As filed with the Securities and Exchange Commission on July 23, 2007

No. 333-      

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

MAXCOM TELECOMUNICACIONES, S.A. DE C.V.

(Exact name of Registrant as specified in its charter)

 

MAXCOM TELECOMMUNICATIONS, INC.

(Translation of Registrant’s name into English)

 

 

Guillermo Gonzalez Camarena No. 2000

Colonia Centro de Ciudad Santa Fe

Mexico, D.F. 01210

+(52) 55-5147-1111

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

 

 

CT Corporation System

111 Eighth Avenue

New York, NY 10011

(212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after this Registration Statement becomes effective.

 

 

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

CALCULATION OF REGISTRATION FEE

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

PROSPECTUS (Subject to Completion)

Issued July 23, 2007

 

American Depositary Shares

 

 

Representing Ordinary Participation Certificates

 

 

 

 

We and the selling shareholders are offering           Ordinary Participation Certificates (Certificados de Participación Ordinarios), or “CPOs,” in an international offering in the form of American Depositary Shares, or “ADSs.” Each ADS represents          CPOs and each CPO represents one share of Series A common stock. We are selling           ADSs and the selling shareholders are selling           ADSs in the United States and other countries outside Mexico through the international underwriters named in this prospectus. The ADSs will be evidenced by American Depositary Receipts, or “ADRs.” In addition, we are selling           CPOs and the selling shareholders are selling          CPOs in Mexico under a public offering conducted by the lead Mexican underwriter named elsewhere in this prospectus. The closings of the international and Mexican offerings are conditioned upon each other.

 

This is our initial public offering and no public market currently exists for the CPOs or ADSs. We anticipate that the initial public offering price will be between U.S.$      and U.S.$      per ADS, reflecting the          , 2007, exchange rate of Ps.           to U.S.$1.00 and between Ps. and Ps.           per CPO. We have applied to list the ADSs on           under the symbol “          ” and the CPOs on the Bolsa Mexicana de Valores, S.A de C.V., or the Mexican Stock Exchange, under the symbol “          .”

 

 

 

 

Application has been made for the registration of the CPOs in the Mexican National Securities Registry (Registro Nacional de Valores) maintained by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or CNBV). Such registration is expected to be obtained on or before the closing of this offer. Registration of the CPOs will not be a certification as to the investment quality of the securities, the solvency of the issuer or the accuracy or completeness of the information contained in this prospectus.

 

 

 

 

Investing in the ADSs and CPOs involves risks. See “Risk Factors” beginning on page 13.

 

 

 

 

 

 

 

 

We have granted the international underwriters the right for a period of 30 days to purchase up to an additional           CPOs in the form of ADSs at the public offering price less underwriting discounts and commissions to cover over-allotments, if any. We have granted the Mexican underwriters the right for a period of 30 days to purchase up to an additional           CPOs at the public offering price less underwriting discounts and commissions to cover over-allotments, if any.

 

Neither the Securities and Exchange Commission, the CNBV nor any state securities regulators have approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Morgan Stanley & Co. Incorporated expects to deliver the ADSs to purchasers on or about          , 2007.

 

 

 

 

Sole Bookrunning Manager

 

MORGAN STANLEY

 

          , 2007

 

TABLE OF CONTENTS

 

 

 

 

 

 

You should rely only on the information contained in this prospectus. Neither we, the selling shareholders nor the international underwriters have authorized any other person to provide you with different or additional information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. Neither we, the selling shareholders nor the international underwriters are making an offer to sell the CPOs or ADSs in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

 

 

 

We and the selling shareholders are offering ADSs in the United States and countries other than Mexico solely on the basis of the information contained in this prospectus. No offer or sale of the ADSs may be made in Mexico.

 

We and the selling shareholders are also offering CPOs in Mexico through a Spanish-language Mexican prospectus. The Mexican prospectus, which will be filed with the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores), or CNBV, is in a format different from that of this prospectus and contains information substantially similar to the information contained in this prospectus.

 

We have not taken any action to permit the possession or distribution of this prospectus outside the United States. In addition, except for the Mexican offering of CPOs being made under the Spanish-language prospectus, we have not taken any action to permit a public offering of the CPOs or ADSs outside the United States. Persons outside the United States who have come into possession of this prospectus must inform themselves about and observe restrictions relating to the offering of the CPOs and ADSs and the distribution of this prospectus outside of the United States.

