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Executives

Steve Dussek – Chief Executive Officer

Gokul Hemmady – Chief Operating Officer

Juan Figuereo – Executive Vice President & Chief Financial Officer

Tim Perrott – Vice President, Investor Relations and Corporate Communications

Analysts

Ric Prentiss – Raymond James

Chris King – Stifel Nicolaus

James Breen – William Blair

[Corat] – Macquarie Capital

Rodrigo Villanueva – Merrill Lynch

Vera Rossi – Barclays

Kevin Roe – Roe Equity

Andres Coello – Scotia Bank

Andre [Sebach] – Credit Suisse

Michel Morin – Morgan Stanley

NII Holdings, Inc. (NHD) Q3 2012 Earnings Call November 7, 2012 8:30 AM ET

Operator

Ladies and gentlemen, thank you for holding and welcome to the NII Holdings Q3 2012 Earnings Conference Call. (Operator instructions.) Today’s conference call will be available for rebroadcast for the following two weeks beginning later today. Domestic callers may access the rebroadcast by dialing 617-801-6888 and entering passcode 81351943. International participants may access the rebroadcast by dialing 888-286-8010 and entering passcode 81351943. (Operator instructions.) 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, Derek, and good morning to everyone, and thank you for joining NII Holdings Q3 2012 Results Conference Call. With me on the call today are Steve Dussek, our CEO; Gokul Hemmady, our COO; and our recently appointed CFO, Juan Figuereo.

As a preliminary matter, let me inform you that some of the issues discussed today that are not historical will be forward-looking, and as such should be taken in the context of the risks and uncertainties that are outlined in the SEC filings of NII Holdings, including our 2011 Form 10(k) filed with the SEC on February 23, 2012, as well as other documents we have filed with the SEC.

In addition, during this call we’ll be discussing certain financial metrics that do not conform to generally accepted accounting principles in the US, better known as GAAP. For a reconciliation of these financial metrics to GAAP, please access NII’s Investor Relations link at www.nii.com. I would now like to introduce Steve Dussek, our CEO. Steve?

Steve Dussek

Thank you, Tim. Good morning and thank you for joining our call today. I want to begin by reviewing the challenges we are experiencing that have negatively impacted our Q3 results and provide insight into the actions we are taking to improve our performance. I will then update you on our 3G deployment and our progress in other areas.

Before I go through the details I want to make it clear that I’m disappointed with our results for the quarter. Our current performance is not acceptable to us and we clearly need to improve on our execution. I take full responsibility for this and for implementing the changes needed to improve our results.

Our consolidated results reflect weak performance in Brazil. Nextel Brazil’s results continue to be effected by the actions we took last year to drive growth in a highly competitive marketplace while lacking the capabilities necessary to satisfy the increasing demand for 3G services. The strategy was deployed in this environment was, in hindsight, not the right approach and resulted in attracting customers that did not have a strong credit history or align well with our value proposition. We also learned that these customers were difficult and expensive to retain and are a distraction to our Customer Care Team, making them unprofitable for our business.

Over the last two quarters we have been implementing a number of actions to improve our customer base, stabilize ARPU and attract the right type of customers to improve our long-term position in Brazil. These include tightening our credit policies, reducing our retention and investments, and modifying our commercial offers and convention structure. We are seeing the positive results of these actions in the form of a more stable ARPU and higher-quality growth loading. However, we are also experiencing much higher churn as we clean our subscriber base of the unprofitable customers that we attracted last year.

After analyzing customer behavior in response to our actions, we have been able to more clearly define the customers in our base that are not profitable and that have had a negative impact on our business. Based on this analysis, we have concluded that our current approach is not aggressive enough. We are now taking more proactive actions to eliminate these unprofitable subscribers from our customer base and to position Nextel Brazil to return to profitable net add growth.

Let me provide some insight into the actions that we are taking under this more aggressive approach. First, we are eliminating all retention efforts for these unprofitable customers immediately. Second, we will continue to apply our more rigorous credit policy, modified rate plan approach, and adjusted commissions structure in order to target and attract higher quality customers to our services. Early indications are that these actions are having the intended impact to the business and we are beginning to see improved quality in customer loading and fewer requests for deactivations.

We expect that our more aggressive actions will allow us to remove most of the unprofitable customers from our base during Q4. Of course, doing that will have a significant impact on our churn and net add results for the quarter and for the full year as we expect to deactivate as many as 350,000 additional subscribers in this category over the remainder of 2012. But we believe this approach will allow us to clean the base of most of these customers before year-end so that we are positioned to return to positive data add growth in Brazil as we begin 2013.

More importantly, we believe that positive growth will be driven by the type of high-quality customers we have always served and that removing these problem customers from our base will allow us to focus on the needs of customers who value the quality services that we offer. We recognize that our more aggressive actions will result in a loss of subscribers on a consolidated basis for Q4 and will cause us to be well below our net subscriber addition goals for the year. However, we believe that it is the right decision to improve our customer base and position Nextel Brazil for comfortable growth as we prepare for the launch of our 3G networks there.

Turning to our 3G network in Brazil, as you know deploying high-quality 3G services will be important for Nextel Brazil’s long-term success. While we have made progress towards this effort we have fallen behind schedule in Brazil. A number of factors have contributed to this delay. We have had execution challenges which have been compounded by a scarcity of labor and the slower pace of integrating the large number of sites necessary to facilitate high-quality services.

We now expect to launch our first wave of 3G data services supported by this new network in select cities in Brazil later this year, followed by a broader launch of 3G voice and data services beginning in Q2 next year. We are obviously disappointed with this change to our schedule in Brazil and we are taking actions to improve our execution. You can be sure that the entire team is working hard to get our 3G services up and running in Brazil as soon as possible.

