Grupo Iusacell Announces Strong First Quarter Performance

Grupo Iusacell Announces Strong First Quarter Performance

Digital Subscriber Base Doubles in Three Months

April 22, 1999

  • Cellular subscriber base increased 78% over first quarter 1998
  • EBITDA increased 61% over first quarter 1998
  • EBITDA margin improved to 33% of revenues this quarter
  • Revenues increased 25% over first quarter 1998 to $836 million
  • Net income was $422 million for the quarter
  • 50,000 digital subscribers, up almost 100% from December 1998

    Mexico City -- Grupo Iusacell, S.A. de C.V. [BMV: IUSACELL, NYSE: CEL and
    CEL.D] today announced strong results for the three-month period ended March 31,
    1999. Iusacell generated record revenues of $836 million, with its total cellular base
    growing 78% over the first quarter of 1998 to more than 843,000 customers.
    Earnings before interest, taxes, depreciation and amortization (EBITDA) was the
    highest in the company's history at $278 million for the quarter. The company also
    recorded its second consecutive quarter of net income.

    Tom Bartlett, CEO of Iusacell and President and CEO of Bell Atlantic International
    Wireless, said, "Over the past two years, we have focused on and achieved a number
    of initiatives consistent with our underlying Bell Atlantic wireless model. These
    achievements have significantly improved Iusacell's position in Mexico's
    telecommunications market. The installation of Mexico's first full-scale commercial
    digital CDMA network, the growth of the company's long distance line of business
    and reduced contract churn rates are factors that have produced favorable results for
    the quarter and will continue to drive Iusacell's performance. Increased employee
    productivity, the business-wide launch of an advanced billing system, and the
    implementation of calling party pays will also contribute to Iusacell's future
    operating results."

    Operating Performance

    Revenue growth in the first quarter of 1999 over the first quarter of 1998 was driven
    by a 103% improvement in long distance revenues and a 19% increase in monthly
    subscriber fees. Long distance revenues increased due to additional traffic volumes,
    aided by the expansion of Iusacell's long distance network. Equipment Sales and
    Other Revenue decreased by 5% due to the decline in handset prices, which benefit
    Iusacell flows through to its customers.

    These increased cellular and long distance revenues, together with higher relative
    ARPU's from digital contracts, improved productivity and emphasis on cost controls,
    produced a 61% increase in operating cash flow during the first quarter of 1999 over
    the first quarter of 1998. EBITDA margin increased to 33%, compared with 26%
    and 28%, respectively, in the first quarter and fourth quarter of last year.

    Fulvio Del Valle, President and Director General, stated: "Digital service is
    becoming a significant part of our business. The digital contract base has doubled in
    the first three months of the year to 50,000 subscribers, accounting for approximately
    16% of all traffic. Digital coverage now extends to 75% of our covered POPs and to
    100% in many key areas, including Mexico City. The number of points of sale
    increased 32% during the first quarter, and we continue to improve customer service
    levels and achieve operating efficiencies. All this has put the company in an
    excellent position for future growth and cash flow generation."

    Operating income was positive and benefited from a $20 million reduction in
    marketing expenses related to the swap out of our analog network equipment. This
    benefit was offset, however, by a $31 million increase in depreciation, arising
    primarily from the significant investments made during 1998 in deploying the
    CDMA network. Since these investments will support higher revenues in the future,
    operating margins are expected to improve throughout 1999.

    Cash operating expenses per subscriber decreased 37% to $709 in the current quarter,
    a reduction from the $1,123 registered in the first quarter of last year. This sharp
    reduction reflects the combined effects of lower per unit handset costs, growth in the
    subscriber base and productivity improvements.

    Integral financing gains were $428 million in the first quarter of 1999 and included
    $45 million of net interest expense, $274 million of monetary correction gain and
    $199 million of foreign exchange gains, as the peso strengthened 4% in the first
    quarter. First quarter 1999 net income was $422 million, mainly reflecting the
    integral financing gains, compared with a net income of $331 million in the fourth
    quarter of 1998 and a net loss of $116 million in the first quarter of last year.

    Commenting on the first quarter performance, Howard F. Zuckerman, Executive
    Vice President and CFO, stated: "The financial and operating results in the first
    quarter reflect the successful implementation of our business strategies. We expect
    improvements in operating profit this year and a continuation of very solid growth in
    EBITDA ."

    Unaudited Operating Highlights

                                                                        1Q99                 1Q98               Change 
    Revenues (millions)                       $836             $670              25%
    Gross Margin                                 64%              64%                -
    Operating Income (millions)            $1                 $0                  -
    EBITDA (millions)                           $278             $172              61%
    Net Income (Loss) (millions)           $422             $(116)             -
    Cellular Subscriber Base                  843,329        474,272          78%
    Net Cellular Additions                      87,954          74,149           19%
    Paging Subscribers                          27,072          16,482           64%
    Avg. Number of Employees               1,904            1,923            (1%)
    Avg. Subscribers per Employee          420               228              84%
    Avg. Monthly MOU per Subscriber       75                94                (20%)
    Monthly ARPU                                 $321             $401             (20%)
    Avg. Monthly Contract Churn             2.37%           2.87%           (17%)

    First quarter 1999 ARPU's and MOU's dropped 5% and 6%, respectively, compared
    with the fourth quarter of 1998, primarily due to a higher mix of prepaid net adds.
    Contract ARPU's and MOU's remained at very healthy levels. With the price
    increases put in place on March 29, the launch of CPP set for May 1 and continued
    digital growth, we expect the trend of these indicators to improve.

