the second quarter relating to the retroactive application of the mobile termination rate reduction in Mexico.

Operationally, we saw an increase in promotional plans offered by our competitors in Brazil developing in higher customer acquisition and customer retention costs and lower ARPU during the third quarter. On the foreign exchange front, continued uncertainty in worldwide economic conditions drew a significant decline in local currency values relative to the dollar, resulting in lower average exchange rate compared to the second quarter.

While we have recently seen some improvement in local currency values, there continues to be significant volatility in the market, and currency exchange rate reflects a substantial reduction value from the levels earlier this year. This decline in currency values had an impact on our third quarter's result, including our consolidated OIBDA, and we expect it will put pressure on our reported results for the remainder of the year.

Turning to CapEx for the period, we invested $336 million, with about 60% of that amount invested in Brazil and Mexico and about half of the total CapEx 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 investment related to the deployment of our Push-to-Talk solutions on WCDMA that we launched in Peru last month.

We also continued to invest in capacity and coverage across all of our market to maintain the quality of our iDEN networks. At the market level, Nextel Brazil generated solid subscriber and revenue growth and hurt [ph] somewhat by an increase in promotional activity late in the quarter. Nextel Brazil generated 209,000 net adds, ending the quarter with 3.9 million subscribers at quarter end, a 26% increase in its subscriber base compared to the end of the third quarter of 2010. This performance was driven by an 8% year-over-year increase in gross adds, slightly offset by a higher churn rate of 1.64% when compared to the same period last year. Although churn at this level was up slightly compared to the second quarter of 2011, it remains the lowest amongst wireless carriers in the region.

Nextel Brazil revenues was $910 million, a 32% increase over the third quarter of 2010, resulting from strong subscriber growth and a 6% increase in ARPU. The improvement in ARPU resulted from stronger year-over-year average currency exchange rate and targeted price increases. ARPU for the third quarter was down slightly in local currency terms compared to the same period last year due to promotional rate plans that were recently launched.

Segment earnings in Brazil were $250 million, a 17% increase compared to the same period last year. Segment earnings was lower sequentially due to the combined impact of an increase in customer acquisition costs and increase in costs related to the launch of our new brand identity and the impact of the depreciation of the Brazilian real relative to the dollar late in the quarter. We expect that challenging economic conditions and an intense competitive environment will continue for the remainder of the year and will likely have some negative impact on our operational metric, including ARPU. As in the past, our response will be to take actions designed to balance growth and profitability and position Nextel Brazil to continue delivering strong results. Stepping back and putting it all into perspective, Nextel Brazil will likely grow its subscriber base by over 25% in 2011 and generally the margin of about 30% for the year, all while making progress towards the goal of commercially launching a 3G network in key markets next year.

Nextel Mexico delivered an excellent quarter, highlighted by a strong rebound in customer growth, outstanding operational metrics and good cash flow. Nextel Mexico generated 120,000 net adds for the quarter, ending the quarter with 3.6 million subscribers, 11% increase compared to a year ago. Gross adds grew 29% sequentially and 18% compared to the same period last year. This result was driven in part by the actions we took last quarter to improve our sales productivity and address other distribution channel issues, as well as certain modifications to our rate plan.

Our focus on attracting high-value customers continues to drive stability in our customer base in Mexico, with churn remaining low at 1.76% for the quarter. Churn in Mexico reflects a slight improvement when compared to the third quarter of 2010 and is in line with the level reported last quarter. The 9% year-over-year increase in Nextel Mexico's revenue to $577 million for the third quarter resulted primarily from growth in its customer base and a slight increase in ARPU on a U.S. dollar basis.

Nextel Mexico's ARPU of $46 were flat when compared to the third quarter of 2010, but was down slightly on a local currency basis, reflecting the impact of the ongoing competitive conditions in Mexico. The reduction in ARPU on a local currency basis represented the smallest sequential decline over the last several quarters. This underscores efforts by our Mexico team to stimulate revenues through increased adoption of data services and higher customer usage levels.

