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NII Holdings Inc. (NASDAQ:NIHD)

Q1 2008 Earnings Call

April 24, 2008; 8:30 am ET

Executives

Tim Perrott - VP IR and Corporate Communications

Steven M. Shindler - Executive Chairman

Steven P. Dussek – Chief Executive Officer

Lo van Gemert - President, Chief Operating Officer

Gokul Hemmady – Vice President, Chief Financial Officer

Analysts

Richard Prentiss - Raymond James

Christopher King - Stifel Nicolaus

Gray Powell - Wachovia Capital Markets

Walter Piecyk - Pali Capital

Mauricio Fernandes - Merrill Lynch

James Breen - Thomas Weisel Partners

Brett Feldman - Lehman Brothers

Operator

Good day ladies and gentlemen and thank you for holding for the NII Holdings first quarter 2008 earnings conference call. (Operator Instructions) Today's conference call will be available for rebroadcast through May 8th, 2008. Domestic callers may access the rebroadcast by dialing 888-203-1112 and entering pass code 896-9543.

International participants may access the rebroadcast by dialing 1-719-457-0820 and entering pass code 896-9543. I will now turn the conference over to our host, Mr. Tim Perrott, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Tim Perrott

Thank you, Clara and good morning to everyone and thank you for joining NII Holdings first quarter 2008 earnings conference call. With me on the call today are Steve Shindler, our Chairman; Steve Dussek, our 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 of the risks and uncertainties, that are outlined in the SEC filings of NII Holdings, including our 2007 annual report on Form 10K, which we filed with the SEC on February 27th, 2008 and other documents we have filed with the SEC.

In addition during this call we will be discussing some financial measures that do not conform to generally accepted accounting principles or better known as GAAP. For a reconciliation of these 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 our CEO Dussek, Steve.

Steven Dussek

Thank you, Tim and good morning. I would like to welcome all of our investors and analyst who have joined us for the call today. As you can see from our first quarter results we announced this morning, NII is off to a strong start in 2008. We delivered solid subscriber growth, while generating record levels of revenue and operating income before depreciation and amortization, or OIBDA.

The high quality of our service and customer support drove our performance and we made progress on our expansion plans for the year by adding sites to enhance our network capacity and to expand our geographic coverage in our markets. Our team is excited about the progress we have made and is committed to capturing the value available to us in what we believe are some of the most attractive growth markets for wireless communications in the world.

Despite the seasonality that we typically experienced in our markets in the first quarter, we added about 322,000 net subscribers to our network. Bringing our total subscriber based to over 5 million. This represents a 35% increase in our ending subscriber base from the first quarter in 2007. This equates to over 1.3 million new net subscribers added to our network over the past 12 months.

We generated over $993 million in total revenue, a 39% increase over the first quarter of 2007. We managed our subscriber growth consistent with our profitable growth strategy, generating $286 million in OBIDA, a 36% increase compared to the same period last year. We again generated what we believe are the industries best operating metrics in our region, even in the face of intense competition in Mexico.

Average consolidated monthly churn of 1.8% for the quarter was higher than the churn rate in the fourth quarter of last year. Product remains strong relative to our competitors. Churn at this levels means that our valuable customers stay in our network an average of over 4.5 years. Our low monthly churn level combined with our consolidated monthly APRU of $58 resulted in lifetime revenue per subscriber of over $3100 and the expected lifetime OBIDA per subscriber of nearly $1460, again the industry best in our region.

We also took important steps in our plans to develop and deploy a third-generation network in Peru. Our current plans are to pursue this opportunity utilizing a technology that would be based on the CMA platform, which will positioned this new network as a strong complement to our iDEN network.

We believe the launching of 3G network will enable us to significantly increase the size of our opportunity in Peru by allowing us to offer a new, and differentiated services through our larger base of potential customers. Our team is focused on building upon the strong start to 2008 and we are on track in our pursued of our 2008 goals. We will strive to reach those goals by maintaining the balance between growth and profitability; a balance we believe is key, to enhancing the long-term value of our business.

I will follow up with additional comments at the end of the call, but I would now like to ask Lo van Gemert, our President and Chief Operating Officer to provide you with more details on our first quarter results.

Lo van Gemert

Thank you, Steve and good morning to everyone joining the call today. As you heard, we are off to a strong in 2008 as we delivered record levels of gross editions, revenues and OIBDA during the first quarter. We believe these accomplishments are noteworthy especially in light of the seasonality that typically occurs in our business during the first quarter and the intense competition we’ve experienced in Mexico.

All of our markets contributed to the success and we delivered significant growth while staying true to our focus on delivering that growth in a profitable manner. First quarter subscriber growth was solid as we generated 322,000 net subscriber additions and ended the quarter with over 5 million subscribers, a 35% increase in our subscriber base in the last 12 months.