Despite these challenges, we remain very excited about what lies ahead for us in Brazil. Not only will we improve our customer base and offer 3G services, we will also have the opportunity to compete on a more level playing field created by the Brazilian government’s recent actions to address the high mobile termination rates that apply in Brazil.

As I’m sure many of you have heard, last week the Brazilian government decided to take decisive actions that will reduce the fees paid to terminate calls on mobile carriers’ networks. More specifically, mobile termination rates will come down significantly over the next three years, and all interconnect minutes will be governed by a partial billing key payment structure. These actions will encourage competition and ultimately provide more wireless choices for consumers in the country.

While we do not expect these changes to have a big impact on our costs in the near term, we believe that they will have a significant positive impact to our business in the future by giving us greater flexibility in developing services and pricing plans that meet our customers’ needs. This is a win for consumers in Brazil and will allow Nextel Brazil to provide more competitive services in the future.

So, despite some of the near-term difficulties that we face, we are encouraged by our opportunities in Brazil, and to help our company realize future growth there we have appointed Claudio Hidalgo, our President of Nextel Chile, as Chief Operating Officer for Nextel Brazil. Claudio brings a wealth of operational knowledge developed over many years in leadership roles at other wireless companies in Latin America. I believe Claudio will be a great addition to the team in Brazil.

Beyond Brazil, we are making additional changes to improve our results. We focused on business and position the company to deliver profitable growth over the long term. First, as we announced yesterday, we are taking actions to redefine the roles of our headquarters and market units, improve the alignment of our support functions and streamline our corporate headquarters.

This realignment of resources will help us improve our operational agility, manage our headquarters costs and position NII to achieve its long-term growth objectives. The actions that we took resulted in the elimination of approximately 20% of the employee base in our headquarters and the relocation of certain corporate positions to our market units.

Second, we are sharpening our focus on where and how we deploy our capital to ensure that we are generating the optimal return for our shareholders. While this has always been a key part of our mission we believe that the challenges we face, combined with evolving market conditions make it necessary for us to make tough choices about where we will allocate resources.

Now, turning to areas where we’ve seen progress, this quarter we achieved a number of milestones and are seeing other positive trends that will drive our business going forward. We have deployed our 3G networks in three of our markets. In Peru, we are experiencing good traction of 3G services since our launch in May. We added a total of 117,000 voice and data 3G customers in Q3, returning Nextel Peru to positive data add growth. In Chile, the launch of 3G services continues to be well received resulting in 45,000 gross adds for Q3. And in Mexico we just launched the first phase of our 3G network covering Mexico City and related areas. While it has only been a few weeks since the launch, feedback from our customers has been positive.

We have used the experience that we gained in our Peru 3G deployment to ensure that our new 3G network in Mexico delivers high-quality services and an excellent experience for our customers. We have an improved device portfolio and we are offering a full range of services, including our high-performance Push-to-Talk service at launch.

We expect these efforts to have a modest positive impact on our subscriber results starting in Q4, but we expect that this and future phases of our 3G deployment will position Nextel Mexico for stronger long-term growth. We are also continuing to expand our distribution channels, increasing our presence by over one-third in the past year. Our handset and device portfolio is also improving and will continue to expand as we launch several new smartphones and other devices in the months ahead.

By year-end we will have about ten 3G phones in the market, five of which will be smartphones. And our brand remains strong, standing for quality and best-in-class customer care We believe that all of these initiatives will position us to offer our current and new customer segments an expanded portfolio of products and services, creating new revenue streams that will enhance our growth.

And finally, we are continuing to strengthen our Senior Team. As you know, Gokul Hemmady is now our Chief Operating Officer. In that role, Gokul is focused on execution and addressing the operational challenges we face while helping to position the company for success over the long term.

And I’m excited that Juan Figuereo has joined our company as Chief Financial Officer. Juan brings a wealth of experience to our team, most recently as CFO of Newell Rubbermaid as well as from other senior leadership positions held at Wal-Mart, PepsiCo, and Cott. Juan also has significant international experience in the regions where we operate. Juan will play a key role as one of my close advisors in leading our company. In the near term I expect Juan to focus a significant amount of his effort on helping to improve our financial results, optimizing our capital structure and fine tuning our communications with key external stakeholders. He’s here with me and I would like to give him a chance to say a few words. Juan?

Juan Figuereo

Thanks, Steve. I am very excited to join NII’s management team. Based upon what I’ve seen in my short time here, I believe NII has a great opportunity to drive our growth and deliver improved results in the future. And while I’m running as fast as I can to quickly get up to speed on the company, I will also be spending a significant part of my time getting to know our investors and the analysts who follow our company. This is high on my priority list and I look forward to meeting all of you in the near future. Thanks, Steve.

Steve Dussek

Thank you, Juan. I’ll follow up with additional comments later, and now I’ll turn the call over to Gokul.

Gokul Hemmady

Thank you, Steve, and good morning. Starting with our operating results, during the quarter we experienced weaker than expected subscriber growth which had a negative impact on our results compared to the same period last year. Net adds were lower in Brazil as a result of tough market conditions and actions we are taking to address the problems that Steve described earlier.

Compared to the same period last year, our financial results for the quarter reflect the combined impact of lower local currency ARPU in Brazil, incremental expenses related to the deployment of our 3G networks, and weaker local currency exchange rates. In particular, relative to the US Dollar the Brazilian Real and Mexican Peso were down 24% and 8% respectively compared to the same quarter last year.

Despite the near-term impacts on net add growth related to the core challenges in Brazil, we are starting to see positive momentum in our subscriber trends from the launch of our 3G networks in markets like Chile and Peru. These results give us confidence in our strategy to deploy our next generation networks and expand our service capabilities. I’ll give additional details about our 3G subscriber trends when I go through the market detail, but first I’d like to discuss our consolidated results.

