NII Holdings, Inc. Q3 2007 Earnings Call Transcript

NII Holdings Inc. (NIHD)
Q3 2007 Earnings Call
October 25, 2007, 08:30 AM ET

Executives

Tim Perrott - VP, IR and Cooperate Communications
Steven M. Shindler - Chairman and CEO
Lo van Gemert - President and COO
Gokul Hemmady - VP and Chief Finance Officer

Analysts

Richard Prentiss - Raymond James
Christopher King - Stifel Nicolaus & Company
James Breen - Thomas Weisel Partners
Walter Piecyk - Pali Capital
Marseille Fernandes - Merrill Lynch
Brett Feldman - Lehman Brothers

Presentation


Operator

Please standby, we are about to begin. Ladies and gentlemen, thank you for holding and welcome to the NII Holdings Third Quarter 2007 Earnings Conference Call. At this time, all lines are in a listen-only mode. There will be an opportunity to ask questions at the end of today's call. Today's conference can… call will be available for rebroadcast through November 08, 2007. Domestic callers may access the rebroadcast by dialing 1888-203-1112 and entering the passcode 4528103. International participants may access the rebroadcast by dialing 719-457-0820 and entering passcode 4528103.

I will now turn the conference over to our host, Tim Perrott, Vice President of Investor Relations and Cooperate Communications. Please go ahead, sir.

Tim Perrott - Vice President, Investor Relations and Cooperate Communications

Thank you Josh and good morning to everyone and thank you for joining NII Holdings third quarter 2007 earnings conference call.

With me on the call today are Steve Shindler, our Chairman and CEO; Lo van Gemert, our President and COO; and Gokul Hemmady, our Vice President and CFO.

As a preliminary matter, let me inform you that some of the issues discussed today are not historical and will be forward-looking and as such should be taken in the context under risks and uncertainties that are outlined in the SEC filings of NII Holdings, including our 2006 10-K, which we filed on February 27, 2007 and other documents we have filed with the SEC.

In addition, during this call, we will be discussing some financial metrics which do not conform to Generally Accepted Accounting Principles or better known as GAAP. For a reconciliation of these numbers to GAAP, please access NII's Investor Relation link at www.nii.com.

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

I'd now like to introduce Steve Shindler, our Chairman and CEO. Steve?

Steven M. Shindler - Chairman and Chief Executive Officer

Thank you, Tim and good morning. I would like to welcome all of our investors and analysts who have joined us for the call today. As we do on every quarterly conference call, our team will review the accomplishments and challenges for the quarter as well as provide insight into the opportunities ahead.

As you can see from the results that we released this morning, NII delivered solid operational metrics and profitability in the quarter, while continuing to make progress on our expansion and growth plans for the year. During the third quarter we generated revenues of $853 million, a 39% increase over the same period last year and generated $235 million in operating income before depreciation and amortization or OIBDA, nearly a 50% increase over the last year. Our consolidated OIBDA margin improved by nearly 200 basis points over the same period last year. Underpinning this performance was our strong consolidated metrics as we generated healthy levels of ARPU, low churn, and attractive CPGA.

Consolidated net additions for the quarter were up by about 23% over the same period last year, however, we are slightly below this year’s record second quarter results. Although, higher relative to last year, Nextel Mexico’s net additions came in below their very strong second quarter levels, due primarily to an increase in promotional activity by our competitors in Mexico. Our net subscriber additions in Mexico in the third quarter were also affected by the unusually active hurricane season, which reduced the number of selling days in several of our key markets and delayed the launch of one our new markets. We estimate that weather related activity negatively impacted our results by approximately 10,000 to 15,000 net subscriber additions. Even with these challenges, Nextel Mexico delivered good subscriber growth while maintaining healthy operating metrics resulting in an improvement in its segment earnings margin by more than 200 basis points and ended the quarter with a 38% increase in our subscriber base as compared to the end of the third quarter last year.

Nextel Brazil delivered strong growth and improving metrics in the quarter outpacing its very strong second quarter results, delivering 51% more net additions and a 66% improvement in segment earnings compared to the third quarter last year. We believe that Nextel Brazil’s strong growth and improving metrics confirmed our decision to aggressively pursue the opportunity in this important market. We also made progress on expanding our footprint and enhancing our coverage during the quarter. We estimate that Nextel Mexico now covers over 80% of the GDP in a country equating to coverage of about 64 million pops. With our current base of high quality subscribers add about 2 million against the back drop of a wireless market that in our view offers the opportunity for strong growth. We continue to be excited about the long-term growth opportunity in Mexico.

In short, we believe that Mexico is and will continue to be one world’s most attractive telecom markets and NII is well positioned to capture the significant opportunities it offers.

In Brazil, we are setting in motion our plans to expand our network coverage in order to capture the opportunity that market presents. As we stated on our call last quarter, given Nextel Brazil’s strong metrics and opportunity for growth, we have decided to invest an incremental $300 million over the next two to thee years to expand our footprint, bringing our coverage of the Brazilian GDP to levels on par with coverage in our other markets.