Record level of gross additions of 591,000 up almost 30% over the same period last year offset the slight increased in consolidated monthly churn resulting in a increase of approximately 33,000 in net adds. At 1.8% our consolidated churn level has risen due primarily to increase competition in Mexico, but remains at what we believe to be industry best levels.

Our robust subscriber growth and healthy levels of consolidated ARPU continue to drive strong revenue growth. Consolidated ARPU a $58 for the quarter was consistent with the first quarter of last year and is the net results of our strong ARPU in Brazil, which was aided by an improved local currency and demand for a differentiated service, offset by the reduction in Nextel Mexico’s ARPU.

Subscriber acquisition cost or CPGA were up year-over-year, but down $18 sequentially to $330 compared to the fourth quarter of 2007. This was driven primarily by lower advertising costs. This improvement in our subscriber acquisition cost helped fuel our solid consolidated OIBDA results for the quarter and will help position us to deliver a possible growth in 2008.

Now, taking a look at operations on a market-by-market basis. Nextel Mexico delivered solid overall results in the first quarter generating a record level of segment earnings and gross additions, which grew 22% over the same period last year. The actions that we puts in the second half of 2007, in order to prove our competitive position drove the strong results and are consistent with our strategy of finding the optimal balance of growth and profitability regardless of the competitive landscape.

Nextel Mexico generated a 34% year-over-year lift in its ending subscriber base, despite aggressive pricing by the competition. However, we did see an increase insured as we expected to 2.3% during the quarter. I would like take a moment to give you a more perspective on some of the factors that contribute to this increase in churn.

First, as part of the action plans implemented in the second half of 2007, in order to improve our competitive position, we introduced several new rate plans and promotions. Most of these rate plans and promotions were well received by our customers and continue to deliver value and attract profitable customers to our services. However, we did find at a certain promotional offer attracted some users whose needs didn’t align well with the value that our products and services provide. We identified the problem and we eliminated this promotion by the end of 2007. However, the impact of this plan is still being reflected currently in higher churn, as many of these customers move through our system in the first half of the year.

It is also important to note that Nextel Mexico delivered its highest level of gross ads in its history, this quarter despite eliminating this promotional rate plans in ’07. Another factor that contributed to the higher churn rate was our decision not to match competitive offers to our customers that we believe are unprofitable for NII. Our decisions in this area negatively impacted churn during the quarter. However, our approach also had a positive impact on profitability.

In response, we have launched several initiatives focused on reducing churn in Mexico. Specifically, we have put programs in place that are designed to better align our rate plans with the needs of our customers at the offset in order to reduce to churn and improved customer satisfaction. We are also improving the alignment of our customer care organization to better meet the needs of our customers and fine tuning our distribution network to focus on high value customers and provide the appropriate incentives to ensure that customers stay on our network. We believe that these initiatives are stabilizing churn in Mexico and we will provide an opportunity to reduce our churn rate in the second half of the year. With that said, our churn continues to be at industry best levels in our region.

Boosted by a growing subscriber base, Nextel Mexico generated revenue of $508 million in the quarter up 27% over the same period last year. As we expected, ARPU decreased in the first quarter to $68 as we stimulated additional profitable subscriber growth driving strong gross adds and maintaining our profitability. Our ARPU level in Mexico remains healthy, despite a competitive environment in which aggressive pricing tactics has substantially impacted revenue per minute throughout the industry. We will continue to structure our rate plans to meet our customer needs and pursue additional revenues streams including moving forward with our plans to launch calling party pay service plans later this year, all consistent with our strategy of generating profitable growth.

Looking at the cost side, CPGA Mexico while up on a year-over-year basis, improved $25 sequentially to $425, as a result of lower advertising cost during the period.

As we stated many times on past calls, it is the combination of all the metrics in the business balanced with the strong subscriber growth that drives the operating and financial results that will create long-term value. It was the combination of these factors that resulted in Nextel Mexico generating $192 million in segment earnings for the quarter, a new record that represents a 25% increase over the first quarter of 2007.

Nextel Brazil delivered another outstanding quarter both in terms of subscriber and revenue growth. Continued strength in customer retention resulted in Nextel Brazil’s reported churn at 1.3% which was flat both sequentially and year-over-year and remains the lowest among all of our markets. Low churn rates coupled with accelerating gross additions which were up 33% over first quarter of 2007 that was fueled Nextel Brazils as it added 1000 net subscribers during the quarter, a 29% year-over-year increase.

Nextel Brazil’s ending subscriber base of nearly 1.4 million customers, grew 42% over the last 12 months. Nextel Brazil’s ARPU continues to rise coming in it $61 for the quarter up $11 over the same period last year. This strong ARPU was driven by combination of the strength of the Brazilian Real and increased usage by our customers. Strong ARPU and a growing subscriber base enabled Nextel Brazil to generate $301 million in revenue, a 75% increase over the same period last year.