Our consolidated Q3 results include 152,000 net adds bringing our subscriber base at quarter-end to more than 11.3 million subscribers, an 11% increase in our ending subscriber base compared to a year ago; $1.49 billion in consolidated operating revenues, down from $1.75 billion during the same period last year due primarily to a $226 million decrease caused by weaker local market currencies and a decrease in consolidated ARPU; $218 million in consolidated OIBDA, a reduction of $168 million compared to Q3 of last year with about half of that reduction tied to weaker local currencies and the majority of the other half related to incremental 3G expenses.

Let’s take a look at the drivers behind these results in greater detail. On a consolidated basis, our gross adds for the quarter improved by 8% compared to Q3 2011, resulting from the traction gained in our 3G networks in Chile and Peru and the targeting of new segments in Argentina. As noted earlier, our gross adds in Brazil were under pressure as a result of our decision to implement more rigorous customer credit policies. The good news is our recent customer loading in Brazil reflects a better mix of high-quality customers.

The improvement in consolidated gross adds was partially offset by an 87 basis point year-over-year increase in our consolidated churn rate, resulting in lower net adds for the quarter. This rise in churn was driven primarily by Brazil where we continued to scale back our retention investments, and in Peru and Argentina where churn increased in our (inaudible) prepaid customer base.

Consolidated service ARPU of $37 was down $12 from Q3 last year, due primarily to weaker local currencies and lower local currency ARPU in Brazil and Mexico compared to last year. More recently, however, local currency ARPU in Brazil is up slightly from Q2. CAPEX for the period was $389 million with about 80% of that amount invested in Brazil and Mexico. Our investments in our 3G networks and supporting systems comprised 70% of our total CAPEX for the quarter.

At the market level, Nextel Brazil’s results continue to reflect the impact of challenging market conditions and the actions that we are taking to improve our customer base. Let me spend a moment discussing what is occurring in Brazil, and what we are doing to improve our results and enhance our position.

Last year, competitive and market conditions intensified when operators lowered pricing for on-net plans and 3G devices became more widely available and gained popularity. Since we have not yet launched 3G services in Brazil, this trend put us at a competitive disadvantage. In an effort to continue to drive growth despite this disadvantage, we utilized an approach that in hindsight was not the right strategy in this type of environment.

We became too price competitive and evaluated potential customers under more relaxed credit policies which attracted customers who were not a good fit for our services. This led to attracting customers that were riskier, did not ascribe high value to our differentiation, and were much more likely to switch providers. We also found that these customers did not achieve a significant value to the differentiated services we offer, making them more difficult and expensive to keep satisfied.

This resulted in higher retention costs, lower ARPU and higher churn and bad debt. We have modified our approach and our focus is on stabilizing ARPU levels and improving the quality of our customer base. Specifically, we reduced our retention investment, modified our service plans and commission structure, and tightened our credit policies while we also continued to work to improve the performance of our network and systems. These actions are beginning to drive better operating results. Our local currency ARPU is up from Q2. We are loading better quality customers and requests for deactivations are going down.

Despite this early progress, we are not satisfied with the pace of the improvement in our performance. We have analyzed customer behavior in response to our current actions and we have determined that these customers are difficult and expensive to retain. As a result, we’ve decided to eliminate substantially all of these unprofitable customers in the coming quarter.

We have confidence that this decision is the right decision given what we have learned. It eliminates the unprofitable customers, reduces the associated expenses and removes the distraction from our Customer Care Team, allowing greater focus on higher-quality customers. After we take this action in Q4 which will have a negative impact to our near-term results, we will have significantly improved the quality of our subscriber base. Combining this action with tightening our credit policy, we will then be positioned to return to quality net add growth beginning in Q1 2013, improving our position for the long run.

Turning to our results in Brazil for the quarter, Nextel Brazil reported a loss of 92,000 net subscribers in the period ending the quarter with 4.1 million subscribers, up 5% compared to a year ago. The net subscriber loss for the quarter resulted from higher churn which increased to 2.9% as a result of the actions I described earlier. Nextel Brazil’s revenues were $693 million compared to the level reported in Q3 2011.

About 80% of the decrease was due to weaker local currency exchange rates. The remainder was due to lower local currency ARPU resulting from an increase in the mix of lower-rate plans and higher retention credits offered to customers compared to the same quarter last year. Segment earnings in Brazil were $161 million, down from the same period last year, again due to weaker local currency exchange rates which accounted for about 70% of this decline as well as lower local currency ARPU and costs associated with our 3G deployment.

Nextel Mexico’s Q3 results reflect stable operating metrics and lower growth as a result of our decision to limit customer loading in advance of our 3G launch. Nextel Mexico generated 42,000 net adds ending the quarter with 3.9 million subscribers. Gross adds declined 8% compared to the same period last year as we curtailed growth on the [IDN] platform in advance of our 3G launch. Churn of 2.1% reflects a 34 basis point increase compared to the same period last year but is relatively stable compared with Q2 2012.

Revenues of $523 million are lower than the same period last year, primarily as a result of weaker local currency exchange rates and a decline in local currency ARPU. Nextel Mexico generated $148 million in segment earnings during the period, a decline of $39 million compared to Q3 2011. Segment earnings for 2012 reflect the positive impact of a $27 million refund of excess spectrum fees paid to the Mexican government while our license renewal applications were pending. Without this refund, our segment earnings would have declined $66 million with a majority of this decline attributable to incremental 3G expenses.

Let’s spend a few minutes reviewing our other markets. During the quarter, Nextel Argentina reported a 35% increase in its ending subscriber base compared to Q3 2011. Our year-over-year subscriber growth was driven by continued success of the prepaid offering that Nextel Argentina launched during Q4 2011. As we continue to expand into nontraditional market segments, particularly prepaid, we are experiencing a rise in churn resulting from this initiative.

Even with the impact of higher churn and weakening local currency exchange rates, segment earnings of $15 million represented a 22% increase compared to the same period last year. This improvement was driven by significant growth in our customer base, coupled with the reduction of customer acquisition cost resulting from our focus on lower-cost prepaid subscribers.