Nextel Mexico generated $187 million in segment earnings during the period, a 2% increase compared to the third quarter of 2010. Our segment earnings were impacted by customer acquisition costs associated with the additional subscriber growth that we generated and the investments we made in our brand and new sales channels during the quarter.

Our Mexico team delivered outstanding results highlighted by strong subscriber growth, stable ARPU and low churn. We plan to build on this momentum as we deploy our 3G network in Mexico, which will enable us to deliver more products and services, creating a more valuable business in Mexico over the long term.

Turning now to our other markets. During the quarter, Nextel Argentina reported solid results, generating a 12% increase in its ending subscriber base, an 18% increase in revenue and a 7% increase in segment earnings compared to the third quarter of 2010. Churn of 1.61% was up slightly when compared to last year, and our focus on customer retention has driven customer growth and improved profitability in that market.

Nextel Peru generated 66,000 net adds, ending the quarter with 1.4 million subscribers, a 33% increase compared to the third quarter of 2010. Our results in Peru continue to reflect some uncertainties surrounding the economic outlook of the country. Segment earnings of $11 million increased 9% during the quarter compared to last year, even with expenses associated with the deployment of our 3G network and the launch of our Push-to-Talk solution on this platform in September.

Looking at our capital structure, on a consolidated basis, we ended the quarter with $2.6 billion in cash and investments, with about 90% of our cash held in U.S. dollars. Long-term debt at quarter end was $4.1 billion. Subtracting our cash and investments from our total debt results in net debt of $1.5 billion at quarter end.

Turning to our outlook for the year, we continue to see significant opportunity to pursue profitable growth even with the uncertainty in economic conditions and competitive challenges that exist in some of our markets. In terms of subscribers, as we noted during our last earnings call, our net adds during the second quarter put us behind our goals for the year, making it difficult for us to achieve the 1.7 million net adds target that we had set at the start of the year. While we are pleased to see the significant improvement in net adds over the second quarter, this recognized that the fourth quarter is not our strongest quarter for gross adds, given the fewer selling days and our focus on business customers. With those considerations in mind, we continue to believe that it will be difficult for us to reach our original subscriber growth target for the year.

In addition, current exchange rates reflect a decline in the value of local currencies relative to the dollar, in a range of 10% to 15% compared to the exchange rate that prevailed at the time we updated our 2011 guidance. This local currency values remain near current levels for the balance of the year. A translation of our results to U.S. dollar will negatively impact our reported financial results from what we expected earlier in the year.

Based on our current assessment of the impact of exchange rate, the competitive environment in Brazil and our expectation that generally weaker macroeconomic conditions will continue, we are making the following adjustment to our outlook for the year. We expect to generate approximately 1.6 million net subscriber additions. We expect to generate $6.8 billion in total revenue. And we expect to deliver approximately $1.6 billion in OIBDA. We are not updating our outlook for 2012 capital expenditure at this time, but we do expect our CapEx for 2011 will be less than our guidance due to timing issues and lower exchange rate. We want to be clear that we are on track to meet our 3G deployment milestone included in our planned 2012 launch date.

To summarize our outlook, we will remain focused on delivering results that will reflect significant year-over-year subscriber, revenue and OIBDA growth, while investing in the business to capture more profitable growth and build value in the business over the long term.

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

Steven P. Dussek

Thanks, Gokul. Looking across our results, I think it's fair to say that our performance this quarter reflects a number of encouraging developments, tempered by the impact of some new challenges related to the economic and competitive landscape. On the positive side, subscriber growth showed significant improvement over last quarter, particularly in Mexico, and we launched our new Push-to-Talk service on our 3G network in Peru, as well as our new brand image. However, we saw the reemergence of the weaker economic environment and more aggressive competition in Brazil. Certainly, these conditions pose challenges for us, but I am confident that our team will manage through them as we have in the past by concentrating on the core fundamentals that drive both growth and profitability. But perhaps most important, we will continue to invest in our business by deploying our next-generation networks. This investment is critical to our strategy. While we will address near-term issues as they arise, we will not allow that to distract us from our long-range goal of maximizing our opportunities by deploying our 3G networks, expanding our distribution channels and investing in our brand.