Solid revenue growth coupled with good cost containment as CPJ declines at $25 sequentially enabled Nextel Brazil to generate a record level of segment earnings for the quarter of $81 million and a segment earnings margin of 27% its highest level to-date. We believe that are past investments in Brazil, and our plans to increase our geographic coverage in this country well positioned Nextel Brazil to generate significant growth in both it’s subscriber base and its segment earnings in the future.

Nextel Argentina continues its steady performance driving a 29% increase in revenues, a 24% increase in it’s earnings subscriber base over the past year and another impressive 24% increase over the segment earnings over the same period in 2007. Nextel Peru again, drove very strong subscriber growth generating an 86% increase in net subscriber additions compared to the first quarter of 2007.

Segment earnings in that market grew 33% year-over-year despite generating record levels of gross additions. Looking at our network we are continuing to invest in the capacity and geographic coverage of our iDEN network in all of our markets, adding about 200 sites in the first quarter. We’ve invested approximately $192 million in CapEx so far this year with 80% of spending occurring in Mexico and Brazil.

Our high quality iDEN network continues to perform extremely well with 99.9% network availability and less than 1% in blocked and dropped calls in average across all of our markets. We will capitalize in our strong network by launching several new handsets in the coming months that has features and functionality develop with the needs of our high value customers in mind. Our handset roadmap for the year is very exciting and includes a new designer handset in Mexico and a new sleek BlackBerry unit expected in the second half of the year.

To sum it all up, we delivered solid subscriber growth and even better profitability in the first quarter. We believe that the initiatives we put in place have better positioned NII to successfully navigate the competitive landscape and continue to execute on the fundamentals of our profitable growth strategy.

That strategy encompasses targeting the right customers leveraging our differentiated service offering including PTT and backing it up with our best-in-class customer care experience. Those principles and our focus on execution are at the core of how we run our business and positions NII to continue delivering strong results. Now, I would like to turn the call over to Gokul Hemmady, NII’s Vice President, and CFO.

Gokul Hemmady

Thank you, Lo and good morning everyone. As you would heard our first quarter results reflects both strong subscriber growth and profitability. Our ending subscriber base grow by 35% while our revenues and OIBDA for the quarter increased by 39% and 36% respectively compared to the same period of last year.

Now, I will walk you through a summary of our financial results for the quarter. Solid subscriber growth and a healthy level of consolidated ARPU resulted in a 39% year-over-year increase in revenues to $993 million. Consolidated ARPU of $58 remain inline with the ARPU level during the same period last year with a reduction in the ARPU level in Mexico offset by stronger ARPU results in Brazil, which improved primarily because of this strengthening currency.

Even with strong year-over-year increases in gross customer loading, we delivered a record level of consolidated OIBDA. OIBDA of $286 million for the quarter represented a 36% increase year-over-year and included $60 million of non-cash stock option compensation expense, compared to $9 million reported in the same period last year. Therefore, we generated OIBDA before non-cash stock option compensation expense of $302 million, which on a comparable basis represents an increase of 38% over the same period last year.

Our consolidated OIBDA margins of 29% for the quarter remain relatively flat when compared to the same period last year and the fourth quarter of 2007. We believe that the stability of our OBIDA margin is significant because it was achieved during the quarter in which we generated the highest level of gross customer loading in our history and incurred an incremental year-over-year increase of $7 million in non-cash stock option compensation expense.

Now lets look at the major components of our cost structure, as a percent of revenues cost of revenues was up to 40% compared to 39% in the same period a year ago. The higher percentage resulted from an increase in the service and repair costs related to a drive in the number of handsets serviced under our handset maintenance programs. Selling and marketing expenses as a percent of revenue of nearly 13% was up slightly as compared to the first quarter of 2007.

The slight increase was related to an increase in indirect commissions related to higher gross adds. G&A expense as a percentage of revenue was 19%, essentially inline with the first quarter of 2007. We generated $192 million in operating income during the year, a 34% increase over the first quarter last year driven by strong growth in OIBDA partially offset by a 41% drive in G&A expense related to the continued expansion of our networks.

Items below operating income include net interest expense for the year which totaled approximately $22 million; $8 million higher than last year, due to higher outstanding debt levels and lower yields earned on our cash balances. Foreign currency transaction gained totaled $3 million, a $6 million improvement over the same period last year, fueled primarily by the strong Brazilian Real.

Our book income tax provision of $54 million was $11 million higher than the $43 million in tax expense we recorded in the same period last year. This was a result of higher pre-tax income in the first quarter of 2008. However, our first quarter ’08, effective book income tax rate of 32% was a slight improvement over the 34% recorded in the first quarter of 2007.

We expect our book tax rate to remain at similar levels to first quarter for the remainder of this year. We generated net income of $114 million for the period, or $0.67 per basic share compared to net income of $84 million or $0.52 per basic share in the same period last year. This represents a 35% increase in reported net income over last year. We ended the quarter with $1.2 billion in cash and cash equivalent and $236 million in short-term investments.