We are very excited about the opportunities ahead for NII in all of our markets as round off the year and head into 2008. While we realize that we have some ground to make up in the fourth quarter in order to meet our previously raised guidance of 1.275 million net subscribe editions for the year, our entire team is focused and working very hard to meet this goal, which if met, would equate to a 37% increase in our ending subscriber base over last year.

Although, we will provide guidance for 2008 on our fourth quarter and year-end results conference call, we have made significant investments in our networks, we continue to expand our distribution channels, and we do expect deliver more net subscribe editions in 2008, as compared to 2007.

I will follow-up on additional comments at the end of the call, however, now I will turn it over to Lo van Gemert, President and Chief Operating Officer.

Lo van Gemert - President and Chief Operating Officer

Thank you, Steven and good morning to everyone joining the call today. As you just heard that third quarter presented opportunities and challenges, we continue to maintain our discipline regarding our metrics first approach, resulting once again in very healthy levels of ARPU, churn, and CPGA relative to our peers despite aggressive promotional activity by some of our competitors.

This discipline resulted in a significant increase in consolidated revenues and OIBDA, which improved by 40% and 49% respectively over last year’s third quarter. Our ending subscriber base is up 38% over the third quarter of last year, however, net subscriber editions, although, up on a year-over-year basis was slightly down relative to our record results generated in the second quarter of this year. Our team, however, continued to generate solid results and a meaningful increase in our profitability during the quarter.

As we have demonstrated many times in the past, we are successfully managed our business to a challenging revelatory, economic, or competitive conditions. We will continue to focus on delivering superior operating metrics that supports profitable growth, net growth solely for gross sake. Our experience has taught us that this approach will position us to capture a significant share of the opportunity in our markets.

Looking at our consolidated results, we delivered solid subscriber growth during the quarter, with gross additions up 31% over the prior year period. We also generated 23% more net subscriber editions compared to the third quarter of last year, with a 38% increase to our ending subscriber base, all while driving a 49% year-over-year increase in OIBDA. Both Mexico and Brazil were the primary drivers of this performance. Brazil delivered on subscriber front as net editions were up 51% over the third quarter of last year, but we can point to both markets as the catalyst for the strong increase in consolidated OIBDA. Segment earnings were up 66% in Brazil and 42% in Mexico over the same period a year ago.

Now, turning to some of those specifics for the quarter. A 31% increase in gross editions compared to last year, coupled with steady churn rates resulted in 327,000 net subscribers editions. A 23% increase in net editions over the third quarter of last year, but slightly less than our record level of second quarter net editions. Consolidated churn at 1.6% was up slightly year-over-year, but consistent with second quarter levels, highlighting the stickiness of our product offering and the strength of our customer care. Our customer retention remains at what we believe to be industry best levels in our markets. The 39% year-over-year increase in our revenues to 853 millions was driven by combination of the 38% increase in our ending subscriber base and strong levels of consolidated ARPU. Consolidates service ARPU of $59 was slightly higher, both sequentially and on a year-over-year basis.

Evaluating our subscriber acquisition cost, our CPGA was $332 about $10 lower compared to last year, as we benefited from lower handset subsidies, but was slightly higher compared to this year second quarter. Measuring that level of CPGA relative to our ARPU, we continued to maintain a six month or less acquisition cost payback, which is similar to the levels we have reported over the last several quarters. Strong revenue growth and lower selling and marketing cost resulted in a 49% year-over-year increase in OIBDA to $235 million. On a consolidated basis, OIBIDA margins were up 200 basis points relative to the same period last year.

Now, let’s take a quick look at operations on a market-by-market basis. Nextel Mexico continued to deliver solid results with the concentrated focus on the metrics to drive the business, despite the impact of increased promotional activity and weather related impacts in several of our key cities. As we mentioned on our second quarter conference call, the Mexican wireless market has been experiencing an increase level of promotional activity by the competition and what appears to be a lost leader strategy designed to gain market share. This environment, which is not related to competitive PTT, and is very similar to what we experienced a few years ago in Brazil, continued into the third quarter and had some impact on our subscriber growth as out team in Mexico remained true to our profitable growth strategy and refused to sacrifice long-term value by matching aggressive promotional offers. This challenge was compounded by the loss of number of selling days in several key markets, due to business closures resulting from three hurricanes and two tropical storms that hit different parts of Mexico during the quarter.

While the impact of adverse weather conditions is difficult to quantify, we estimate this had a negative impact of about 10,000 to 15,000 subscriber units in the quarter, as these events tend to disproportionately affect the business segment, which is out target market. Despite the challenges, Nextel Mexico’s gross editions were up 25% year-over-year and the ending subscriber base was up 39% over last year, and Mexico recently added its 2 millionth customer. We believe that the steps we have taken to address the competitive environment in Mexico has shown a positive impact as we have seen increased level of subscriber editions in September with that trend continuing to date in October.

ARPU in Mexico of $74 held steady with the second quarter’s level, strong growth in our subscriber base and solid ARPU drove a year-over-year increase in revenue of 35% to $466 million. Our disciplined approach to the business resulted in a strong conversion ratio as Nextel Mexico increased segment earnings more than 42% year-over-year to $181 million.

