Iusacell Announces Strong Third Quarter 1998 Customer Growth, Revenues of 719 Million Pesos and EBITDA of 213 Million Pesos


Iusacell Announces Strong Third Quarter 1998 Customer Growth, Revenues of 719 Million Pesos and EBITDA of 213 Million Pesos

October 26, 1998

Media contact:  

Ian C. Muir, Director of Investor Relations


  • Cellular subscriber base nearly doubles over third quarter 1997
  • Revenues increase 39 percent over third quarter 1997
  • EBITDA margin of 30 percent versus 23 percent in third quarter 1997
  • Results include benefit of anticipated local interconnection rate settlement, as well as non-cash writedown of 450 MHz fixed wireless investment
  • Recapitalization and restructure plan moving forward

    MEXICO CITY -- Grupo Iusacell (BMV: IUSACELL, NYSE:
    CEL and CEL.D) today announced an end of third quarter 1998 subscriber base
    of 661,562 cellular customers, a 96% increase over third quarter 1997.

    Net customer additions for the current quarter grew 74% to 98,137, compared
    with 56,560 net additions during the same period last year, helping Iusacell
    achieve a seventh consecutive quarter of successively higher net customer

    With reported quarterly revenues of 719 million pesos, a 39% increase over third
    quarter 1997, Iusacell achieved a 1998 third quarter gross margin of 491 million
    pesos, or 68% of revenues, which compares favorably with 340 million pesos, or
    66% in the third quarter of 1997. Third quarter 1998 revenues include 28 million
    pesos that represent amounts due Iusacell for interconnection services provided to
    the wireline operator under a local interconnection regulation anticipated to be
    finalized prior to year end. In that regard, Fulvio del Valle, President and Director
    General of Iusacell, said, "We are very pleased with the Cofetel's commitment to
    resolve the PCS, long distance and local interconnection issues by November 30.
    This not only had a positive effect on the third quarter results, but will also benefit
    future profits and cash flow and allow us to move forward with the
    implementation of Calling Party Pays in early 1999."

    EBITDA reported for the third quarter was 213 million pesos, or 78% higher than
    the comparable quarter in 1997, and included a 42 million peso benefit consisting
    of (1) lower interconnection costs of 14 million pesos and (2) the accrual of
    reciprocal interconnection revenues of 28 million pesos. Thirty-one million pesos
    of this benefit relates to prior periods as a result of the retroactive application of
    the anticipated interconnection regulation to June 1, 1997, as previously agreed
    with the wireline operator. Reported EBITDA margin for the current quarter was
    30%, compared to 23% for the third quarter of last year.

    The reported operating loss was 843 million pesos for the current quarter and was
    adversely affected by the non-cash writedown of the carrying value of the
    Company's investment in its 450 MHz fixed wireless project. As disclosed on
    October 21, such writedown amounted to 850 million pesos and has been included
    in depreciation and amortization. Excluding this charge, the reported operating
    profit for the period would have been 7 million pesos.

    Iusacell reported a net loss for the third quarter of 1998 of 1,261 million pesos,
    which includes the non-cash 450 investment writedown of 850 million pesos and a
    foreign exchange loss of 499 million pesos, compared with a reported net income
    of 94 million pesos in the third quarter of 1997.

    In the third quarter of 1997 the Company settled certain issues with Telmex,
    resulting in a reduction to revenues of 44 million pesos and a decrease in cost of
    services of 55 million pesos in that period. Excluding these effects, the operating
    loss and EBITDA for the third quarter of last year would have been 48 million
    pesos and 108 million pesos, respectively.

    "In spite of recent world market effects on Mexico's economy, Iusacell continues
    to meet our expectations, particularly in net customer growth," said Tom Bartlett,
    CEO of Iusacell and President and CEO of Bell Atlantic International Wireless.
    "We believe that Iusacell is well positioned to address the global financial crisis
    that is affecting economies in Latin America. Although we do not know to what
    extent Mexican consumer spending will be affected, the Company still expects to
    exceed its subscriber forecast for year end. While there is an expected reduction in
    the rate of growth of GDP in Mexico next year, we believe Iusacell's customer
    growth should continue at an aggressive level."