Long-term debt at the end of the first quarter was $2.35 billion, which consisted of $1.55 billion in low coupon convertible notes, $590 million in syndicated loans, and $285 million in local currency tower financing and other debt obligations. Subtracting our cash, cash equivalent and short-term investments from our total debt results in net debt of approximately $733 million. Additionally, our credit profile remains strong with the pretax cost of debt below 5%.

During the quarter, we launched a $500 million share repurchase program that we announced earlier this year purchasing $2.7 million shares of our common stock for a total price of $103 million. This equates to an average purchase price of $38 per share. Our current plans are to complete this program over the course of 2008. Our focus on profitable growth remains at the forefront as we generated deducted levels of consolidated OIBDA.

Our strong results in the first quarter reflect our disciplined approach, which keeps us focused on long-term value creation. While we view this quarter as an important stepping stone towards achieving our 2008 targets, we are looking ahead and implementing strategy that we believe will continue to create long-term value. Our long-term focus has delivered positive results in the past and we believe our commitment to that approach will yield positive results in the future.

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

Steven Dussek

Thank you. Gokul. Our entire team is excited about our strong start for the year and will be working hard to execute our plans to meet and exceed our goals for 2008 and beyond. Our results for the quarter, we are consistent with our expectations and we are on track and remain confident with respect to our full year guidance. These long-term goals envision an expansion of our foundation to create more opportunities for growth and profitability.

As we have mentioned on this and our previous calls, we believe we have the right formula for sustained success in the Latin American wireless market place. This formula combines our differentiated products with our high value subscriber base and superior customer service to drive sustainable, profitable growth. These ingredients are backed up with solid execution from the best people in the wireless business and our high quality iDEN network that supports our differentiated services.

Our iDEN network and our strong push-to-talk offerings are at the core of the high value services we offer to our customers and we will continue to build on that core by increasing the capacity and geographic footprint of our iDEN network, now and for years to come. We also believe that the expected growth of the Latin American wireless market presents us with opportunities to provide a greater breadth of services to an even larger base of potential customers.

Recognizing this we will evaluate opportunities to complement the services supported by our iDEN network using new technology platforms that will support additional services and position NII to peruse high value customers in new market segments. These efforts will begin toward positioning our company to generate more profitable growth in the future. Our evaluation will reflect our disciplined assessment of spectrum opportunities and investments in network technologies that will support these new services and we will not loose site of what weathers to where we are today. Our assessment of these new opportunities will continue to take into account the value of the differentiation that high performance push-to-talk and high quality voice and data services provide. Therefore, it will be imparity that any complementary technology platform we choose is capable of enhancing that differentiation by working in conjunction with our robust iDEN network, creating a much larger ecosystem for growth and profitability.

Today this opportunity exists in Peru where we are planning to deploy a 3G network that will complement our strong and growing iDEN network. We expect that this approach could significantly increase the size of our addressable customer base and position Nextel Peru to provide more services to its customers. With deployment costs that we believe are reasonable, NII will be in a position to generate strong returns on this investment and our team is excited about this opportunity.

Going forward, we will continue to assess the market demands in all of our countries and will evaluate and take steps like we have improve in all effort to insure that NII is in the best position to reach our goal of becoming the preferred provider of wireless services to high value customers in Latin America.

Thank you, and operator we will now take questions.

Question and Answer Session

Operator

Great thank you (Operator Instructions) Our first question comes from Rick Prentiss with Raymond James & Associates

Richard Prentiss - Raymond James

Yes, thanks. Good morning, guys. A couple of questions for you, first lets start with maybe, Mexican competition environment. As you look down there Lo did a good job walking us through a kind of the churn rate and why you think it might improve in the second part of the year. Can you talk a little bit about on the ARPU side, where you seeing new customers coming on as far as the ARPU plans go, I think Lo, also mentioned some stuff about trying to match up customers with the right rate plans. Just kind of gauging as we look out what the pressure on ARPU might be in the future in Mexico and then on the technology front I agree, I think, I’ve hard in the past you always want to have the spectrum first and then look at the network migration and overlays. Truly you have the spectrum maybe an update on Mexico as the rules are starting to form for those auctions, any update on timelines announce a spectrum and potential for a new entrant category? Thanks.

Steven Dussek

I appreciate your question. I’ll address the Mexican ARPU, of course we don’t expect in ongoing solid drop in ARPU on a quarterly basis. It’s very, very competitive environment and -- and we have basically introduced rate plans, where the loading ARPU is less than the average ARPU that we are enjoying our base ARPU. So that has in effective also migrating customers into the right rate plans. But, overall we believe that the ARPU is being stabilized and while ARPU is growing down a couple percentage points. We are increasing growth and hitting new records in Mexico and we believe this is the right thing to do at this point of time. The critical thing is that when you look at a business, you can’t just look at ARPU, you really have to dial up the right mix of all metrics to generate the best balance both in terms of growth in possibility and we have been able to that and while we have actually decrease the inter-connect minutes that we are giving our customers this quarter versus last quarter this year and increasing and we will use for dispatch and that just gives us more margin and a cost less and that’s why you see improving margins in Mexico with record growths.