As Steve mentioned in his remarks, we continue to believe that Mexico is one of the best wireless markets in the world and that the long-term opportunity in Mexico remains tremendous, particularly if we maintain our discipline focus on profitable growth. We will combat our competitor’s aggressive tactics through innovative pricing strategies and education of our existing and potential customers about our differentiated product and service offering. But we will not damage our long-term opportunity by meeting unprofitable offerings that our in the marketplace.

Nextel Brazil’s results are simply outstanding. Nextel Brazil’s customer retention efforts improved churn by 10 basis points over the same period last year, resulting in churn of 1.3%, the lowest rate among our markets. Low churn coupled with improved levels of gross subscriber editions helped Nextel Brazil’s subscriber trajectory accelerate as that market added over a 105,000 new subscribers in the quarter, a 51% increase over the third quarter of last year. Driven largely by the strength of the Brazilian Real, Nextel Brazil’s ARPU surpassed $54, its highest level in our history and an increase of almost $8 as compared to the third quarter last year. Strong ARPU, coupled with growth in the subscriber base drove revenue of $223 million, a 57% increase over the same period last year. Segment earnings in Brazil grew to $50 million, up 66% over last year. We believe that our plan to increase the coverage in Brazil positions us to generate significantly higher subscriber growth in the future and in turn higher levels of segment earnings given our expanded presence.

Nextel Argentina continues to show strong year-over-year performance, driving a 265 increase in its subscriber base, a 27% increase in revenues, and a very strong 47% increase in segment earnings. Nextel Peru, again, drove very strong subscriber growth, generating a 57% lift in its subscriber additions over the same period last year. Balance remains a key theme as the focus on profitability remains strong as segment earnings in that market grew 38% year-over-year.

Moving onto our capital investment. During the quarter, we launched several satellites in connector cities in Brazil as the market launch of One City Mexico was pushed off into the fourth quarter due to weather related delays. Total CapEx spending for our markets was $125 million with more than 75% related to Mexico and Brazil. Roughly 50% of our capital investment was related to start upgrades in capacity and approximately 20% of the capital was allocated to expansion into new cities.

We are excited about our proposed expansion plan in Brazil. Over the next two to three years, we plan to invest an incremental $300 million in Brazil to expand our reach to an estimated 30 million additional people, resulting in GDP coverage inline with that of our other markets.

Moving to our technology platform, iDEN, a key differentiator for NII, continues to be healthy and thriving in our market. We are a key component of Motorola’s worldwide iDEN growth goals and they have now expanded their iDEN presence to about 26 countries, 36 major customers, and nearly 30 million subscribers and growing. Motorola recently completed the investment in two additional handset platforms that will be used to support the development of new handset designs over the next several years. In addition, there are several new handset launches planned for the upcoming quarters, including a new designer handsets, which we expect will be in strong demand for our customers. And on the infrastructure side, Motorola also continues to innovate and improve the components of iDEN equipment, creating the potential for future network cost efficiencies. With the innovative products, including gold standard push-to-talk and a growing acceptance from our customer base, we believe that we are positioned to capture significant growth on the iDEN platform now and in the future.

Let me conclude by saying that we are excited about the long-term opportunities that is available not only in Mexico, but throughout all of our markets. We will continue to focus on the key elements of our strategy that have driven our success in Latin America. We will target the right customers. We will capitalize on our differentiation service offering, including the gold standard for PTT. We will provide our customers with value in form of attractive per minute rates, and we will back it all up with the best-in-class customer care. This approach continues to put us in the best position to successfully execute on the tremendous opportunity in front of us.

Now, I would like to turn the call over to Gokul Hemmady, NII Vice President and CFO.

Gokul Hemmady - Vice President and Chief Finance Officer

Thank you, Lo and good morning. Our third quarter result included strong year-over-year increases in our revenues, OIBDA, and ending subscriber base. Our focus on profitable subscriber growth continues to be the cornerstone of our strategy that guided approach to the business and our decision making and the management team through all market conditions.

Now, I will walk you through a summary of our third quarter financial results. As you just heard, solid subscriber growth and continued healthy ARPU level, resulted in a 39% increase in the revenues to $853 million in the quarter. Consolidated ARPU of $59 was up both sequentially and over the same period last year, driven by continued strength in the Brazilian ARPU.

The 49% increase in our OIBDA for the quarter to $235 million includes the impact of about $19 million of non-cash stock option compensation expense compared to $9 million of such expense for the same period last year. OIBDA margin increased by about 200 basis points for the quarter to 28% compared to the same period last year.

Now looking at the major components of the cost structure as a percent of total revenue, cost of revenues at 39% was down slightly as compared to 40% in the third quarter last year, driven primarily by reductions in the cost of the digital equipment sale, evidencing continued improvement in our total handset subsidies.

Selling and marketing expenses as a percent of revenue at approximately 14% were down slightly both sequentially and year-over-year as we delete some advertising expenditures associated with market launches until the fourth quarter due to weather related challenges, coupled with the year-over-year decline in number of cities launched during the period.

