NII Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

NII Holdings, Inc. (NIHD)

Q2 2012 Earnings Call

August 7, 2012 8:30 am ET

Executives

Tim Perrott - VP, IR & Corporate Communications

Steve Dussek - CEO

Gokul Hemmady - COO & CFO

Analysts

Chris King - Stifel Nicolaus

Ric Prentiss - Raymond James

Andres Coello - Scotia Bank

James Breen - William Blair

Kevin Roe - Roe Equity Research

Kevin Smithen - Macquarie

Vera Rossi – Barclays

Presentation

Operator

Ladies and gentlemen, thank you for holding, and welcome to the NII Holdings Second Quarter 2012 Earnings Conference Call. At this time, all lines are in listen-only mode. There will be an opportunity to ask questions at the end of today's call.

Today's conference call will be available for rebroadcast through for the following two weeks beginning later today. Domestic callers may access the rebroadcast by dialing 1-888-286-8010 and entering pass code 17448640. International participants may access the rebroadcast by dialing 1-617-801-6888 and entering pass code 17448640.

(Operator Instructions)

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

Tim Perrott

Thank you, Tuanda, and good morning to everyone, and thank you for joining NII Holdings second quarter 2012 conference call. With me on the call today are Steve Dussek, our CEO; and Gokul Hemmady, our COO and CFO.

As a preliminary matter, let me inform you that some of the issues discussed today that are not historical will be forward-looking, and as such should be taken in the context and 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 23rd, 2012, as well as other documents we have filed with the SEC.

In addition, during this call, we'll be discussing certain financial measures that do not conform to Generally Accepted Accounting Principles in the U.S. or better known as GAAP. For a reconciliation of these financial metrics to GAAP, please access NII's Investor Relations link at 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. During the second quarter, we continued to move forward with the deployment of our 3G networks, while addressing a number of near-term operational challenges. Gokul will give you details of our operating performance in a moment. But before I hand it over to him, I want to give you my thoughts on our results for the quarter and more insight into our direction for the future.

First, looking at our 3G efforts, we successfully launched our first 3G push-to-talk service offering in Peru, and are pleased with the initial subscriber acceptance of the service. Since our launch in May, we've added 44,000 new 3G subscribers, bringing our total 3G subscribe base in Peru to 109,000 at quarter end.

Our first smartphone has been well received and represented a significant portion of our 3G gross adds in Peru during the quarter. We are also encouraged to see the average loading ARPU of our new 3G customers is higher than the ARPU of our traditional customers. We believe the stage is set for more growth on the 3G network over the balance of the year.

In Chile, we launched 3G voice and data services in May and began offering push-to-talk services on our network last week. We are pleased with our early results adding 34,000 3G customers in the quarter.

In Mexico, we remain on schedule for the launch of 3G services late next month and in Brazil, we remain on track to begin offering 3G services by year-end.

We have also continued to move forward on our plans to target a wider range of customers. We have completed the refresh of our brand that we started last year in anticipation of our launch of 3G services. Our brand has strong recognition among both our core business customers and the high-end consumer segments we plan to target.

We continue to expand our distribution network, adding 160 points of presence in the first half of the year, which will help us as we target a wider group of customers with our expanded services.

And finally, we are building our 3G device portfolio and launched our first smartphone with plans to have 12 3G handsets in our device portfolio by year-end. So, overall, we made good progress on our 3G and expansion efforts during the quarter.

From an operational perspective, our results for the quarter were impacted by the decline in foreign currency exchange rates, and from actions we are taking in Brazil to address customers we attracted last year that are not the right fit for our services. These actions have helped stabilize ARPU in Brazil in recent months but have also driven a higher level of churn. Gokul will give you more details in a moment but let me give you a brief overview of this situation.

As we discussed on previous calls, market conditions in Brazil intensified last year with more aggressive pricing campaigns and 3G device offers by our competitors. We responded with promotions of our own, which attracted a group of price sensitive customers who didn't assign significant value to our high quality service, which are the benefits of intrinsic communications that are our key points of differentiation. In working to retain customers we also began to experience a rise in retention cost and an increase in migrations to lower price plans, both of these negatively impacted ARPU.

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