Steven Shindler

Okay Rick, this is Steve Shindler. I will address your question on the future spectrum. First, just to clarify the way you face the question, we are not looking at this as a migration. We are, as Steve has outlined in his remarks. Very much looking at adding complementary services for our customers, but specifically with regard to Mexico and Brazil for our future spectrum opportunities, Mexico has announced that they plan to run two auctions but they haven’t given the precise dates of the announcement of all the rules but we expect, the first one will be coming up relatively shortly related to 1.9 spectrum and that the 30 megahertz of that will be auctioned. 45 days after the conclusion of that auction. They have said that they would bring out, a larger amount of spectrum in the 1.7 to 2.1 bands. So, we are evaluating both of those in Peru we will look at that from a cost perspective and if we feel it’s economic we will look to proceed. With regard to Brazil, they have not announced the specific date but what we hear from the relative regulatory agencies in Brazil is that is that they do intent at this point to move forward with H band, the one remaining blocked of spectrum in the 1.9 frequency, consistent with the auction that participated in back in December. So we will await those rules and evaluated in the same basis, and you should likely expect our participation in that auction, when those rules get announced.

Richard Prentiss - Raymond James

Okay, maybe a follow up question on the technology. The CDMA path, have you guys actually been able to use the REV-A, QChart product and what are your opinions as far as how that looks like its going to be working?

Steven Dussek

We’ve had several people that have certainly been involved in the test and have joined with folks that strengthen otherwise as they’ve as Rick made those valuations, obviously its not been launched on a broad scale, but everything that we’ve seen and heard is that there is tremendous progress being made on that front. So, we are excited about where that’s likely going to go especially in terms of how it coincide with the completion of our build out on that technology.

Richard Prentiss - Raymond James

Okay, great, good luck guys.

Steven Dussek

Thank you.

Operator

Thank you and we will go to our next question from Chris King with Stifel Nicolaus.

Christopher King - Stifel Nicolaus

Good morning and the congratulations Steve on the new, well actually both Steve on the new respective roles. First question related to Peru very strong subscriber growth particularly year-over-year, net adds really coming close to a doubling year-over-year. Obviously you guys are benefiting from the interconnection rates stepped down are, there is -- is there anything else we should be thinking about in terms of the market dynamics those specifically in Peru that's helping to attribute to that type of growth. And then secondly, I just wanted to get your quick takes on the latest reading that you guys are getting with respect to the - respect to the economies, across Latin America particularly in Mexico, where you guys are -- are seeing really any signs of weakness there at all we should be thinking about going forward? Thanks.

Steven Dussek

Pertaining to Peru obviously where it's a very, very strong economy and it has been for sometime and we basically held back sales mainly due to the high interconnect pricing and as you know we worked with the regularity authorities to get interconnect pricing down by 50% over a 4-year period and that allows us to now grow in a profitable fashion. That’s the only reason because the opportunity always has been there.

Gokul Hemmady

Chris let me answer your question on Mexico. We’ve not had -- seen any meaningful impact yet as you saw some of our results we had, gross adds in Mexico were greater in this quarter. We are aware that there could be some risks going into the balance of 2008, but here is how we think about what might happen there. We feel that elasticity if you will. If I can call it that, all wireless services are low to a downturn. We feel that this has been as an important product and usage patterns generally do not change in a meaningful way, especially with our customer base in a downturn. So that’s I’ve said, now having said all of that we’ve -- we are aware that there are times of weaknesses with default rates going up, consumer confidence being low, our forecast for GDP is being lower. But on the other hand, we feel that, there is some evidence that Mexico this time will be able to able weather the downturn, much better than the past as reliance on the U.S. has come down for example, from 95% of their exports to somewhere close to 80%. But our teams locally are watching what’s going on and we will continue to monitor the situation.

Christopher King - Stifel Nicolaus

Thank you.

Operator

Thank you. And we will go next to Gray Powell, with Wachovia.

Gray Powell - Wachovia Capital Markets

Hi, good morning everybody. Thanks for taking the questions. I just had a few quick ones. First on the -- the 3G over way in Peru, I think on the last call, you’d said that it would be about $30 million of operating delusion included in your 2008 guidance, can you just talk about how much of that $30 million is country specific versus more of like the corporate level costs that could be applied to other countries if you decided go there if sometime in the future and then, this is a follow on, can you talk about what you think the adjustable market is for the -- for 3G services in Peru and how quickly you expect to have a network deployed and the service available to customers.

Gokul Hemmady

Let me just start with the $30 million number that we talked about last time. You know, the way we think about, how we do this is a combination of kind of some work gets done in Peru because there is more decision to be done there and a lot of the work also happens at headquarter. So, we don’t kind of view this as corporate costs versus local costs, just we try to perform the work in the best kind of location that is, that is possible.