Nextel Peru generated strong gross adds during the quarter, highlighted by 126,000 gross adds on our 3G platform. Roughly half of these gross adds were PTT Awards customers with the remainder coming from subscribers on promotional data pack plans that we offered to drive subscriber loading consistent with our regular [voice] commitments. Continued high [IDN] churn specifically in the prepaid customer base partially offset some of this growth, resulting in 71,000 net adds for the quarter.

As we continue to broaden our device portfolio we expect our customers using a combination of 3G, voice and data services will comprise a greater percentage of our net adds in the future, and that our overall profitability in Peru will improve as a result of increased data consumption. We reported segment earnings of $7 million, down from segment earnings of $11 million in the prior-year period due to higher customer acquisition costs resulting from a greater level of gross adds and increased marketing investments related to our 3G offering.

Turning to our consolidated ARPU for the remainder of the year, based on our results to date and the effect of the actions we are taking in Q4 in Brazil to improve the quality of our customer base, we will be well below our net add guidance for the year. We also expect OIBDA for the full year to be at least $900 million. Revenues will fall short of our guidance and CAPEX will be in line with our guidance.

Turning to our balance sheet, on a consolidated basis we ended the quarter with $1.7 billion in cash and short-term investments with more than 80% of our cash held in US Dollars. Total debt at quarter end was $4.7 billion. We don’t have any material debt maturities scheduled until 2016. Beyond our current cash resources we currently have access to additional sources of liquidity including over $600 million available under our [branded] financing facilities, primarily in Brazil and Mexico.

Additionally, last week we closed on a $200 million US Dollar equivalent local currency financing in Brazil. To supplement these funding resources we are continuing our work on the possible sale of a portion of our tower portfolio mentioned on our last call. We believe a tower sale has the potential to unlock the value of these assets and further strengthen our funding position. Since our last call we have hired a financial advisor, begun the process of identifying interested parties, and are in the midst of a substantial data collection and due diligence process to ready our towers for sale. Finally, as we look forward to 2013 and beyond you can expect that our capital allocation strategy will focus resources in our larger markets – Mexico and Brazil – where we see the greatest opportunity for the long term.

In summary, we continue to make progress on the evolution of our business, investing in next generation platforms and supporting systems that are critical to our long-term strategy. We recognize that there are significant challenges facing our business today and we are taking steps to address those challenges. Considering our results in markets where we have launched our 3G services we believe we are on the right track. All of this gives us confidence that the future is bright and that we are heading in the right direction. Now I’ll turn the call back over to Steve for his closing remarks.

Steve Dussek

Thank you, Gokul. Before we open the call for questions I want to reiterate that we recognize we have a number of problems to address and that it is our job to fix them. We are taking actions to improve our performance and position NII for long-term success. But it’s also important for you to know that despite these challenges we remain excited about the ultimate destination ahead for NII.

We have built a very strong brand and position in the Latin American wireless market and we are building our team and investing in new capabilities and service platforms that will generate profitable growth in the future. The investments we are making today will allow us to expand our addressable market, pursue our new revenue streams and significantly improve our competitive position.

Thanks to all of you, and operator, we will now take questions.

Question-and-Answer Session

Operator

Great, thank you. (Operator instructions.) And our first question is from Ric Prentiss with Raymond James. Go ahead, please.

Ric Prentiss – Raymond James

Thanks, good morning. Welcome, Juan. A couple of questions: first, obviously tough situations down in Brazil. I think, Gokul, you mentioned that there had been pressure in the past from retention credits also. Can you talk about what’s happening with those retention credits and is that helping to stabilize ARPU or could we actually see ARPU go up in Brazil not just in ’13 but in Q4?

Gokul Hemmady

I think you’re right, Ric, that we’ve had those retention credits in the past that have put pressure on our ARPU. I think as Steve mentioned in his remarks, as well as me in our prepared remarks, we are making much better choices on those retention credits as we speak and we continue as we go into Q4. I think that has, over the last seven months we’ve seen our ARPU at anywhere between R$ 92 to about R$ 94, so that’s the stability we’ve seen over the last seven months. And I believe that with all the actions we are taking we’ll continue to see that stability in Q4 as well as going into 2013.

Ric Prentiss – Raymond James

Okay. And you mentioned that Brazil is being delayed for the broader launch in Q2 2013 but you would launch data only. Can you explain to us what it is that causes the data plus voice to not be able to be launched and what it is explicitly you’re working to get so that data and voice can be launched by Q2?

Gokul Hemmady

So Ric, as we think about an overall launch of all our services – data, voice, [HPPTD] – it requires much more effort on the integration of our sites. And that’s one of the areas where we’ve had some challenges, execution challenges, along with the complexity of the situation in Brazil caused by kind of scarcity of labor and those kinds of things. So I think it’s really driven by the fact that a full launch of services requires integration of sites, and that is why we’ve elected to first launch data services and then have a much broader launch going into Q1 2013.

Now, you know, Ric, we are doing a lot of things there in Brazil to improve and accelerate the launch of our network there; and at the highest level we are (inaudible) having execution challenges. We are focused on people, processes, and systems, number one. We are adding and supplementing our resources from other markets like Mexico as well as from headquarters to go and get things done there. From a process standpoint, number two, we are starting to manage Brazil more as clusters as opposed to managing it as one big deployment – that process change we believe will also be very helpful.

And third, like we’ve done in the past we are starting to get more resources in-house that we were relying on some of our partners. So we believe that all of those things, those three things put together will help us as we think about the launch of 3G in Brazil continuing into ’13 and throughout the end of that year.