While these investments in the related startup expenses will have some impact in our near-term results, we believe that they will pay off over the long term by positioning us to more than double the size of our addressable market, create a more cost-efficient business model and enhance our opportunity to pursue additional revenue streams. We are very excited about where we are taking NII and the opportunity to pursue even more profitable growth in the future.

Operator, we will now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Christopher King of Stifel, Nicolaus & Company.

Christopher C. King - Stifel, Nicolaus & Co., Inc., Research Division

Just wanted to drill down a little bit in terms of the details in the quarter, obviously, a very nice subscriber growth, particularly coming out of Mexico. However, margins were under a little bit of pressure. Can you give us some additional details around the dynamics there both in terms of the subscriber growth, as well as anything in particular that may have impacted your EBITDA results that you can quantify for us, particularly in markets like Brazil and Mexico?

Steven P. Dussek

Sure, Chris. This is Steve. Let me start with the first component of your question, the subscriber growth. Suffice it to say that we were very pleased with the nice rebound in overall sub growth in the quarter. We've noted many times, I think, that we're seeing this growth come at the very same time that we're investing in the future of our business on many fronts as we talked about. So seeing this continued strong growth is very positive in our respect. On a year-over-year basis, our subscriber base is growing at what we think is a very healthy 19% rate. And our net adds also showed improvement as we noted over the second quarter of the year. A major reason for that sequential improvement was Mexico more than doubling their net adds from the second quarter. So what we saw there was really, if you recall, the second quarter when we saw the lower net adds than expected, which was driven primarily through some changes that we made and modifications we made in our distribution channel, primarily on the indirect side. A lot of those changes and majority of those changes have been absorbed, and things kind of return to a normal pace there. So that was one of the key drivers there in Mexico, and a continued strong performance by all of our channels in Mexico. But really, the primary driver was bringing back to kind of normal situation relative to our distribution channels. On Brazil, again, that it generated very strong net adds, even with what we saw as kind of an increased promotional activity on a competitive front. As we've said time and time again, the Brazil market has always been extremely competitive. And we have these periods where we see different folks in their drive for additional share gains do more promotional activity. And we saw that during the quarter, in fact, towards the tail end of the quarter. And seeing us generate the kind of sub growth there was very, very positive. And then I think the consistent performance from all of our other markets contributed to another strong quarter. So really, those were the drivers on the sub growth side. And let me move to the second part of your question, which is relative to the pressure within the quarter on margins. I think as Gokul mentioned in his comments, that we are really in the beginning and middle stages of investment cycle in our business and the future of our business. And a few areas have some impact on our reported OIBDA results for the quarter. First, as I think Gokul noted, there were the incremental customer acquisition costs related to that stronger growth that we just talked about in Mexico. Second, we are making the investments in our future as we've talked about with a continued build-out and ramp-up of our 3G build and the related systems that go with that. Plus, the brand investment that we made in the third quarter, and also broadening and strengthening our distribution channel. So the whole 3G and related acceleration of those costs. Third was the impact from the currency volatility that we saw, which we saw significant changes in the FX rates. And I think it's important for us to note that more than half of the margin drop is related to our brand investments and those FX changes. And then one other point that Gokul did make that did contribute was that we had the MTR retroactive catch-up amount in Mexico in last quarter's OIBDA that we don't have in this third quarter. And again, that was the catch-up amount from the first quarter that appeared in the second quarter in Mexico from the MTR cut. So those were really the drivers of sub growth, the drivers on the pressure on margin. And all of those were as we highlighted in the body of the call. Having said all this, it is really -- keep reiterating -- it's really absolutely the right time for us to be investing in our business for the long term, by staying on track with our 3G build-outs and then those investments. And we've said many times that this is a great opportunity for us as we pursue long-term profitable growth. So those were really the drivers relative to both parts of your questions.