G&A expense as a percentage of revenue at approximately 20% was inline when compared to the same period last year, despite an incremental $10 million of non-cash stock option compensation expense. The relevant trends in G&A included an increase in customer care and billing operation’s expense related to additional headcount, which was slightly offset by a small decline in payroll land other G&A expenses.

Moving onto operating income. We generated $158 million in operating income during the quarter, a 50% increase over the third quarter last year. This improvement was driven by strong revenue growth, which was offset partially by higher depreciation expense, due to the rapid expansion of our network. Items below operating income included net interest expense for the quarter, which totaled approximately $12 million, $2 million higher than the amount reported last year, driven primarily by increased interest expense related to additional financing activity. Foreign currency transaction gains of $7 million compared favorably to a $3 million gains reported in the third quarter 2006, due to strong local currency during the quarter.

Our book income tax provision of $43 million is up over the $31 million that was recorded last year due to higher operating income. Our year-to-date effective tax rate as of the third quarter was 33.9% as compared to 36.6% for the same period in 2006. We generated net income of $82 million for the quarter or $0.48 per basic share. This amount included a $22 million after tax expense related to the successful completion of the tended offer for the 2.78% convertible note completed in the quarter.

Normalizing for this expense, our adjusted net income was approximately $104 million or $0.61 per basic share compared to net income of $66 million or $0.43 per basic share in the same period last year. We completed two transactions during the quarter that further improved our capital structure. First, in July, we tendered for a 2.78% convertible notes with a principle amount of $300 million. We successfully completed the transaction and subsequently we should about 11.3 million share of the Company common stock and paid in cash an aggregate premium of approximately $25.5 million and approximately $4.2 million in accrued and unpaid interest to the holders of the tendered notes.

These transactions eliminated approximately $300 million of the Company’s long-term debt and approximately $8.6 million in annual interest expense. Second, in September, Nextel Brazil entered into term facility agreement with a Syndicate [ph] Bank to provide borrowing for up to $300 million. The profit from this transaction can be used for capital expenditures and general corporate purposes at Nextel Brazil, and we note that the Company does not borrow under this facility during the third quarter.

We continue to have a healthy balance sheet and strong liquidity position. We ended the quarter with $1.5 billion in cash and cash equivalent. Long-term debt at the end of the quarter was $2 billion, which consisted of $1.5 billion in low coupon convertible notes, a $248 million Mexican credit facility, and $235 million in local currency tower financing and other debt obligations. With net debt of approximately $488 million, a net debt to 2007 OIBDA guidance is approximately half a turn. Additionally, our credit profile remains strong with a pretax cost of debt of about $4.7%.

In summary, our team has committed to executing on our profitable growth strategy. We run the business for the long-term and the foundation we established have put us in a strong position to make the most out of the opportunities available to us in Latin American markets. Our long-term orientation towards the business has enabled us to deliver superior operating results, and we plan to continue to execute on that approach to generate results that create value for all of our stakeholders.

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

Steven M. Shindler - Chairman and Chief Executive Officer

Thank you, Gokul and thanks again to everyone for joining us on the call today.

I have personally been around the wireless communications industry in various roles for the better part of the last 21 years. The most important lesion I have learnt during that time is that the companies that maintain a discipline pursuit of profitable growth meaning they drive for quality subscriber growth and cash flow are the only companies that sustain value creation over time. In every country around the world, wireless growth has exploded, while this growth has occurred competition between carriers as evident float on quarterly basis.

Sometimes our operators are looking to grow their subscriber markets share at all costs, only to come back several quarters later and look to generate cash flow after poisoning their base with poor credit quality, high churn, and low or no profit customers. You have heard us repeatedly talked about the strong foundation that we have put in place at NII to enable us to create long-term sustainable value by sticking to our formula a discipline focus on profitable growth. With a metrics first approach, we know that the growth we are adding is value that we are adding. In this light, I am particularly proud of the results that our Company produced this quarter. As Lo said, we did not peruse growth for growth sake. We maintained our strong metrics, brought in high quality customers, and achieved solid growth during the quarter, while simultaneously strengthening our position in many ways to be able to capture what we believe is an enormous opportunity going forward.

We strengthened our distribution channels and enhanced our system infrastructure, while at the same time, repositioning some of our rate plans to allow us to continue to provide unmatched value to our customers that still drive high margins and cash flow for our Company. We also improved quality in our networks and customers satisfaction.

In summary, during the third quarter, we maintained a very high quality customer base, and we produced high growth, and we grew profitably with nearly a $30 million increase in OIBDA over last quarter. In fact, as the best evidence of our profitable growth, look at the results which show the percentage year-over-year growth increases, as we move down to the bottom line in the P&L. Year-over-year based on third quarter results, our subscriber base is up 38%, revenue is up 39%, OIBDA is up 49%, operating income is up 50%, and net income adjusted for one-time items is up 58%. I believe that NII is extremely well positioned for a high growth and profit generating future, and we look forward to continuing to share our strong results with you in the many quarters and years to come.

Operator, we’ll now take questions.

Question and Answer

Operator

Thank you. [Operator Instructions].

We will take our first question from Rick Prentiss with Raymond James.