 

 

This prospectus includes our audited consolidated financial statements as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 and also includes our unaudited consolidated statements as of March 31, 2007 and for the three months ended March 31, 2007 and 2006, which have been prepared in accordance with Mexican Financial Reporting Standards, which we refer to as “MFRS,” “NIF,” or “Mexican GAAP,” which differs in certain significant respects from generally accepted accounting principles in the United States, or “U.S. GAAP.” Pursuant to Mexican GAAP, we have prepared the financial statements and certain financial data in accordance with Bulletin B-10 “Recognition of Effects of Inflation on Financial Information,” of the Mexican Institute of Public Accountants, or “MIPA,” which requires a restatement of all full year comparative financial statements to constant Mexican pesos as of the date of the balance sheet for the most recently completed fiscal year. We publish our financial statements in pesos that are adjusted to reflect changes in purchasing power due to inflation. Pursuant to Mexican GAAP, except for the financial data as of and for the three months ended March 31, 2007 and 2006, which has been restated in constant pesos as of March 31, 2007, and except as otherwise indicated, the financial data for all other periods throughout this section have been restated in constant pesos as of December 31, 2006. According to the Central Bank of Mexico (Banco de México), the difference in the purchasing power of the peso at December 31, 2006 as compared to the purchasing power of the peso at March 31, 2007 was 0.7%. See note 22 to our consolidated financial statements for a description of the principal differences, other than inflation accounting, between Mexican GAAP and U.S. GAAP applicable to us and for a reconciliation of our net income and stockholders’ equity to U.S. GAAP as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004.

 

Unless otherwise specified, all references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to United States dollars, the legal currency of the United States, and references to “pesos” or “Ps.” are to Mexican pesos, the legal currency of Mexico. Except as otherwise indicated, peso amounts as of and for the three months ended March 31, 2007 and 2006 have been converted to U.S. dollars at the exchange rate of Ps.11.04 per U.S.$1.00, as reported by the Federal Reserve Bank of New York as its noon buying rate on March 30, 2007, the business day immediately preceding March 31, 2007. Except as otherwise indicated, peso amounts as of December 31, 2005 and 2006 and for the years ended December 31, 2004, 2005 and 2006 have been converted to U.S. dollars at the exchange rate of Ps.10.80 per U.S.$1.00, as reported by the Federal Reserve Bank of New York as its noon buying rate for pesos on December 29, 2006, the business day immediately preceding December 31, 2006. Such conversions are for the convenience of the reader and should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all. For more information on exchange rates, see “Exchange Rates.” Amounts presented in this prospectus may not add up due to rounding.

 

Industry and Market Data

 

We obtained the industry and market data used in this prospectus from research, surveys or studies conducted by third parties on our behalf, information contained in third-party publications, such as Pyramid Research (an Economist Intelligence Unit subsidiary), and other publicly available sources. Third-party publications generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although, we believe that this data and information is reliable, we have not independently verified it. Additionally, certain market share data is based on published information available for the Mexican states. There is no comparable data available relating to the particular cities we serve. In presenting market share estimates for these cities, we have estimated the size of the market on the basis of the published information for the state in which the particular city is located. We believe this method is reasonable, but the results have not been verified by any independent source.

 

Other Information

 

Unless otherwise indicated, all information contained in this prospectus, including all references to the number of CPOs or ADSs outstanding or to the economic or voting interests of holders of CPOs or ADSs following the international and the Mexican offerings, as well as any information involving the computation of per CPO or ADS amounts or proceeds to us from the international and the Mexican offerings, assume no exercise of the over-allotment option granted to the international underwriters in respect of the international offering and the Mexican underwriter in respect of the Mexican offering.