Ric Prentiss – Raymond James

Thanks. And then the tower sale you’ve mentioned you hired the bankers, you’re collecting the data. But then you said possible sale of a portion of your towers… I know we’ve always suggested that you look at selling the towers on a country-by-country basis to attract more bidders and also the towers can underwrite what the potential lease up is, but when you talk about a potential sale of a portion of your towers, what are you thinking about there?

Gokul Hemmady

I think we are thinking about what you just suggested. We are going to look at all of our towers but we’ll also look to maximize value and we will look country-by-country. And those could happen in different closings and those kinds of things. So I think the focus is on Mexico and Brazil as far as towers are concerned. We will look at other countries, too, but the initial focus is on Mexico and Brazil and we will look at both those countries as a whole and also look at many interested parties that may be interested in just one country. And that again is all driven by the fact that we want to maximize valuation.

Ric Prentiss – Raymond James

And from a timing standpoint this could be something that we could see, if it’s a decision to go forward, in the first part of next year?

Gokul Hemmady

Yes, absolutely, in the first part of next year is the right time. We’ve made very good progress. I’m very satisfied with the progress we’ve made in hiring the financial advisor, the discussions we’ve had with the interested parties as well as the data collection. As you know, data collection in this kind of transaction with towers can be quite cumbersome and we feel that a lot of that is now behind us.

Ric Prentiss – Raymond James

There’s a lot of value that you can unlock, too.

Gokul Hemmady

Yeah.

Ric Prentiss – Raymond James

Great, thank you.

Operator

Thank you. Our next question is from the line of Chris King with Stifel Nicolaus.

Chris King – Stifel Nicolaus

Hi, good morning. Thanks for taking the questions. Just a couple on Brazil I guess; first of all, I just wanted to dive in a little bit deeper to your confidence about Q1 turning positive from a net add standpoint. I guess kind of given the number that we are looking at in terms of a net add loss in Q4 here, I was just wondering what gives you guys the certainty to go out on a seeming limb and to position yourself for growth in Q1 – I guess particularly in light of the fact that it would appear that given the delay in 3G voice in Brazil, and you guys have every incentive given the new regulatory environment down there to push as many customers onto 3G voice as possible simply given the partial billing key that’s going to be implemented. I just wanted you to dive in a little bit in terms of your Q1 and I guess first half subscriber growth forecast in Brazil.

And then secondly, just real quickly I just wanted to get an update on where the process stands with Unicel in Brazil. I saw that you guys had filed to acquire that asset a couple of weeks ago – I was just wondering where that stands and what your timeframe looks like for that going forward.

Steve Dussek

Chris, it’s Steve. Let me start on the confidence question around Q1 and let me start by talking a little bit about the cleanup and what we’ve announced we’re going to do in Q4. We approached the cleanup of our base really with two things in mind: first of all to really improve the health of the customers that are coming in, the quality of the customers that are coming in the door and also to take action on getting the unprofitable base of customers that were within our base out the door.

And we feel confident that actions that we’ve taken around strengthening and tightening our credit policy, around the modification of our commercial offers, the retention credits and all those things that we’ve put in place – and we put in place last quarter – we’ve worked through the challenges of that in terms of the adoption from the sales teams and the care teams and whatnot. And what we are seeing in terms of the trends on the gross add side gives us a positive view and positive insight into we’ve gone through the changes, we’ve taken the temporary slowdown that happens when you make changes of that magnitude.

And what we’re seeing early on from September and moving into October is a positive sense in terms of the activity on the gross add side. So we feel good about the incoming and the bad customers being shut off on the incoming side, the adoption of the changes and now the results that are starting to trend in a positive way. So that’s on the incoming.

In the churn, we believe that taking these churns through Q4, taking almost all of the subscribers that are problematic and unprofitable clears that out in terms of the churn and the involuntary churn rate. So when we look at our ability in terms of those two items we look at a scenario that we believe can help us move to a positive scenario in Q1 and the moving on, adding into that the launch of 3G beyond that we feel it gives us a much better path and runway as we ramp up throughout 2013.

And then in terms of the Unicel transaction, let’s see… That we expect to be, and it’s roughly a six- to nine-month approval process from [Anatel]. As you know it’s 30 megahertz of an 1800 mg spectrum in Sao Paolo and we have that spectrum in Rio already. And so this will help us in the broad sense of having additional spectrum in our key markets as we move forward, but the timing is roughly six to nine months.

Chris King – Stifel Nicolaus

Thanks. So I guess just to follow up, in Brazil you guys are planning to aggressively go after market share in the first six months of next year in Brazil despite the fact that you probably won’t have your full 3G voice network up and running until at some point in Q2?

Gokul Hemmady

Good morning, Chris, this is Gokul. So yes, I think we are going to go after market share in Brazil. We will have a network in Sao Paolo towards the latter part of Q1, and so we are planning to go after that market share. We feel that we are very close to launching that network. We struck with the data cards this year and then we’ll go into a full range of services as we go into 2013.

I just want to also add a few things to your earlier question and just add my own thoughts to your earlier question on the kind of confidence we have as we think about our Q1. We feel very confident that we’ve taken all the actions over the last several months as we think about returning back to positive growth in Q1 2013 in Brazil. We’ve tightened credit policies; we are very confident and feel very good that the quality of the loading is at the right place right now. That’s number one – that we are not allowing these unprofitable customers to come into our base.

Second, we are making the right retention decisions that Steve mentioned to stabilize ARPU and even drive it up as you’ve seen in Q3. And lastly, the last action that we have been analyzing over the past two, three months has been to say “What are the customers’ behaviors that we are seeing with these unprofitable customers? – their propensity to churn, get into bad debt, come back to us for repeated discounts. And after a lot of analysis we’ve said you know, these are the 350,000 subscribers that we want to get out of the base. We will have some cost in Q4 as we try to get them out of the base but they will be profitable for all of 2013.

So we’re taking those actions to return back to growth and increase profitability with all these activities.

Chris King – Stifel Nicolaus

Thank you.