Richard Prentiss - Raymond James

Yes. Good morning guys.

Steven M. Shindler - Chairman and Chief Executive Officer

Good morning.

Lo van Gemert - President and Chief Operating Officer

Good morning.

Richard Prentiss - Raymond James

Hey, I want to focus a little bit on the net adds if I could, I think Lo and Steve, you guys both mentioned the promotional activity in Mexico being accelerated and intensified. Obviously you guys are both seeing a profitable growth. But if you look at the NII traditional customer, how did the promotions from the competitors really affect your business segment, and your high-end consumer segment. Just talk… just a little bit about in Mexico, how that promotion affected kind of your core addressable market?

Steven M. Shindler - Chairman and Chief Executive Officer

Well, we haven’t changed our target and our approach as we've been sharing with you over the last several quarters. Even and since we embarked on our expansion plan, we've looked to increase our target. There is now over 20 million potential subscribers in Mexico alone that we are going after. As Lo mentioned we just hit 2 million. So, we've got less than 10% of that potential. In terms of the promotional activity, look by and large, the main guys were going up against. Our still focused on prepaid, but they do have 10% to 20% of their growth that comes in the form of the postpaid segment, and clearly some of the activity they have gave engaged them is not things that we would support from an economic standpoint and we stay true to what make sense for us. I let Lo and his vies on that.

Lo van Gemert - President and Chief Operating Officer

Yes, I mean, they obviously aside from giving the productive away. A lot of times this try to leave our customers in by giving them three to six to nine months free service. And this is something that we don’t do. So, while they are giving more and more minutes away, we are moving away from interconnect minutes and we are trying to serve more dispatch minutes and you will probably noticed that since the first quarter, we have actually moved our interconnect minutes per sub from to about 285 down to about 270, and we have reversed dispatch that actually has gone up from 275 to 290. So, now, we actually run more dispatch traffic, which by the way may have a negative impact on our ARPU, but has a positive impact on margin. That’s what we are about. So, what we are really trying to do is introduce a lot of the new rate plans with dispatch and then start adding minutes when usage grows up, and we have believe that’s the more appropriate strategy then just fight with interconnect minutes.

Richard Prentiss - Raymond James

Okay. And then on the seasonality, the weather impact of 10,000 to 15,000 hard to quantify, but kind of a shot at it. If we look at fourth quarter, seasonally, you lose a couple of weeks out there too. So, as we think towards third quarter going to fourth quarter, should we think about normalizing adding back in the weather, but then reducing kind of on the seasonally, losing a couple weeks?

Steven M. Shindler - Chairman and Chief Executive Officer

I don’t know there is a mathematical way to try to equate couple of storms versus the typical seasonally we face at the end of the year. We are… as we as we said we are all working hard towards the meeting the goal and meeting the numbers that we share with you in terms of our targets for this year. And given what we produced in third quarter, you can have a sense of what we trying to shoot for, albeit, including our expectation for not being able to sell much in the last two weeks of the year.

Richard Prentiss - Raymond James

Right. Final quick question for you. You have mentioned you still expect ‘08 net adds to exceed ‘07 net adds, having put the foundation in place and the network you rolled out. If we look at kind of country-by-country, there is still the ability to keep growing the adds in Mexico as well as Brazil, given the foundation you are putting there?

Steven M. Shindler - Chairman and Chief Executive Officer

Yes, in fact, that what my comment was specifically intended to, to address. Clearly, the largest investments we have made and the biggest opportunities we have are in Mexico and Brazil. We've put a lot of money behind those networks and our expansion. We're added a lot to our distribution channels and we continue to do that in all the markets, but particularly in those two countries and that’s where we expect the majority of the increase in growth to come from.

Richard Prentiss - Raymond James

It looks like a lot of profitable growth to come. Good luck guys.

Steven M. Shindler - Chairman and Chief Executive Officer

Thanks.

Operator

Our next question comes from Mr. Christopher King with Stifel Nicolaus.

Christopher King - Stifel Nicolaus & Company

Good morning guys.

Steven M. Shindler - Chairman and Chief Executive Officer

Good morning.

Christopher King - Stifel Nicolaus & Company

One quick question to… a follow-up on some of the promotional activity that’s been occurring in Mexico. You guys are obviously dealing with a couple of very well heeled large international competitors down there. What is your sense as to the timing of the promotional activity winding down? And what gives you, I guess, a level of comfort that these competitive offering won’t continue for the next several years in Mexico as there continues to be a kind of a land share grab there with wireless penetration levels still well below 60% in the country?

Lo van Gemert - President and Chief Operating Officer

Great question, Chris. And clearly one that we monitor and study carefully, in every single market. The honest answer is, we don’t know exactly how long it runs. But what we can do is talk about the experiences we've had in various other markets. We did go through with this, in an intensified way in Argentina several years ago. In Brazil, by and large, ending just around this time last year and towards the beginning of this year is when some of the activity began to pickup in Mexico. It could run for a couple of quarters. It could run for longer than that. That’s really more of a question in a strategic move by the competitors that you've referenced. But what we've done in each and every case is solidify our approach, make sure that we have the right rate plans, the right level of education. All the things that we do to drive, bringing in the right high quality customer, that’s how we produced outstanding results in the midst of that.