 

PROSPECTUS SUMMARY

Issuer		Maxcom Telecomunicaciones, S.A. de C.V.
Selling shareholders
Global offering		The global offering consists of the international offering and the concurrent Mexican public offering.
International offering		We are offering          CPOs in the form of ADSs and the selling shareholders are offering          CPOs in the form of ADSs through the international underwriters in the United States and countries other than Mexico.
Mexican offering		Concurrently with the international offering, we are offering          CPOs and the selling shareholders are offering          CPOs in Mexico in a public offering conducted by the lead Mexican underwriter.
Share capital after global offering		Immediately after the global offering, we will have an aggregate of           shares of Series A common stock outstanding, of which           will be held by the CPO trustee, and           CPOs will be outstanding.
Overallotment options		We have granted the international underwriters an option to purchase up to          additional CPOs in the form of ADSs from us and the selling shareholders, at the public offering price less underwriting discounts and commissions. The Mexican underwriters may also purchase up to          additional CPOs from us and the selling shareholders, at the public offering price less underwriting discounts and commissions, to cover overallotments if any.
CPOs		Each CPO represents one share of Series A common stock. The CPO trustee, Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo, or NAFIN, will issue the CPOs pursuant to the CPO trust agreement between us and the CPO trustee (and persons contributing shares of Series A common stock to the trust from time to time), and a CPO trust deed.
ADSs		Each ADS represents          CPOs. The ADSs will be evidenced by American Depositary Receipts, or “ADRs.” The ADSs will be issued under a deposit agreement among us,          , as depositary, and the registered holders and beneficial owners from time to time of ADSs issued thereunder.
Depositary
Use of proceeds		We estimate that the net proceeds that we will receive from this offering will be U.S.$           million. We intend to use the net proceeds we receive from this offering primarily for capital expenditures. We will not receive any proceeds from the sale of CPOs and ADSs by the selling shareholders. See “Use of Proceeds.”
Listing		We have applied to list the ADSs on the          under the symbol “          .” We have applied to list the CPOs on the Mexican Stock Exchange under the symbol “          .”

Voting rights		Mexican holders of CPOs may instruct the CPO trustee to vote the shares of Series A common stock underlying the CPOs on all matters or obtain a proxy from the CPO trustee to vote the underlying shares.
		Non-Mexican holders of CPOs are not entitled to exercise directly any voting rights with respect to our shares of Series A common stock held in the CPO trust. Voting rights attributable to shares underlying CPOs held by non-Mexicans are exercisable only by the CPO trustee. Non-Mexican holders of CPOs may only instruct the CPO trustee (or in the case of a holder of ADSs, instruct the ADS depositary to instruct the CPO trustee) to exercise the voting rights in respect of the shares of Series A common stock underlying such CPOs. However, except in certain specified circumstances, the CPO trustee will not vote shares underlying the CPOs held by non-Mexicans as instructed if the aggregate voting rights with respect to shares of Series A common stock held directly by non-Mexicans and the shares of Series A common stock underlying the CPOs held (directly or through ADSs) by non-Mexicans would exceed 49% of the total voting rights of our outstanding capital stock. Regardless of the percentage of voting rights attributable to non-Mexicans, if the matter to be voted on is a change in our jurisdiction of incorporation, transformation of our corporate form, our dissolution or liquidation, a merger to which we are a party if we will not be the surviving company, our delisting from any applicable stock exchange, or an amendment to our bylaws that may adversely affect the rights of the minority shareholders, the CPO trustee will vote the shares of Series A common stock underlying CPOs held (directly or through ADSs) by non-Mexicans for which it received timely and proper voting instructions as instructed by the applicable non-Mexican holder. See “Description of Capital Stock — Voting Rights” and “Description of the CPO Trust — Voting Rights with Respect to Underlying Shares.”
Ownership limitations		As required by Mexican law, our bylaws provide that no transfer of shares of Series A common stock to or acquisition or subscription of shares of Series A common stock by a non-Mexican shall be permitted if such transfer, acquisition or subscription would result in non-Mexicans holding directly in excess of 49% of the total number of shares of Series A common stock not held by the CPO trustee. Immediately following the global offering, our outstanding capital stock will consist exclusively of Series A common stock. See “Description of Capital Stock — Ownership Restrictions” and “Description of Capital Stock — Other Provisions — Foreign Investment Regulations.”
Anti-takeover provisions		Our bylaws require board approval prior to any person or group of persons acquiring 20% or more of our shares and board of approval prior to any of our competitors acquiring 2% or more of our shares. See “Description of Capital Stock — Other Provisions — Anti-takeover Provisions.”
Dividends		We have not paid any cash dividends in the past and do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth. See “Dividend Policy.”