    Financial Condition

    Capital Expenditures. Iusacell's capital expenditures totaled US$22 million during
    the first quarter of 1999, returning to more normal levels following the company's
    accelerated digital and analog network investment program in 1998. In 1999, the
    company will complete its digital network deployment, continue to grow its long
    distance network, and enhance its analog cellular network and operating systems,
    including investments required for implementation of the Year 2000 compliance

    Liquidity. During the first quarter, the company funded its operations, capital
    expenditures, handset purchases and interest payments through a combination of
    internally generated cash and a US$31 million drawdown under its subordinated
    convertible debt facility. The company does not expect to drawdown any part of the
    US$17.5 million remaining under this facility.

    The US$85 million short-term bank bridge facility, under which the company has
    borrowed US$75 million, matures on April 30, 1999. Iusacell expects this facility to
    be extended and to be refinanced by July 1999 under a US$98 million long-term
    bank loan, guaranteed in part by the Export-Import Bank of the United States.

    Debt. Interest-bearing debt as of March 31, 1999 totaled US$454 million,
    representing a US$8 million decrease from the fourth quarter of 1998. All of the
    company's debt is U.S. dollar-denominated, with maturities averaging 3.6 years.

    Iusacell's debt to capital ratio was 48.7% at the end of the quarter, versus 46.3% at
    March 31, 1998.

    Other Business Developments

    Restructuring and Recapitalization Plan. Recognizing the importance of
    increasing the liquidity of its shares and providing financing flexibility for business
    growth, the company initiated its restructuring and recapitalization plan in the latter
    part of 1998. Completion of this plan, expected by the end of the third quarter, will
    result in a new holding company with a single class of publicly traded shares (and
    ADR's), substantially increased share liquidity and an improved capital structure.

    The company is in the process of obtaining the necessary approvals from the SEC
    and the Mexican authorities, including the CNBV. The company expects to initiate
    the exchange and rights offers by the end of June 1999. All offerings, including the
    planned secondary sale of shares by the company's principal shareholders, also
    remain subject to market conditions.

    Regulatory Environment. Mr. Del Valle noted, "Iusacell and the Mexican wireless
    industry successfully defended the CPP ruling announced by the Cofetel in
    December 1998. We overturned the injunction against CPP implementation and
    resolved interconnection issues, and CPP will be in place on May 1. In addition, the
    Ministry of Finance withdrew a 15% incremental telecommunications tax proposed
    in the fourth quarter of 1998."

    Pricing. Effective March 29, Iusacell implemented a 12% price increase for contract
    plans. The company also raised its prepaid minute price by 6%.

    Year 2000 Compliance. The company is on schedule to have all required
    modifications and replacements for mission critical systems and internal network
    elements implemented by the end of the third quarter of 1999. The company will
    continue its internal testing for all systems throughout the year and plans to have
    external interoperability testing completed by October 1999.

    The company's major product vendors are making available either Year 2000
    compliant versions of their offerings or new compliant products as replacements for
    discontinued offerings. In certain instances, vendors have not met original delivery
    schedules, resulting in delayed testing and deployment. At this time, the company
    does not anticipate that such delays will have a material impact on the company's
    ability to achieve Year 2000 compliance within the scheduled timeframes.

    Revenue Analysis

    Revenues by type of service and the quarter-to-quarter comparison are as follows:

                                                                  First Quarter
                                             1999% of Total      1998  of Total      % Change
    Monthly Fee                        $309        36.9      $260       38.8          18.8
    Airtime Consumption             248        29.6        218       32.6          13.7
    Long Distance                       105        12.5         52         7.7         101.9
    Value-added Services              60          7.2         57         8.6            5.2  
    Other                                    24          2.8        (12)       (1.7)            -
    Total Service Revenues          746        89.0        575       86.0          30.0
    Equipment Sales & Other         90         11.0         95       14.0           (5.0)
    Total Revenues                   $836       100.0      $670     100.0          25%


    The company will be restating its 1997 financial statements (for
    Mexican GAAP purposes only) with regard to the accounting for the
    impairment loss of $928 million22 December 31, 1997 pesos on its
    analog network investment previously reported (including the
    company's Form 20-F for 1997). The reclassification of the loss from
    stockholders' equity to operating results (to be consistent with the
    company's U.S. GAAP financials) has been approved by the company's
    independent accountants.

    (Unless otherwise noted, all monetary figures are in Mexican Pesos and
    restated as of March 31, 1999 in accordance with Mexican GAAP,
    except for ARPU (which is in nominal pesos).


    Grupo Iusacell is a leading independent telecommunications company
    in Mexico. It is the wireless service provider in four of Mexico's nine
    regions in the central portion of Mexico (including Mexico City)
    covering a total of 67 million POPs, representing 69% of the country's
    total population. The PCS licenses won for wireless services in regions
    1 and 4 in northern Mexico will allow the company to cover an
    additional 11 million POPs, or 11% of Mexico's total population. Since
    February 1997, the company has been under the management and
    operating control of Bell Atlantic Corporation, which owns, through its
    subsidiaries, 47% of the company's capital stock.

    Note: This press release contains statements about expected future
    events and financial results that are forward-looking and subject to risks
    and uncertainties. For those statements, Iusacell claims the protection of
    the safe harbor for forward-looking statements contained in the Private
    Securities Litigation Reform Act of 1995. Discussion of factors that
    may affect future results is contained in our filings with the Securities
    and Exchange Commission.

    For further information and a Spanish version of this release visit
    IUSACELL's web site at: http://www.iusacell.com.mx