And if you look at Brazil, while there were certainly individual quarters where it was a little bit more difficult for us during that very competitive time, over the two year period we had a very significant increase in our ARPU, we had improvements in our churn, we had a lot of pickup in our growth rate in the subscriber additions that we brought on. And what we're looking at is this large opportunity of 20 million plus customers and how do we put ourselves in the best position to maintain the metrics first approach and bring in the right ones over time. So, yet to be seen, how long this activity sustains itself, we will be prepared if it goes on for a lengthy period of time. But we will be hopeful that it doesn’t have much longer to run.

Christopher King - Stifel Nicolaus & Company

Thank you. Also wanted to follow up real quickly, with respect to your share repurchase program with your stock down at these levels. I believe, you still have a couple of hundred million dollars more left in your current share authorization plan. How do you think about that, going forward?

Gokul Hemmady - Vice President and Chief Finance Officer

When we announced the convert as well as our initial buyback, we said our intention is to complete that program within a year or so. I think we’ll continue to evaluate whether that makes sense and if it does make sense at some point in the future, we will look at completing that program. As you know we announced $500 million. We did $250 million simultaneously with the convert and then in addition, we bought back about $80 million. But I’d also like to add there, that we look at all of these decisions in the context of maximizing our long-term value, and we continue to invest for growth, we continue to participate in spectrum auctions all of which are important to us. And in that context of maximizing long-term value, we will continue to evaluate returning capital back to our shareholders.

Christopher King - Stifel Nicolaus & Company

Thank you.

Operator

Our next question comes from Mr. James Breen with Thomas Weisel.

James Breen - Thomas Weisel Partners

Hello. You mentioned that the… there was an impact in Mexico where you delayed the rollout of the market there. I think we saw that last quarter and the quarter before. Can you talk about what the potential impact would have been from a net adds perspective given the size of that market? And then with churn in Mexico, the step up is that, will that come down now as you've kind of gotten through the storms and it would, was there some overall reaction from the churn, given the hurricane there? Thanks.

Lo van Gemert - President and Chief Operating Officer

No. The hurricane didn’t really have impact on churn and I would say that the market launch impact on net adds was negligible, I mean that wouldn’t explain necessarily the third quarter although there are a lot of people pumped up to basically open out that market. I would say that over all, when you look at the churn, going forward, any time you look at, you have also migration churn and you can have customers that basically move from your rate plan that they currently have, they can move down or they can move out. And we will not hold on to unprofitable customers if they are too demanding. So, sometimes there may be some leakage on that end just because of competitive forces. But we do everything we can to try and stick to our target market and try and re-educate our sales force and our distribution force, which we have done to talk about the benefits of direct connect and how we can save and so I still believe there’s a huge market out there and we just have to be very focused and penetrating the right market segment and if you do and you find the right customer, churn will be below 2%, far below our competitors.

James Breen - Thomas Weisel Partners

Thanks. And just one follow-up in Brazil. ARPU is good there and you are churn can came necessarily, but CPGA that step up quite a bit in the third quarter. Can you talk about the impact there?

Lo van Gemert - President and Chief Operating Officer

Yes, on a consolidated level, our CPGA did go up a little bit, and basically, we also have a recommitment from our indirect distribution force in Mexico to really pump up the overall loading and we commit themselves to some of our new markets where we are not necessarily achieving the share that we wanted. So a lot of these indirect distributors in the third quarter recommitted. They are getting incremental commissions from us to support the rollout of incremental gross adds to serve the new markets, which will help us in the long run. And that impact I think impacted our CPGA by about $9.

James Breen - Thomas Weisel Partners

Okay. Great. Thank you.

Operator

Our next question will comes from Mr. Walter Piecyk with Pali Capital.

Walter Piecyk - Pali Capital

Thanks. I just want to talk about the Renoko [ph] program, it looks like it was little light and obviously you know what the issue was in the… Nextel going into net editions I am guessing that program in part gets driven by your product. How good the price is, whether the customer is willing to resign up by given a new price? Is part of this sub… and plus also in Brazil, frankly, you didn’t really see strong seasonal growth as normal in the Q3, I mean it was fine, but I would expect a little more seasonal growth in Q3. Is it possible that all these issues are related to it sale product portfolio and some of the new products that you expect coming up, can have an impact here?

Steven M. Shindler - Chairman and Chief Executive Officer

Obviously, we are very focused on the product and as Lo mentioned in his comments, there is a lot that has come in and we are expecting to come here in the near-term from Motorola with new designs and a whole bunch of new handsets that have started to come in and will be coming in between now and in the middle part of next year. Some of that is timing issue. But as we sit here today looking at where we are with our product portfolio and what we need to achieve in the fourth quarter and going into the next year, we fully believe that we got the… the line up to meet our growth objectives and continue to provide high quality products and handsets to our customer base.

Walter Piecyk - Pali Capital

Do you think that was potentially an issue in this quarter? And addition to this some of the other things you have sighted in the press release?