Taxation		Under current Mexican law, dividends paid to holders of CPOs who are not residents of Mexico for tax purposes, and the sale of CPOs to holders who are not residents of Mexico for tax purposes, are generally not subject to any Mexican withholding or other similar tax. See “Taxation.”
Lock-up agreement		We, our shareholders, and the directors and executive officers of our company, have agreed, subject to certain exceptions described in “Underwriters,” that we and they will not, for a period of 180 days after the date of this prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated, the representative of the international underwriters, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file or cause to be filed a registration statement with the U.S. Securities and Exchange Commission under the Securities Act or the CNBV relating to, any shares of our share capital, including ADRs representing such shares, or securities convertible into or exchangeable or exercisable for any shares of our share capital, including ADRs representing such shares, or warrants or other rights to purchase any shares of our share capital, including ADRs representing such shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing; or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the consequences of the ownership of the Series A common stock.
Risk factors		See “Risk Factors” beginning on page 12 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in the ADSs.
Expected timetable for the global offering (subject to change):
Commencement of marketing of the global offering		, 2007
Announcement of public offering price		, 2007
Allocation of CPOs and ADSs		, 2007
Settlement and delivery of common shares		, 2007

	•	excludes 28,368,087 shares of our Series A common stock that will be subject to issuance upon exercise of the options we have granted to certain of our directors, officers and employees under our stock option plans;
	•	excludes 17,855,419 additional shares of our Series A common stock reserved for future issuance under out stock option plans;
	•	includes 736,883 shares of our Series A common stock issued upon the exercise of outstanding warrants; and
	•	excludes shares of our Series A common stock subject to issuance if the underwriters exercise their overallotment option.

	•	the reclassification of each of our outstanding series and class of our capital stock into a single series of Series A common stock;
	•	no exercise of the international underwriters’ option to purchase additional CPOs and no exercise of the Mexican underwriters’ option to purchase additional CPOs.

 

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

		Year Ended December 31,																Three Months Ended March 31,
		2004				2005				2006				2006(2)				2006				2007				2007(3)
														(unaudited)
		(thousands of constant December 31,																(unaudited, thousands of constant March 31,
		2006 pesos and thousands of U.S. dollars,																2007 pesos and thousands of U.S. dollars,
		except per share and share amounts)(1)																except per share and share amounts)(1)
Statement of Operations Data:
Mexican GAAP
Net revenues		Ps.	933,513			Ps.	1,197,104			Ps.	1,678,593			U.S.$	155,432			Ps.	337,647			Ps.	515,698			U.S.$	46,712
Operating costs and expenses:
Network operating costs			(329,439	)			(399,320	)			(652,452	)			(60,415	)			(114,411	)			(218,597	)			(19,800	)
Selling, general and administrative expenses			(402,551	)			(487,250	)			(585,496	)			(54,215	)			(130,121	)			(155,372	)			(14,074	)
Depreciation and amortization			(360,071	)			(293,051	)			(289,582	)			(26,814	)			(60,460	)			(87,542	)			(7,930	)
Total operating costs and expenses			(1,092,061	)			(1,179,621	)			(1,527,530	)			(141,445	)			(304,992	)			(461,511	)			(41,804	)
Operating (loss) income			(158,548	)			17,483				151,063				13,988				32,655				54,187				4,908
Integral cost (income) of financing:
Interest expense, net			(40,303	)			(101,058	)			(130,534	)			(12,087	)			(20,049	)			(52,184	)			(4,727	)
Exchange (loss) gain, net			(1,510	)			20,783				6,511				603				(11,812	)			(21,871	)			(1,981	)
Gain on net monetary position			92,649				22,985				20,724				1,919				4,957				11,223				1,017
Total integral cost of financing			50,836				(57,290	)			(103,299	)			(9,565	)			(26,904	)			(62,832	)			(5,691	)
Other income (expense), net			(852	)			9,354				(1,065	)			(99	)			39				509				46
Special item(4)			—				(15,988	)			(17,031	)			(1,577	)			—				—				—
Tax			(30,144	)			(27,685	)			(57,875	)			(5,359	)			(5,327	)			(714	)			(65	)
Net income (loss) for the period		Ps.	(138,708	)		Ps.	(74,126	)		Ps.	(28,207	)		U.S.$	(2,612	)		Ps.	463			Ps.	(8,850	)		U.S.$	(802	)