Christopher C. King - Stifel, Nicolaus & Co., Inc., Research Division

Just a quick follow-up. I assume that you guys haven not seen anything that would cause you to deviate off of your guidance with respect to an approximate $2 per POP OpEx number for the 3G build-out cost?

Gokul Hemmady

Chris, so, no, we have not seen anything that would expect us to do that. As you know, we came in -- around back in Peru, we've had that experience. I think we are quite on track to be around that $2 per POP for both Mexico and Brazil. And as I think Steve stated, both those launches are expected in the first half of 2012, by middle of that year.

Operator

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

James D. Breen - William Blair & Company L.L.C., Research Division

Just a couple of questions. One, with respect to the rollout, it seems though -- and this may just be semantic but it seems as though you're trying to accelerate a little bit to get Mexico and Brazil launched a little bit earlier than you talked about previously. So can we expect to see a little bit more dilution from those launch costs through the fourth quarter and first half of next year because of that? And then secondly, with respect to the competition in Brazil, can you make any comments specifically around the Push-to-Talk product that Viva launched, and if that's some of the areas where you're seeing competition?

Gokul Hemmady

Sure, James. No, we don't really -- our plans for rollout haven't changed. Of course, we do everything to roll out as quickly as we can. But we want to stay very disciplined. When we roll out the market, we want to make sure that we do it in a fashion that is in line with our differentiated value proposition and the kinds of segments we go after. So I wouldn't say that there is any major change relative to our rollout schedule. And so therefore, I don't think you should expect any that are investments in OpEx. And therefore, I think you mentioned dilution resulting from that investment should change any. I think we've talked about this. As we think about our results for this quarter, the investments, the important investments that we've made this quarter, we continue to make as we go into the fourth quarter, as it relates to our brand refresh. And then we don't have -- those are onetime investments that we are making in the third and fourth quarter. As we go into 2012, we launched Mexico, and Brazil will start having some dilution. But there are things that we continue to work on to try and offset that dilution. And then as all of you know, I think that there are some potential for some changes in -- for example, in mobile termination rates and in some of our markets that may contribute to some of the benefits going into 2012. Timing of that is uncertain. But as we look at all of this, we still feel very good about the investments that we are making and the margin profile as we go into 2012.

Steven P. Dussek

Jim, this is Steve. With respect to your question about seeing any competition from the PTT -- the competitive PTT rollout in Brazil, we've not seen any significant or material impact from that. We talked about that in prior calls about some of the differences that exist on products that have been rolled out in the past and relative to both the technical differences and some of the operational differences in terms of the way that you have to deploy that. So -- But to answer your question directly, Jim, we've not seen any issues or any impact from the competitive offering in Brazil.

Operator

And our next question comes from the line of Ric Prentiss with Raymond James.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

A couple of follow-up questions if I could. First, on the branding, was the full onetime costs of the brands reflecting in the third quarter, is that something that would continue in the fourth quarter?

Gokul Hemmady

Yes, Ric, so it is -- it will be between our third and fourth quarters. So the investment level that we had in the third quarter will be somewhat similar as we go into the fourth quarter, and then we won't have that going into the next year.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Okay. And on the -- Steve, you had mentioned that distribution channels were somewhat what the pressure on margins have done. Are distribution channels included in the $2 per POP 3G spend? Or is that something separate?

Gokul Hemmady

I'm assuming that you're referring to distribution channels in Mexico, but in general, I would say, as we think about the expanded adjustable market that we are going after in all of our market as we launch 3G, any distribution channel investments that we make are included either in CapEx or in our OpEx numbers.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Okay. And then how about in that $2 per POP number for OpEx for 3G?

Gokul Hemmady

Some included it in the initial phases because I think our distribution channel activity is really going to go on much beyond our commercial launch activity. So our commercial launch, whatever we plan to do with our channels is included in that $2. That $2, above 2/3 of that $2 is really related to network costs, and the balance 1/3 is related to our go-to-market strategy, which includes distribution channels.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

That makes sense. On the mobile termination rates that you talked about, we've all been watching your interest in Brazil. Any update for the process to go? And then I think I was trying to work through what the step functions would be. Any update as far as when we should expect a loan from the government?