Operator

Thank you. Your next question is from the line of James Breen from William Blair.

James Breen – William Blair

Thanks for taking the question. Just two questions: one, can you talk about Peru and what you’re seeing there on the 3G side just in terms of the rollout, and maybe talk about some of the dynamics of the 3G customers versus [IDN]. And then secondly, in Mexico it seemed like cost of service came down quite a bit in Q3 and margins were up there. Is this something that’s sustainable or is that something that just revolved around the 3G launch this quarter? Thanks.

Gokul Hemmady

Good morning, James. So the Mexico thing was because of the spectrum refund, so that’s a one-time event. We had $27 million in spectrum refund as we mentioned and so that was the big cause of the decline in the cost of service line in Mexico. To your first question on Peru, as we’ve said we got good traction in Q2 with good 3G gross add. About half of those 126,000 came through promotional data card plans, and as we said the other half came from our [HPPTT] offering. We have positioned the [HPPTT] offering as a premium II item. We are getting that premium; we are seeing a premium of about 10% to 15% as it relates to ARPU. We feel very good about that.

I would say that maybe 30% to 40% of our gross adds are probably add-ons or conversions if you will, more add-ons to our existing customer base and the balance being going after new segments. So I think we feel good about how that has gone. Up till now we see continuing traction as we go into Q4 and as we go into 2013. As we move along this rollout in Peru we will go after new segments and those new segments will accelerate our growth as we think about 2013. But for now I think we feel good about the growth; we feel good about the fact that we are getting the premium ARPU.

James Breen – William Blair

Great, and then just one follow-up in Brazil: the [Anatel] Board talked about approving this general competition plan which essentially it sounds like it’s forcing [AMX and Zebow] (Inaudible) to share some of their resources – I don’t know if it’s towers or backhaul or whatever it is – with some of the smaller competitors. Is that something you guys can comment on? Can that potentially help you increase or accelerate the rollout there? Thanks.

Gokul Hemmady

You know, James, we are always looking at partnering with our competitors on collocating or swapping of our towers. So will this general competition rule make it easier? It might make it slightly easier but I don’t think it’s going to be any big significant change for us. We constantly look at collocating, whether it’s with a tower company or with one of our competitors like we in fact have agreements with.

James Breen – William Blair

Great, thanks.

Operator

Thank you. Our next question is from the line of Kevin Smithen from Macquarie.

[Corat] – Macquarie Capital

Hi, guys, it’s [Corat] for Kevin. I just wanted to talk on first of all the Brazil ARPU, was the uplift mainly from the churning out of the lower quality subs or is there ARPU coming from somewhere else essentially?

Gokul Hemmady

Kevin, it’s coming from smarter choices we are making on the retention side. So we have stopped retention credits to unprofitable segments of customers and we are making smarter choices on the ones that even we have to retain with the kinds of plans we are offering them or the kinds of, in certain instances the kinds of discounts we offer. So both of those things are driving an uplift in ARPU, and as we think about Q4 with some of the additional actions we have taken that Steve described we see further stabilities in ARPU as I said earlier.

[Corat] – Macquarie Capital

Okay. And on Mexico it seemed like the deterioration in ARPU on a constant currency basis accelerated from last quarter. How can you explain that?

Gokul Hemmady

I think there has been slightly more deterioration, you’re right, as compared to our trend in the past. And I would say in Mexico in general it’s becoming a market with high subsidy on the smartphones with some lower rate plan pricing in some of the segments that we are seeing. So we are also seeing that in our rate plans, that we’ve had to modify some of our rate plans.

But as we roll out 3G, like what we’ve seen in Peru, we are going to price our offering there at a premium and we expect to get that premium. We also are going to go very aggressively after share of [bids]. So for example, about 20% to 30% of our base there today has only a direct connect [data] plan and they are absolutely using a second phone from one of our competitors; and with our 3G offering we plan to go after that aggressively and therefore improve ARPUs in Mexico.

[Corat] – Macquarie Capital

Okay, that’s very helpful. Thank you.

Operator

Thank you. Our next question is from the line of Rodrigo Villanueva, Merrill Lynch.

Rodrigo Villanueva – Merrill Lynch

Thank you. Good morning. I was wondering if you can share with us your plans in Argentina now that the 3G spectrum options have been canceled? That would be my first question, thank you.

Steve Dussek

Sure. Rodrigo, it’s Steve, thanks. Yeah, Argentina remains a good market for us. Obviously we were disappointed by what happened in terms of the suspension of the auction and the award of the spectrum to the state run agency; but having said that it remains a good market for us. It generates solid growth and it’s free cash flow positive, so our focus is on continuing to drive the operational results that we have been and we’re looking for opportunities to advance this asset and the long-term value of the business there. So no specific plans currently other than to continue to drive the good operational results that we’re seeing there.

Rodrigo Villanueva – Merrill Lynch

Understood, Steve, thank you. And regarding Brazil, I was wondering if you had seen increased competition as a result of [Vigo’s PPT] product? And they mentioned yesterday on their call that they plan to be more aggressive with this but I wanted to hear your thoughts in this respect.

Steve Dussek

Yeah, we’ve had that product in the marketplace for I think close to a year if not longer and we’ve not seen significant impact to our base. We haven’t seen it… Well, what they’ll do if they get more aggressive – they were pretty aggressive from the outset. So we have not seen any impact to our base at that point and wouldn’t expect that we would see a material impact to our customer base with another re-launch of that product.

Rodrigo Villanueva – Merrill Lynch

Thank you very much, Steve.

Steve Dussek

You’re welcome.

Operator

Thank you. Our next question comes from the line of Vera Rossi with Barclays.

Vera Rossi – Barclays

Thank you. I have two questions. Can you just clarify: you had an adjustment in results of $27 million so your adjusted OIBDA would have been around $190 million. Is that correct?