		Year Ended December 31,																Three Months Ended March 31,
		2004				2005				2006				2006(2)				2006				2007				2007(3)
														(unaudited)
		(thousands of constant December 31,																(unaudited, thousands of constant March 31,
		2006 pesos and thousands of U.S. dollars,																2007 pesos and thousands of U.S. dollars,
		except per share and share amounts)(1)																except per share and share amounts)(1)
Basic earnings (loss) per share(5)			Ps.(0.47	)			Ps.(0.18	)			Ps.(0.06	)		U.S.$	(0.006	)			Ps.0.001				Ps.(0.018	)		U.S.$	(0.002	)
Diluted earnings (loss) per share(5)			(0.47	)			(0.18	)			(0.06	)			(0.006	)			0.001				(0.017	)			(0.002	)
Weighted average number of shares outstanding (thousands of shares)(5)
Basic			293,032				403,521				442,928				442,928				403,521				482,405				482,405
Diluted			293,032				403,521				467,628				467,628				403,521				528,307				528,307
U.S. GAAP(6)
Operating (loss) gain			(207,965	)			(5,678	)			(48,775	)			(4,516	)
Net (loss) gain			1,271,427				178,890				12,009				1,112
Basic earnings (loss) per share(5)			4.34				0.44				0.03				0.003
Diluted earnings (loss) per share(5)			4.34				0.44				0.03				0.003
Other Financial Data:
Mexican GAAP
EBITDA(7)			201,523				310,534				440,645				40,802				93,115				141,729				12,838
Capital expenditures(8)			373,926				465,183				1,004,131				92,979				199,159				220,137				19,940
Ratio of earnings to fixed charges(9)			—				—				1.05				1.05				1.16				—				—
Total debt(10)			866,574				1,174,735				1,993,541				184,587				1,307,414				2,311,224				209,350
Total interest expense			40,303				101,058				130,534				12,087				20,049				52,184				4,727

As of March 31, 2007

As

As

Actual

Adjusted(12)

Actual

Adjusted(3)(12)

(unaudited, thousands of constant March 31,

2007 pesos and thousands of U.S. dollars)(1)

Balance Sheet Data(6)

Mexican GAAP

Cash, temporary investments and restricted cash

Ps.

765,109

U.S.$

63,303

Working capital(11)

147,708

13,379

Total assets

5,195,655

470,621

Total liabilities

2,988,136

270,665

Total shareholders’ equity

2,207,519

199,956

(1)		Pursuant to Mexican GAAP, except for the financial data as of March 31, 2007 and for the three-month periods ended March 31, 2006 and 2007, which have been restated in constant pesos as of March 31, 2007, and except as otherwise indicated, the financial data for all other periods throughout this section have been restated in constant pesos as of December 31, 2006. Since financial data as of March 31, 2007 and for the three-month periods ended March 31, 2006 and 2007 is presented in constant pesos in purchasing power as of March 31, 2007, it is not directly comparable to our audited consolidated year-end financial information included elsewhere in this prospectus. Restatement into December 31, 2006 pesos is made by multiplying the relevant nominal peso amount by the inflation index for the period between the end of the period to which such nominal peso amount relates and December 31, 2006. We use the inflation index 1.0519 for December 31, 2004 figures, 1.0333 for December 31, 2005 figures, 1.0405 for December 31, 2006 figures, 1.043 for March 31, 2006 and 1.000 for March 31, 2007 figures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(2)		Peso amounts were converted to U.S. dollars at the exchange rate of Ps.10.80 per U.S.$1.00, as reported by the Federal Reserve Bank of New York as its noon buying rate for pesos on December 29, 2006. Such conversions are for the convenience of the reader and should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all.