Gokul Hemmady

No, Ric. I don't know that there are too many updates. I mean, I think there is a lot of speculation of it being somewhat eminent and then there are speculations that it could be end of 2012. In fact, it could be early 2013 also. And then this element of the government doing some studies on the cost structure side. It's our sense that the cost study will take some time to happen that they will not wait for that cost study to happen to bring MTR down from the current 21 kind of sense to something lower. So we do expect that there will be some activity going into 2012. But I think we'll have to wait and see what happens.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Okay. So one final, just clarification on the market launches. Can you just tell us what the current thought is for Chile and Mexico and Peru -- sorry, Chile, Mexico and Brazil? Just for our modeling purposes, we know what to assume for launches.

Steven P. Dussek

Yes, Ric, as we've said, we'll see a soft launch in Chile most similarly to what we did in Peru in terms of data cards towards the end of this year. And then we'll see an early 2012 launch of the high performance Push-to-Talk full model. Mexico, some time in that April, May timeframe of 2012, followed by Brazil in mid-year 2012.

Operator

And our next question comes from the line of Mauricio Fernandes with Bank of America Merrill Lynch.

Mauricio Fernandes - BofA Merrill Lynch, Research Division

Steve, just 1 question. When you mentioned the brand investment, half of the margin decline was related with the brand investment. Is this what you mean in a quarter-to-quarter basis or year-on-year basis?

Steven P. Dussek

Yes, that was on a quarter basis, and then it was -- half of it combined with the FX. So it wasn't half. It's the brand alone being half. It was brand, plus the FX combination.

Mauricio Fernandes - BofA Merrill Lynch, Research Division

Just for the benefit of being able to exactly know what the impact was, can you tell us roughly speaking millions of dollars how much was spent in the third quarter with the rebranding?

Gokul Hemmady

So I would say, if you go from the second quarter to the third quarter OIBDA, Mauricio, the way to think about it is that roughly 30% or so of the OIBDA decline that you see is driven by FX. Around 50% to 55% is driven by our investment in brand and the onetime benefit that we saw on the mobile termination rates, rate reductions. And then the third piece is really driven by some of our increase in the promotional activity and the competitive environment. So again, just to summarize, about 50% to 55% is driven, number one, by investment in the brand, plus the onetime MTR reduction, which we've told you in the past was about $15 million. Second, above 30% was driven by FX. And the balance was driven by, as we've characterized, an increased promotional activity and therefore, affecting both our CPGA and somewhat our ARPU in Brazil.

Mauricio Fernandes - BofA Merrill Lynch, Research Division

Okay, understood. And the -- on the competitive pressure in Brazil, can you be more specific about it? Because as far as I understand, [indiscernible] is not making it more difficult for NII to grow subscribers. We noticed that the ARPU fell by a few reais, so x the FX effect, so looking at the local currency. But also, marketing expenses went up, obviously, partially related with the brand. But just wanted to know where do you see it coming and whether you have to respond already with lower prices or this is just that you have to increase marketing expenses as well.

Gokul Hemmady

So I think, Mauricio, as you know very well, that market is quite intensely competitive. We've sensed that it is extremely competitive from -- for several quarters, it's been that way, with 4 large players in that marketplace. We feel very good about our position there. We've seen -- we saw in the quarter some promotional activity that our competitors had, and we had some responses. And so we invested more in CPGA, as you've seen from some of the CPGA numbers, which also, by the way, from Brazil includes some investments for our brand launch. So not all of that is really the promotional activity. So I would say promotional activity was certainly a factor. Now as it relates to ARPUs, when we see -- for the last several quarters, yes, we've had stable to slightly increasing ARPUs. As you've seen this quarter, we've had slight declines in ARPUs. But if you look at our overall profile of growth, growth at 25% plus margins, at 30% plus, and you compare that to some of our peers, those rank, in our opinion, may well be -- our market share in the postpaid market is flat to growing, despite the fact that we don't play in very important segment in that space right now, which is the data card market, which we will start doing when we launch 3G. And one final comment, as you think about postpaid ARPUs that we have relative to most of our competitors in that marketplace, ARPU profile still looks extremely healthy. So we feel good about the position that we have. But it is -- the reality is that it's highly -- it is intensely competitive, and we've seen some promotional activity in the -- more in the second half of the quarter, which we have to see whether it's continued, in our sense, that it will continue. And we'll respond with what we've always done in many of our other countries, which is fine-tune our laid plans, deliver strong value proposition to our customers and work on our cost structure to be able to maintain margins at 30% plus.