Steven Dussek

Yeah, Gray, this is Steve Dussek. With respect to the market opportunities, we look at this really as being enabling us to nearly double the addressable target market that we have in Peru. So in terms of our ability to grow obviously that that doubling of add adjustable market is a key and in terms of when the network would be deployed, obviously we follow our technical of plan and we would look at this some time latter half of ‘09 and then perhaps first part of 2010 in terms deployment and availability to customers.

Gray Powell, Wachovia Capital Markets

Okay, okay. Okay, that makes sense, and then just kind of switching subjects, can you give us an update on the market expansion offers in Brazil, how many parts you’ve launched year-to-date and when should we start to see the acceleration in subscriber growth associated with expansion?

Steven Dussek

Well, I think you are seeing the expansion right now obviously we are building at quite substantially in the second third and fourth quarter. But, a critical milestone was a specific loading target we had for the March period, which Brazil achieved and we’ve hired a lot of the sales people, sales support people, and customer service people to support incremental growth in Brazil. So, I don’t believe that on a quarterly, quarterly basis you should see expansion in the market.

Gray Powell, Wachovia Capital Markets

Okay and then last question in the past of Brazil you talked about the longer term margin profile EBITDA margins, approaching something more like that the mid 30% range with the recent increases in ARPU that you’ve seen in the reductions and churn that you’ve seen in Brazil has that changed, is that potentially higher?

Gokul Hemmady

No, I think, we are going to say that this is necessarily higher, I would say that we feel very good as Lo pointed about our results this quarter. We feel good about the potentials for significant growth going forward and you’ll see us continue to improve margins overtime in Brazil and that will help us as our overall NII consolidated margins too.

Gray Powell, Wachovia Capital Markets

Okay, thank you very much.

Operator

Thank you. And we will go next to Walter Piecyk with Pali Capital.

Walter Piecyk - Pali Capital

Thank you. I just wanted to first look at this CPGA in Mexico. In the last couple of years, it's been -- CPGA in general has been coming down for the year and obviously in Q4 with elevated good gross adds over a week. So, maybe the higher level in Q4 was -- but not really real numbers, so it’s down sequentially, but it was up year-over-year with CPGA in the first quarter and Lo you also obviously mentioned that there is a complete picture that you are going after ARPU customer, you want to pay less for that customer, obviously if you look at the profitability of the overall customer. So when a kind -- when we look at 2008 and 2009 shouldn’t the direction for the year would be CPGA being down year-over-year.

Steven Dussek

Absolutely, that the overall direction for CPGA it needs go down as you know we did stimulate our indirect distribution in the fourth quarter, and we continue to do so in the first and right now, what we are trying to do is really get our secondary markets that we opened up over the last two years. We are spending a lot of money creating new gross adds there, because you just think about it, 61% of our gross adds are being generated by three series and that is Mexico, Walaha and Montreal, but they only contribute to 24% of the net, so, you can see that we are making heavy investments in markets outside the three critical markets that represent 60% of the population. So when those markets are up and our basis up, we believe that overall there should be a lower cost. We are also looking at new channels where we basically are moving traffic to a lower cost channels and also try to pump up direct sales model.

Walter Piecyk - Pali Capital

So, if you look at the last couple years and there is no really, I don’t think strong predictable seasonal pattern, but in order to improve, I think last year CPGA for the year was about 430. If you did 425 in Q1, should we look from - some possible sequential improvements in that number in future quarters?

Steven Dussek

Right now, critically seeing this, I am going as to a profitable growth and typically when we look at, CPGA payback we look it at in relations to the ARPU that we generate and we believe that we are still in line for this year. So I’m not necessarily terribly upset with this current pricing especially when I’m hitting new record levels.

Walter Piecyk - Pali Capital

Okay, the next question I guess is on the Brazilian ARPU, obviously the currency was strong during the quarter, but that's reported everyday, so I am not sure whether it would be new information and when you look at the ARPU and local currency, it was up strongly while the CPGA was obviously very attractive, what is it about the services that people are buying or the new customers that you bringing on in Brazil that continues to drive that APRU up and how that’s going to again progress throughout 2008?

Steven Dussek

Well. In Brazil, we have obviously far less customers there, and we are growing the markets versus Mexico, but it's more interconnect centric then dispatch centric, and we crank about 50 more and we use poor sub there, which also generates high ARPU.

Walter Piecyk - Pali Capital

So people are just talking more on the phones in Brazil, as time progresses or is this because you are launching new markets, if they are using phones in more locations and why would someone talk more now they did a year ago.

Steven Dussek

Well. I can assure that Brazilians talk as much as anybody else in Latin America, its just how we structure our rate plans to maximize profitability and margin for the company with gross.