Steven M. Shindler - Chairman and Chief Executive Officer

In terms of whether it impacted our specific growth or levels of investments, no, I don’t think that would be something that we would point to as a reason for…

Walter Piecyk - Pali Capital

So, with Renoko being down, if we look at that expense, it was down sequentially, is that just basically Telefonica or Aurorever [ph] maybe perhaps America Movil being more successful and taking those customers where previously you are able to retain them with that program?

Steven M. Shindler - Chairman and Chief Executive Officer

The Renoko was little bit down, because we took care of many of the customers also in the second quarter. So, it’s not that we are not trying to serve our customers better or that we can serve them because of the lack of the strength of our portfolio. So, there is no real problem in that area of Renoko.

Walter Piecyk - Pali Capital

Okay. Just two another questions. Lo, you had mentioned your Jack the commissions a little bit in Q3. So, presumably that should have an impact in CPGA going forward as well, correct?

Lo van Gemert - President and Chief Operating Officer

It depends how you look at it. If you want to Jack commissions up and you believe you don’t get incremental gross adds, it will increase. But the concept of increased commissions is increased growth, so we can normalize the CPGA impact.

Walter Piecyk - Pali Capital

Right. But maybe I misunderstand how commissions work, but if you are paying X dollars for gross adds and you paying X plus $9 for another gross adds, you need to get an incremental gross adds CPGA remains the same.

Lo van Gemert - President and Chief Operating Officer

Assuming the next stages, that is correct.

Walter Piecyk - Pali Capital

Okay. So, then wouldn’t we expect… wining by mix I am saying mix between the different countries?

Lo van Gemert - President and Chief Operating Officer

On direct and indirect.

Gokul Hemmady - Vice President and Chief Finance Officer

As also the different countries.

Lo van Gemert - President and Chief Operating Officer

Yes, but I am specifically talking about Mexico, I ma assuming. Yes.

Walter Piecyk - Pali Capital

Okay. And the last question is, share buyback you said 8 million… you bought about 1 million shares in addition to that initial deal on that transaction?

Lo van Gemert - President and Chief Operating Officer

That’s right.

Walter Piecyk - Pali Capital

I mean obviously Gokul you are talking very broad in terms about the share purchased activity. I am not sure why you can’t talk more specifically about the current environment, why you can’t say that, hey, yes we are going to be active, for example, tomorrow in buying the stock back or today? I just want to understand why you wouldn’t… why you have to say oh, we will evaluate this over 2008. I mean see where the stock is, you obviously feel confident about your business, why can’t you speak more gradually about what you are going to do about your share re purchase?

Gokul Hemmady - Vice President and Chief Finance Officer

Because I think, Walter, you will appreciate that we have to take several things into account as we think about the timing and several circumstances that we faced when we take decisions on the share re purchase program. We look at the share repurchase program as one tool of maximizing our long-term value. We look at many other things as I said investing in growth, looking at spectrum option and returning capital to shareholders as I have said is one thing that we will evaluate. When we…

Walter Piecyk - Pali Capital

Leverage ration is ridiculously low.

Gokul Hemmady - Vice President and Chief Finance Officer

Absolutely. And we do recognize that we have a lot of flexibility in our capital structure and we will use that flexibility to invest in growth to buy spectrum and to maximize long-term value and we will also invest, use that flexibility going forward to return capital to shareholders. We are not saying that we will be shy if circumstances warrant in the future, we will not be shy to increase our leverage and use our cash in any one of those three things that are, I talk about which is growth spectrum as well as returning capital to shareholders.

Walter Piecyk - Pali Capital

Unless you are going to spend $1 billion for spectrum, which I doubt any where near that and what you are looking for the leverage ratio is, and given where the stock is today I am not sure why you couldn’t be more specific about what you plan to doing share repurchase program?

Steven M. Shindler - Chairman and Chief Executive Officer

Well, I think as we have tried it to share with you, Wal, we are working towards achieving certain set of goals and objectives completing network bills, launching into new markets, looking up on upcoming option and we are mindful of the opportunity to do that and we are not saying that we are not going to be out actively in the market in a short period of time, but we don’t feel this is an appropriate place for us to dictate the strategy or to say very specifically when we will be out in the market find our shares .

Walter Piecyk - Pali Capital

Okay thank you.

Operator

Our next question comes from Mr. Marseille Fernandes with Merrill Lynch.

Marseille Fernandes - Merrill Lynch

Thank you. Good morning. Quick question yet on the prior promotional activity. Steve, you mentioned you want to solidify your position, your approach, we noticed some price cuts in specifically for HD in Mexico in the fourth quarter staring October. I just wanted to confirm if that’s really the case and whether that is true? Would expect any impact to APUR for… in the fourth quarter and if that’s really the strategy, the approach you are going to have to promotional activity and you have been mentioning particularly from Telefonica going forward not only this year, but going into 2008. Thank you.