Operator

And our next question comes from the line of Kevin Roe of Roe Equity Research.

Kevin M. Roe - Roe Equity Research, LLC

I had a little trouble getting in the call, so you may have talked about 3G in Peru in the opening comments. But if you could review and talk about network performance of 3G in Peru, if there are any network performance metrics you could share, that would be great.

Steven P. Dussek

Yes, Kevin, it's Steve. Listen, obviously, getting our high performance Push-to-Talk service launched at the end of the third quarter was a real milestone for us. From a network perspective, while I don't have metrics I can share with you, I can give you the overall view, the performance base is that it is net and exceeded our expectations and most importantly, customers' expectations. Relative to both the quality of the call, setup of the call and the interoperability between the WCDMA users and the iDEN users. So from a network perspective, it really performed as expected or even better than we had expected. So we're very, very pleased with that. And obviously, we launched that September 30. So from a quarterly perspective, it's very immaterial in the third quarter in terms of results. But as we -- obviously, as we go forward, we'll get more handsets into the mix and get it broadened into our retail channels. We'll have a much better insight in terms of the continued positive customer acceptance.

Kevin M. Roe - Roe Equity Research, LLC

So can you comment specifically how 3G subs are ramping in October? And when do you hope to have smartphones available?

Steven P. Dussek

Yes, from October, I would just say that they're ramping relative to our expectations. And then in terms of specific numbers, still -- it's still early. It's still 3, 4 weeks in. But it is proving out relative to our expectations. In terms of the handset lineup, as we said, we launch with a handset, expect to have another 3 to 4 handsets over the next 60 days and with one of those being a smart device. So -- and then as we look forward into 2012, that lineup expands to over -- a little over a dozen total handsets, with about 4, 5 of those being smart device. So we're very excited with both the network performance, with the early customer acceptance, given the one handset in direct, indirect focus, as well as being on track with our additional handsets barging down into retail. So it's been a very positive experience. And I think as we get more into full quarters and whatnot in full complement of the product, we certainly can talk a little bit more in terms of the quantities in the performance.

Kevin M. Roe - Roe Equity Research, LLC

That's helpful. And, Gokul, just switching to Brazil quickly, can you update us on your expectations for equipment financing?

Gokul Hemmady

Sure. So as you know, we've signed the financing for both Chile and Mexico, and now we are taking that into Brazil. Our view is that it should happen in the next 6 to 8 weeks or so. The thing you should know is that it's in the financing. It's on the China Development Bank. It's through our vendor, which is Huawei. And as you can imagine, when we signed this -- when we signed up our vendor for all of these markets, it was a highly competitive profit. And the vendor is on the hook for several things. It's a good long-term partnership. We feel very good about our vendor, but we do have to focus into the vendor as it relates to the ability to get this financing done. So we feel good about our ability to get that -- it totaled about $1 billion. We've already signed up $0.5 billion. The balance of the $0.5 billion is for Brazil, which we'll get done shortly on similar terms that we did for Mexico, which was a 10-year facility with 3-year availability, LIBOR plus 250.

Operator

And our next question comes from the line of Andrew Campbell of Crédit Suisse North America.

Andrew T. Campbell - Crédit Suisse AG, Research Division

My question is related to CapEx. And I know that you did not update your CapEx guidance. I'm assuming that's because you're going to spend considerably less than the original guidance. And maybe you could just share with us if that's because you actually intend to spend less through the rollout process or is this just a shifting of CapEx from this year into next year. And then my other question will just be on upcoming spectrum auctions with the government. And they're still talking a 2.5 giga for auction in April of next year, if that's an auction that could be of interest for you guys or if it doesn't makes sense, given where you are on 3G.