Walter Piecyk - Pali Capital

Okay. And my last question is just on the CPP, Steve you had mentioned, I think, that your expectation maybe, you are maybe was Lo I remember that the second half of the year, you go for these rate plan. Has anything changed with your, I don’t know what you can call, negotiation, relationship, discussion with America Movil, because again from the corporate standpoint the CFO, Carlos Moreno, continue to seem to indicate that they are going to try and not honor what should be their agreement to interconnect with you guys, which would enable you on top of these rate plans. If you just update on - has anything change and were the action that give you confidence to be able to saying a quarterly call that you waver off this rate plans by the end of the year.

Steven Dussek

The confidence, well comes from the efforts of our teams. They are consistent now pursuit of this has been through a regulatory channels and now technical testing channels. We’ve talked with you about the way these things have evolved and other aspects of our business. It’s a typical pattern where we’re getting approval when there is an ongoing process, where that finally get some post and then the testing period where some things do get delayed and we continue to press forward. So we feel that we have all of the things in motion that we need to have and that that will yield the beginnings of some CPP revenues as we move into the second half of the year. Then I will take some time to scale that into the - into the rest of the business.

Walter Piecyk - Pali Capital

You know the reason I’m asking because when we talk to corporate [Inaudible] couple of weeks ago and they indicated that basically you have not filed suit against America Movil, and that if you have done -- if you do so, that they would rule fairly quickly on forcing America Movil, I am not sure what you know what they have to do to force them but, ruling on that and they have indicated to us that you have not come down with that which would indicate that maybe thinks are progressing with American Movil on that negotiation?

Steven Dussek

We implemented the tactics that we feel we need to go after in order to create the level playing filed, if there is other steps that we fairly need to implement along the way, then we will certainly do so, but right now we feel we are on tracks.

Walter Piecyk - Pali Capital

Great. Thank you very much.

Operator

Thank you. And we will go next to James Breen, with Thomas Weisel. Go ahead Mr. Breen. Your line is open, sir and hearing no response, we will go next to Mauricio Fernandes, with Merrill Lynch.

Mauricio Fernandes - Merrill Lynch

Thank you. Good morning everyone. Couple of questions first, that the excuse me the whole net MOU has gone up in Mexico with of nets interconnect MOU is done, can you give us some source of the magnitude of both and I know you mentioned I think in the last call that I am interconnect minutes were in Mexico around 280? So if you could give us a sense on where those numbers are right now? Secondly, step back for a second on the guidance given last the last quarter of revenues of 4.2 or -- sorry $4.25 billion in EBITDA including options of 115 the incremental EBITDA there is 230 million from 2007 the incremental revenues $1billion over the implied incremental margin of 23% versus toward the 28% reporting in 2007, that’s why the margins becomes obviously and I just wanted to understand, given the end of the expansion phase in Mexico, and I know that there is expansion in Brazil and - and the other countries particularly Brazil but why - why in the overall as for an weekly trust standpoint net to margin will be so much lower than what has been what was reported in 2007? Thank you.

Gokul Hemmady

Let me - let me just take the second question first. So, yes you are right. I think your math is right in terms of incremental margin. What you should also remember is that we had included in that we have about $30 million in - in 3G and so if you exclude that our incremental amount margin on that pool business should be - should be much higher. Now in the broader picture, we are focused on improving margin over time the whole team is focused on - on getting there as we’ve said in the past as Steve said on the call earlier additional revenue streams from CPP data services, SMS continued lower cost on interconnect much better cost efficiency programs overtime and the Brazils margins improving as we complete the expansion of our networks. There all should contribute to improving margins overtime but incremental margin is higher if you exclude 3G’s.

Steven Dussek

Yeah then pertaining to the MOUs there has been no change in – in Brazil last year first quarter versus this year is roughly 540 minutes per sub, but Mexico was higher last year than Brazil and its actually lower than Brazil this point of time in we’ve over the last year decrease our overall interconnect per sub by about 17% and dispatch traffic has remained identical on a per sub basis.

Mauricio Fernandes, Merrill Lynch

So - sorry if I understand correctly. So for last quarter, maybe it was 280 now it’s down to 230 or 235 or on that level?

Steven Dussek

We were on 240 interconnect.

Mauricio Fernandes, Merrill Lynch

Okay, and the overall minutes for - for Mexico.

Steven Dussek

It’s by a little bit over 500.

Mauricio Fernandes, Merrill Lynch

Okay, thanks. Thanks a lot, thank you.

Operator

Thank you and we will take our next question from James Breen with Thomas Weisel.

James Breen - Thomas Weisel Partners

Thanks. Can you here me?

Steven Dussek

Yes.

James Breen - Thomas Weisel Partners

Okay. I forgot how to using my phone. A couple of question one in Mexico with respect to churn Lo, you talked about, some of the customers that get out in the fourth quarter, what – one of your type of customers. Can you give us a sense of the 2.3% in churn, you know sort of having those customers not churned off or not have been added, where is that churn number then its sounds although churn it can be flattish in second quarter from year ended as those customers focus through come down to the second half of the year just you could give us color there and then the second question just on technology obviously a lot of question about iDEN, Motorola put up you know lesser than perfect number this morning. Can you talk about some conversion you have had there in terms of your confidence with the their ability to support the technology and potential in your handsets. Thanks.