    Mr. Bartlett added, "Mexico is one of the stronger emerging market countries and
    has one of the lowest teledensities in the western world. With that comes
    tremendous opportunities. Over the next five years, we believe wireless telephony
    will be the predominant way in which Mexico will increase its teledensity and meet
    unsatisfied demand. We welcome the new competitors as they will help develop
    untapped markets, further open the telecommunications industry and support the
    expansion of the wireless market."

    Mr. Del Valle remarked that, "The Company has continued with its customer
    service improvement program, resulting in a record low monthly contract churn
    for the third quarter of 1998 of 2.39%, compared with 3.03% in the third quarter
    of 1997, an improvement of 21%. Cash operating expenses per subscriber for the
    third quarter of 1998 have declined 37% compared with the same period in 1997,
    with subscribers per employee increasing 84% in the current quarter over the
    comparable quarter of last year.

    "The Company continues to promote contract packages and, as a result of our new
    digital services and network capabilities, we have realized an increase in per
    customer usage in our contract base. The success of the VIVA prepay card and
    system has helped grow prepay subscribers by 23% in the third quarter. We have
    also seen increased usage on a per prepaid subscriber basis of 30% as a result of
    additional features of the new VIVA platform. Further, in the third quarter of
    1998, our long distance business showed an increase in minutes of 27% over the
    second quarter of this year and our long distance network will have over 2,500
    kilometers of fiber connecting 53 cities by year end.

    "Iusacell is continuing with its aggressive schedule to overlay CDMA digital
    technology in its network and the Company expects to have full optimization and
    deployment in all major cities of its four operating regions before the end of the
    year. In only four months since launch, the Company has contracted over 12,000
    digital subscribers in Mexico City. We are also moving ahead with PCS, having
    paid the outstanding US$47 million balance of the auction prices as required on
    September 30. Deployment in northern Mexico, including the key cities of
    Monterrey and Tijuana, will begin in 1999. During the third quarter of 1998 the
    Company invested US$105 million in capital expenditures, primarily for the
    cellular network replacement and CDMA overlay, PCS license fees and further
    expansion of our long distance network."

    Howard F. Zuckerman, CFO of Iusacell, noted: "This quarter's recording of the
    financial effects of the anticipated local interconnection settlement and the
    Company's revaluation of the 450 MHz project represent positive steps toward
    improving future profitability. Further, we remain focused on improving EBITDA
    in order to support the continuing growth of our business."

    Mr. Zuckerman also expressed his satisfaction with the progress of the
    recapitalization and restructuring plan announced in August, stating: "We have
    increased our equity with the conversion of the US$71.5 million drawdown under
    the subordinated convertible facility with Bell Atlantic, the new holding company
    has been formed and we are moving forward with the exchange offer designed to
    simplify Iusacell's capital structure. We look forward to the greater liquidity of
    our shares once the exchange offer is completed and market conditions improve."

    Grupo Iusacell is a leading independent telecommunications company in Mexico.
    It is the wireless cellular 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 auctions won for
    wireless services in regions 1 and 4 in northern Mexico 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
    which owns, through its subsidiaries, 47% of its capital stock.

    Unaudited Third Quarter Operating Highlights
    At or for the three months ended September 30

                                          1998                1997         Change
    Cellular Subscribers (EOP)           661,562            338,300          96%
    Operating Loss  - (million)  -      Ps. (843)           Ps. (37)          -
    EBITDA  -  (million)  -              Ps. 213            Ps. 120          78% 
    Net Subscriber Additions             98,137             56,560           74%
    Avg. Monthly MOU / Sub                 83                 104          (20%)
    Avg. Monthly Rev / Sub               Ps. 334            Ps. 462        (28%)
    Average Monthly Contract Churn         2.39%             3.03%         (21%)
    Paging Subscribers (EOP)             23,252             12,969          79%
    Number of Employees                   2,142             1,919           12%
    Subscribers Per Employee               290               158            84%  
    Cash Operating Expenses / Sub         Ps. 893         Ps. 1,412        (37%)

    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, we claim 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.


    (1) All monetary figures are in Mexican Pesos and restated as of September 30,
    1998 in accordance with Mexican GAAP unless otherwise stated.