Gokul Hemmady

All right. Andrew, so let's start with CapEx. I think we are on track to build out about roughly $80 million to $90 million POPs between Mexico and Brazil by mid-2012, and I think we are on track to spend approximately $10 per POP. I think it could come in slightly lower than $10. But I think right now, I'll stick to the $10 per POP in CapEx. So nothing has changed from that perspective. Yes -- and second, we feel very good about the plans -- our plans, and we believe that we will deploy in mid-2012. From a timing perspective, yes, I think there could be some timing shift from '11 to '12. And so that certainly could happen. I'm not saying that that's a big huge amount, but that certainly could happen as we look at our CapEx for this year versus next year. But also, our CapEx for this year relative to where we were when we talked about it on our second quarter earnings call, FX does have an impact with weaker FX. About 50% to 60% of our CapEx is local currency. And so a weaker FX by 10% to 15% has an impact on U.S. dollar CapEx numbers. And so that certainly is also affected. So you're right, that we probably come in somewhat lower than what we had said, more FX reasons and for timing reasons from '11 to '12. But the rollout plan is still on schedule, the launch, yes. And then the question on the spectrums, the 2.5 spectrum, I think, in Brazil that you're referring to. In general, our view is that spectrum, if it makes sense, we would want to acquire it, whether it's for the immediate term or as we think about our longer-term picture. But in general, I would say that we are very happy with what we currently have in all of our markets in Brazil, with what we have on the 1.9, as well as some that we got on the 1.8, plus what we have with existing 800 band that we use for iDEN. But as we get closer to the auction, we will certainly look at and analyze whether it makes sense for us to be in that -- in those auctions.

Operator

And that's coming from the line of Will Milner of Arete Research.

Will Milner - Arete Research Services LLP

If I can just press again on Brazil and the competition, because I think the rate of year-over-year increase in CPGA is obviously faster than we've ever seen before. And as you say, some of it is down to brand. But, I mean, if you could just talk in a little bit more specific detail about what's happened during the quarter from which of your competitors you've seen that competition coming from. And then I guess perhaps linked to that question, I mean, is there any impact in Brazil from size of consumer credit checks that are being employed by [indiscernible] retailer? Are you seeing any impacts from your business from that?

Gokul Hemmady

Sure. Let me first address the CPGA, right? I mean, a substantial portion of the CPGA increase is related to, again, the investments in brand. So I think just put that in mind. But I'm not suggesting that the increase in the CPGA investment is all brand. It is quite a bit of brand refresh activity during the quarter. The balance is, of course, promotional activity. We've seen -- primarily, the promotional activity that we've seen is strong from -- without naming names, it's really from some of the #1, #2 market share pool, as you can imagine. And so I think that's something that we've seen more in the second half of the quarter as we pointed out. And as I think Steve said in some of his comments, there's nothing unusual about the promotional activity that we've seen. As we said, it's a highly-intensive competitive marketplace. We've seen some more intense promotional activity, and we've done some of that ourselves. And our investment in CPGA has gone up as a result of that. I don't know -- what was the second part of your question? I forgot that. Oh yes, credit checks. The churn that has gone up in Brazil is all involuntary churn, number one. It picked up slightly. I wouldn't say that it's a whole lot. Macroeconomic uncertainty is is having some impact. I think it's too early to say. It's having some impact on our metrics, very minimal, I would say. And anecdotally, we have some instances where customers are being a little more cautious. But other than that, I don't think from a credit check perspective, anything had substantially changed from our point of view.

Tim Perrott

Great. That's all the time for questions we have today, Steve. Any comment?

Steven P. Dussek

I think I want to thank everybody again for joining us today and for your continued interest in our company. We look forward to coming back to you with our year-end results in February. So thank you again. Have a good day.

Operator

Thank you. This concludes the NII Holdings Third Quarter 2011 Earnings Conference Call. Thank you for your participation.

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