Gokul Hemmady

That is correct, Vera.

Vera Rossi – Barclays

Okay. And a follow-up on Brazil on the cleanup of the base that you are going over now: if you are disconnecting customers because of credit I assume you also have provisions for bad debts. Have you done these provisions? If so how much have they been, and if not how much do you expect to have in provisions in the next quarters? Thank you.

Gokul Hemmady

Sure. We have, as you can expect, very disciplined and strict policies as to bad debt provisions and we have substantial [legal] provisions. But you’re right – there will be a cost in Q4. We don’t expect that cost to be anything big; it’s probably somewhere up to $10 million is what we are thinking. So although we have provisions we may have to create some more in Q4 up to that amount.

Vera Rossi – Barclays

Okay. So, so far you have not done any extraordinary provisions – all that will come in Q4. Is that right?

Gokul Hemmady

That’s right. So I just want to clarify, as a general matter as we go through our bad debt provisioning every month we have a very strict and disciplined process and rules around what we create as provision for bad debt. So for our nonpaying customers we provide for bad debt. But you’re right – as we’ve gone through this customer analysis and said we’d like to clean up the base, we have not done any extraordinary provision related to the cleanup of the 350,000; and that will come in Q4 which we believe will be about $10 million.

Vera Rossi – Barclays

Okay, thank you.

Operator

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

Kevin Roe – Roe Equity

Thank you, good morning. Sticking with Brazil, the 350,000 subscriber culling you’re going to do in the quarter, what is the corresponding revenue and OIBDAs of those customers you’re eliminating?

Gokul Hemmady

So I would say, Kevin, you know across they are unprofitable right now. So as we think about, say an example full-year 2013, we believe that that is going to be accretive to our margins because they are unprofitable, and so taking out those unprofitable customers will mean higher OIBDA and margins in 2013.

In general, I would say here are the three or four elements to think about that: first, they are in general I would say lower ARPU customer than our average base – that’s the first thing. Second, we have, because of these customers we believe that we have high bad debt in our base. We will be able to bring those bad debts down as we go into 2013. So that’s a benefit for us.

Third and more importantly from our point of view, this activity has put a lot of pressure on our Customer Care organization. We’ve see our costs go up in the Customer Care organization to support this activity, and we believe that we’ll be able to get the whole care organization once this cleanup is done to focus much more on value-added churn reduction activities going forward and reducing our costs. So all of those things put together, we believe that in 2013 could be accretive with a factor of anywhere from 50 to 100 basis points of margin.

Kevin Roe – Roe Equity

But for Q4 specifically, what’s the revenue adjustment we should be expecting?

Gokul Hemmady

I think net of revenue adjustments we believe that the cost to the bottom line is about $10 million, as I said.

Kevin Roe – Roe Equity

Okay. And on the 3G voice rollout and the delay there, what’s the long pole in the tent? Is it the integrating of the sites?

Gokul Hemmady

Yes.

Kevin Roe – Roe Equity

And regarding scarcity of labor, where are you in terms of addressing that problem?

Gokul Hemmady

I think we are further along; we’ve made good progress. So number one, it is the integration of the sites. So as I think I said, we are doing three things – one is around people. We are supplementing resources from Mexico as well as from headquarters; that’s the first thing we’ve already done. That is underway. Secondly we are changing process, so we are managing it more in clusters as opposed to one big deployment – that should help. We are adding resources as we see from in Brazil itself – we’ve made good progress there. And the last thing we’re doing is we are bringing back some of the resources, some of the processes that were handled by some of our partners, bringing those back in. All of those activities have started, Kevin, and that gives us confidence with some of the dates and rollouts we’ve mentioned as we go through 2013.

Kevin Roe – Roe Equity

Got it, thanks.

Gokul Hemmady

Thanks.

Operator

Thank you. Our next question comes from the line of Andres Coello from Scotia Bank.

Andres Coello – Scotia Bank

Yes, good morning. Regarding Mexico, we are seeing competitors here turn more aggressive. Just yesterday there were significant price cuts in the prepaid side, and ARPU in local currency during the quarter fell at around 5%, [you’re up] around 5%. So just going forward how do you think that the tougher competition environment can affect your business? If you are confident that you can keep ARPU stable in Mexico, and now that you’ve launched 3G should we start to see some rebound in net additions next quarter? Just if you can give us a sense of the competitive environment in Mexico.

Gokul Hemmady

Sure. So I think number one we are very excited by the launch of our 3G in Mexico. Much like Peru, we believe that in Mexico we can start seeing uplift in ARPU because that’s how we are positioning our rate plan. Until now we’ve been at somewhat of a competitive disadvantage from that perspective so we are excited that we can now go after as I said good customers, offering a data package and therefore seeing an uplift in our ARPUs there.

Second, by going after share of [build] we believe that we can convert some of our direct connect only customers to a much more integrated package and therefore get an uplift on ARPUs. So I think you are going to see more growth as we go into Q4 but much more so as we go into the first half of 2013 from a net add perspective as well as targeting ARPU uplift as we’ve done in Peru. So I think we feel really good about that piece.

Andres Coello – Scotia Bank

Okay. And let me see if I understood correctly: you said that EBITDA was going to be slightly over $900 million for this year? Is that what you said?

Gokul Hemmady

Yes. What I said is OIBDA for this year will be at least $900 million.

Andres Coello – Scotia Bank

And in your previous guidance it was $1 billion, so that $100 million difference, where is it coming from? Was it a weaker Brazil?

Gokul Hemmady

I think it’s a combination of things. As we’ve said it’s net adds for the year, the growth for the year is slower. There are a bunch of small things. As Steve talked about in his prepared remarks we made some of the right decisions to clarify rules and responsibilities between the center and the market, and we eliminated 20% of our folks here at headquarters; and we’ve had to take some restructuring charges against that. So those are some of the other things, and the last one is really the Brazil cleanup of the base as we talked about. So those are the three or four things that take us to an EBITDA guidance of at least $900 million.