Steven M. Shindler - Chairman and Chief Executive Officer

Well, I can… yes, we did introduce some plans in the fourth quarter and typically they were already kind of put together two months ago, they need to go through a regulatory through process in Mexico as you know. But there is a lot of excitement, a lot of choice in the market and we would like to be there with some of our product offerings and hope to grab some of these credit worthy customers. I mean that’s our goal and if I can pickup some of these opportunities and the customers and whether it is on interconnect or dispatch that’s what I want. There is good traction that we have and already some of these rate plans are proven… right now September part and October period, it’s creating traction and reversing third quarter. So, we're excited.

Marseille Fernandes - Merrill Lynch

Okay. That’s in terms of net adds I believe, Lo. But what about ARPU are we going to see ARPU’s down in the fourth quarter, because of that?

Lo van Gemert - President and Chief Operating Officer

Well, when you talk about the opportunity in Mexico, we, there’re 20 million businesses and we just hit two million. So, we only have about 10% share. I don’t believe that, at this point of time the only addressable market is the down market. So, we will do whatever we can to make the right business decision and that will, not just impact, positively or negatively ARPU, but also, margin, churn, etc, etc. But, we will do… make sure that, that the metrics that we are going to generate in fourth quarter makes sense for the long term business that we believe is really very good.

Marseille Fernandes - Merrill Lynch

Okay. Thank you.

Operator

Our next question comes from Brett Feldman with Lehman Brothers

Brett Feldman - Lehman Brothers

Hi, I just take in a question, just to clarify comments about the new price that you guys are looking at in Mexico. I think we all understand that here, dispatch traffic is significantly more profitable in unique connect traffic. When you go with plans that lead with the dispatch and you are giving up a little bit on the ARPU, what is that ARPU margin trade off. In other words, are you still going to get roughly the same net hours out of a customer or is it a strategy to start off and hook them on “push or talk” and then up sell them on interconnect and we're just trying to get them to the same one rate monthly cash flow per customer level. You understand the question?

Lo van Gemert - President and Chief Operating Officer

Yes. No, I…that’s exactly what we been and I think Nextel in the old days did. Where you typically sell, sold dispatched and then you try and sell interconnect and that’s how to get to incremental auto [ph] and as I said before, that some of the new markets that we introduced, we try to lead it in dispatch. But if you are the first dispatch user for instance in a specific city, its hard to get, to get traction. So, we may have to lead in with more interconnect centric rate plans to end competitive and then once they start using more than two or three hundred minutes, I move them into a dispatch plan. So, it depends on the market that we’re serving. But you are 100% right.

Brett Feldman - Lehman Brothers

Okay. And then on different topic, when you were getting at before about preserving capitals for investments, may be you could just give us your expectation right now about some of the options that are coming up. What is your sense on timing and then when you look at your spectrum portfolio, what do you want and what do you need? It seem you have a pretty good portfolio to support you're existing iDEN business. Would you like to have more to support iDEN and then when you think longer-term do you see any holes in your spectrum portfolio.

Lo van Gemert - President and Chief Operating Officer

Yes. That’s a great question and in terms of the 800 Megahertz spectrum that we have on the SMR band we have an abundance of spectrum to certainly achieve the growth objective that we have for our company for the foreseeable future feature going on five plus years, we are always looking for incremental amounts of that same spectrum, however, because there is a trade off on capital efficiency and the more spectrum we have and the fewer sites that we need to deploy and it’s a very straight forward payback analysis for us to do, based on the price of that spectrum. Outside of that, you’ve seen us participate in a couple of auctions or purchase different bands of spectrum typically at higher bandwidth and what we’ve done with that is be opportunistic. We are well aware that there is other potential revenue streams that may be available to us in the future as broadband grows around the world, not so much yet in our region. But if it does come or we believe that there’s an opportunity to as we talk about build value for the long-term, then getting access to that raw material now and having ability to build upon it later we think is a prudent strategy. Last quarter we participated in an auction in Peru, we won 35 Megahertz nationwide at 1.9 gig for $27 million. We have opportunities like that, that continue to come along in our other markets. We think that those are… that’s money well spent and we can build value upon that investment. There’s auctions coming up in both Brazil and Mexico at similar frequency bands and you should expect, that we are going to take a look at participating in those.

Brett Feldman - Lehman Brothers

Okay. And then just one final question. You’ve talked previously about looking for interesting way to expand your footprint into adjacent markets, maybe not necessarily by talking in retail presence there, but by creating sort of a roaming presence for your customers in your full market. Can you give us an update on where you are with that. And then, I am curious weather you think that Columbia is an opportunity for you now that the income iDEN operator is able to interconnect calls in that market.

Lo van Gemert - President and Chief Operating Officer

Sure it is an opportunity, its one that we’ve continued to look at. Roaming for us is certainly an important feature to be able to offer to our customers. At this particular point in time, its not a large percentage of the revenue that we generate but clearly we want to make that available to the entire subscriber base and as we continue to grow that base we hope that that appeal to a larger and larger percentage of our customers.

Brett Feldman - Lehman Brothers

Thanks guys.

Steven M. Shindler - Chairman and Chief Executive Officer

Josh, I think that all the time we have for today, I think to our hour. So I think we will end there.

Operator

This concludes the NII Holding third quarter 2007 earnings conference. Thank you for your participation.


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