Lo van Gemert

Yeah, In the fourth quarter in Mexico just based on just pure churn level loss about 125,000 customers and we believe that that probably the churn level that we enjoined in the fourth quarter may be a little bit higher would have been in the normal run rate if we haven’t introduced the promo and it is true that that some of these customers we don’t find impossible or their usage pattern is not desirable dispatches is not right for them they will be basically moving out of the system in the first and second quarter and - and third and fourth quarter will believe that these churn - churn should stay stabilize in the 2% plus level. We don’t believe that we will have these types of rates, but even though the churn is a little bit higher look at our gross and look at the net as that we generated and with these slight outfitted generation, reduction we still have maximized to our revenues and possible for the company. So, overall direction wise I think we are moving in - in the right direction.

James Breen - Thomas Weisel Partners

So that saying that the 280 plus gross strategy have this quarter generally or higher qualities of sub then the 275 gross share last quarter?

Lo van Gemert

Definitely, because we basically have introduced rate plans that are aligned with their requirements.

James Breen - Thomas Weisel Partners

Great, and then at the iDEN inside.

Steven Dussek

Yes, James, this is Steve Dussek. Let me start by just telling you that the - the relationship that we have with Motorola is very strong and that through our conversions, we have a very strong belief that iDEN will continue to be fully supported regarding some where thing shake out with their announced spread. In terms of the handsets we are on target to have all the handsets that we and are line up delivered on time and so we don’t see any issue there and we feel very good about the handsets side the relationship side and the fact that the BlackBerry that we have – I think on target for late fourth quarter around the November timeframe is on track and we should have that as far or itself with respect their support and our commitment to iDEN its just strong as ever and we feel very good about -- about their relationship and were things

James Breen - Thomas Weisel Partners

Great thank you very much

Steven Dussek

You’re welcome.

Operator

Thank you. And we will go next to Brett Feldman with Lehman Brothers.

Brett Feldman - Lehman Brothers

Yeah, thanks for taking the question. I though if we could talk about what we should be expecting in the second quarter just directionally for your net adds. In order if you guys sustain on pace to hit the net add, guidance you could establish for the full year. It would seen you would have to had sequential growth in the Net Adds. But if that’s not the trend we should be looking for a low color here will be great and I am also curious where there we should see meaningful differences in directional trends in different markets?

Steven Dussek

Definitely, first of all if you just kind of look at the market Argentina typically they every first quarter they go with seasonality its lower. So you should definitely see growth there and -- and we all expect that we should see much higher growth in - in all of the other markets, Mexico and Brazil and - and you are correct. We have to do that in Brazil and you are correct we have to do that in order to achieve or exceed our guidance. So that is all part of our plan is anticipated and we want to do in a profitable fashion. But growth definitely is our desire in the second quarter.

Brett Feldman - Lehman Brothers

That’s good and then just one more question about mix in ARPU, I don’t think we’ve had question on that topic yet. On what extent are you guys stepping in, in the middle of a customers contract, is a proactive way to keep them you talked about line up plans that either need so lot better, are you stepping in on month six of a twelve months contract and saying listen we think this might be a little better for you – you understand and it may knock down their ARPU and then are you want to try to extend the length of contracts before the expire, may be doing 18 to 24 months.

Steven Dussek

Well, first of all we have all our customers on 18-month contracts and you raised a very, very good point is that we are more aggressively getting involved with our customers base before the end of the contract to give them upgrade unit or put them in the right rate plan. So we are more proactive because some that has lead to increase churns so, it’s a very good point.

Brett Feldman - Lehman Brothers

Okay. That’s great. and I am sure I will ask one more Shiley I think I haven’t heard you guys talking about Shiley in the while key give us a quick update where you are on that market?

Steven Dussek

Well, we basically put our sides up and we had about 150 people we are generating sales ARPUs are in about $45 region. We haven’t - we don’t necessarily have a positive EBITDA yet both just launched it and but the things are exactly on track there.

Steven M. Shindler

In terms of the launch the network were, we are getting close to the implementation of the - of the motility to topic - to replace the harmony system and that will give us the ability to scale and get a lot more growth opportunity in the future growth. We’re still operating on - on the harmony as of right now.

Brett Feldman - Lehman Brothers

Great, and thank you very much.

Steven M. Shindler

Great, Clara I think we are overall a lot of our time and we want to go ahead and wrap it up and I’ll just - lets Steve say a quick word.

Steven Dussek

First of all thanks again to all of you for spending the time this morning and for your interest in NII. We feel very good about our first quarter and we look forward to getting back to you with our second quarter results later on this year and again thank you very much for your interest.

Operator

Thank you and this concludes the NII Holdings first quarter 2008 earnings conference call. Thank you for your participation and have a great day.

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