Andres Coello – Scotia Bank

Okay. And regarding margins for next year, do you have any sense of whether margins can rebound to around 40% or something? Can you give us some way to expect the margins, because I mean if it’s going to be $900 million for the year then the margin’s going to be, I don’t know, around a 16% margin for the year. So for next year would you expect a significant rebound once you leave the bulk of the build out expenses in Mexico and Brazil behind?

Gokul Hemmady

So I think here’s how we should be thinking about 2013: I mean we’ve launched in Peru and Chile, we’ve launched Mexico, we’ll launch some services in Brazil by the end of the year. We’ll have continuing rollout of launches as we go into 2013. And so 2013 is, from a growth perspective, shaping up to be a good year. We’ve done many things in Brazil as Steve said, right from tightening of credit policy to making smarter choices on retention, cleaning up the base.

So we’re doing all the right things as we go into 2013, and as we speak we are going through a process. Like in the past we will give guidance on our next earnings call and so I think it’s a little bit premature to talk about what exactly might margins go to in 2013. But I think there are many elements that we are excited about in the business that we talked about on this call.

Andres Coello – Scotia Bank

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Andre [Sebach] with Credit Suisse.

Andre [Sebach] – Credit Suisse

Hi, good morning. Thank you for the call. The first question I had is regarding your 3G offerings. I believe in Chile you offer 1 GB in your 3G setup plans but in Mexico I’ve only seen you offer you 100 MG. So can you give us more color on the reasons behind this difference and what should we expect from a commercial standpoint on 3G going forward in Brazil? Thank you.

Gokul Hemmady

Sure. We are going to make those changes. We will offer higher GB plans like we offer in Chile and Mexico, too. So those were done as we were loading out some cities in Mexico, but now that we have launched in over 47 million (inaudible) or so in a wide area we are going to have data card rate plans that are very competitive with what offerings we see in the marketplace. From a customer perspective, we want to make sure that the customer has a lot of flexibility and choice with our data plan. And so you will start seeing that.

Andre [Sebach] – Credit Suisse

Perfect.

Operator

Thank you.

Tim Perrott

Operator, we’re going to take one more question.

Operator

Our final question comes from the line of Michel Morin from Morgan Stanley.

Michel Morin – Morgan Stanley

Yes, thanks for taking the question – it’s Michel Morin at Morgan Stanley. Hi. I just wanted to clarify: on the cost savings or the restructuring that was announced yesterday, have you quantified the cost savings that you would expect to see come through I would assume starting in Q1 of next year? And consistent with that question, should we see some reallocation of G&A to some of the countries as you perhaps redeploy some of those resources in-country? And then secondly in Brazil, we did see CPGA go up sequentially at least in that market and I was wondering, given the measures that you’re taking should we expect to see a sequential decline here going forward given the actions you’re taking? Thank you.

Gokul Hemmady

Let me answer the CPGA question first. CPGA from quarter to quarter can go up and down depending on some of the marketing elements. From quarter to quarter we decide on promotions and marketing investments that I think causes CPGA to go up and down, but in general I would say you’ve seen Brazil CPGA from a year ago adjusted for FX on a constant currency basis, from a year ago CPGA is down about 5%. Sequentially it’s up about $10 or about 2%, 3% I think, so I think it is our goal to bring our CPGA down as we get into 3G, as we get handsets that are more competitive.

We believe we’ll continue to get handsets that are attractive that our [subscription] levels over time will come down as well as we’re going into channels that are more cost efficient from our perspective. So over time you should see CPGA come down but I wouldn’t expect that over the next few quarters.

Steve Dussek

This is Steve. In terms of the announcement we made yesterday and the associated cost reductions that have come from that, we really have to step back. The decisions that we made were really part of a much bigger plan in terms of how work gets performed, where resources need to be and how we can build more agility and flexibility into serving our customers. And so we went through a process of ensuring that we focused our efforts where the customers are and so we made some decisions around that relative to where our process and work gets done.

As a byproduct of that there’s a benefit that comes from that through some of this reduction in force, which like next year when we look at that, it’s not a significant number but it’s in probably the $10 million to $15 million range to give you a sense. But it really was part of a much, much broader initiative to realign our resources; and we’re also separately looking at and focusing on our headquarter costs outside of just headcount – just looking at all of our cost that we have. But it really was part of a much broader initiative.

Michel Morin – Morgan Stanley

Great, that’s very helpful. And if I can follow up on an earlier question I think on Argentina, you mentioned that you’re generating free cash flow there, Steve. Are you having any trouble repatriating any of that free cash flow.

Steve Dussek

Yes. So it’s a challenge there with that situation. We’re looking at all of the alternatives and if there’s things we may be able to do with that, but the good thing is that we have a good business that’s running reasonably well and generating a positive situation; and we’re trying to manage through and figure out the cash situation.

Michel Morin – Morgan Stanley

Okay, great. Thank you very much.

Steve Dussek

Thank you.

Tim Perrott

Okay, we’ve been going for about an hour and ten minutes or so. I think we’ll wrap it here and we’ll be available for any follow-up post the call. Steve, any final comments?

Steve Dussek

No, I just appreciate your participation, your questions, your ongoing interest and support. Obviously we have challenges around execution and we have problems that we are addressing. We have plans in place on all of them. We feel that we’re making the right decisions for the long term of this business as depicted by the decisions that we made relative to the customer base in Brazil and getting that clean; and we’re anxious to get moving forward here and getting all of our markets on 3G, and getting all of this behind us and getting back to producing positive results for this company. So we really appreciate your participation today and your questions. Thank you very much.

Operator

Ladies and gentlemen, this concludes the NII Holdings Q3 2012 Earnings Conference Call. Thank you for your participation and you may now disconnect. Have a great day.

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