(3)		Peso amounts were converted to U.S. dollars at the exchange rate of Ps.11.04 per U.S.$1.00, as reported by the Federal Reserve Bank of New York as its noon buying rate on March 30, 2007, the business day immediately preceding March 31, 2007. Such conversions are for the convenience of the reader and should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all.
(4)		Special item refers to (a) expenses we incurred in connection with the sale of our subsidiary, Mijolife, S.A. de C.V., on November 22, 2005 and (b) the recognition of Ps.17.0 million, derived from the total amortization of the debt issuance costs related to the repayment of the 133/4% series bonds, the 2009 senior step-up notes and the 2007 senior notes. As of January 1, 2007, we adopted Mexican FRS NIF B-3, “Statement of Income,” which incorporates, among other things, a new approach to classifying income and expenses as ordinary and non-ordinary, eliminates special and extraordinary items and eliminates the cumulative effect of accounting changes. The adoption of this standard will affect our year end 2007 financial statements through the reclassification into general expenses of the special items that were previously presented in a separated line in the income statement. Our unaudited interim financial statements as of March 31, 2007 and for the three months ended March 31, 2006 and 2007 already reflect the application of this standard.
(5)		Earnings per share data give effect to the reclassification of all classes and series of outstanding stock into a single class of Series A common stock immediately prior to the completion of this offering.
(6)		No reconciliation of our unaudited interim financial statements to U.S. GAAP has been performed.
(7)		EBITDA for any period is defined as consolidated net income (loss) excluding depreciation and amortization, total integral cost of financing, other (income) expenses, special items and tax. EBITDA should not be considered as an alternate measure of net income or operating income, as determined on a consolidated basis using amounts derived from statements of operations prepared in accordance with Mexican GAAP, or as an indicator of operating performance or to cash flows from operating activity as a measure of liquidity. EBITDA is not a recognized financial measure under Mexican GAAP or U.S. GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activity as a measure of liquidity. The following table sets forth a reconciliation of EBITDA to net income (loss) under Mexican GAAP for each of the periods presented above.

		Year Ended December 31,																Three Months Ended March 31,
		2004				2005				2006				2006				2006				2007				2007
														(unaudited)
		(thousands of constant December 31,																(unaudited, thousands of constant
		2006 pesos and thousands of U.S. dollars)																March 31, 2007 pesos and thousands
																		of U.S. dollars)
Net income (loss)		Ps.	(138,708	)		Ps.	(74,126	)		Ps.	(28,207	)		U.S.$	(2,612	)		Ps.	463			Ps.	(8,850	)		U.S.$	(802	)
Depreciation and amortization			360,071				293,051				289,582				26,814				60,460				87,542				7,930
Total integral cost of financing			(50,836	)			57,290				103,299				9,565				26,904				62,832				5,691
Other income (expense) net			852				(9,354	)			1,065				99				(39	)			(509	)			(46	)
Special item(4)			—				15,988				17,031				1,577				—				—				—
Tax			30,144				27,685				57,875				5,359				5,327				714				65
EBITDA		Ps.	201,523			Ps.	310,534			Ps.	440,645			U.S.$	40,802			Ps.	93,115			Ps.	141,729			U.S.$	12,838

		EBITDA has been included solely because we believe it is a meaningful indication of our operating performance. We believe that EBITDA can be useful to facilitate comparisons of operating performance between periods and with other companies because it excludes the effect of (i) depreciation and amortization, which represents a non-cash charge to earnings, (ii) certain financing costs, which are significantly affected by external factors, including interest rates, foreign currency exchange rates and inflation rates, which have little or no bearing on our operating performance, (iii) income tax and tax on assets and statutory employee profit sharing, which is similar to a tax on income and (iv) other expenses or income not related to the operation of the business. EBITDA is also a useful basis of comparing our results with those of other companies because it presents operating results on a basis unaffected by capital structure and taxes. You should review EBITDA, along with consolidated net income (loss) and resources arising from (used in) operating activities, investing activities and financing activities, when trying to understand our operating performance. However, companies define EBITDA in different ways and caution must be used in comparing this measurement to EBITDA of other companies.
(8)		Capital expenditures include frequency rights, telephone network systems and equipment, intangible assets and other assets. Investing activities in the consolidated statements of changes in financial position are net of dispositions. In accordance with our capital expenditures policy, any acquisition of a subsidiary will be considered a capital expenditure since our investment in subsidiaries is part of our strategy to incorporate new network systems.
(9)		Our earnings were insufficient to cover fixed charges for the periods 1998 through 2005 and the three-month period ended March 31, 2007. Fixed charges include interest expense, capitalized interest and the portion of operating lease rental expense that represents the interest factor. The fixed charge coverage deficiency under Mexican GAAP was Ps.108.0 million in 2004, Ps.46.0 million in 2005 and Ps.22.4 million for the three months ended March 31, 2007.

(10)		Total debt is as of the end of the period indicated.
(11)		Working capital is defined as current assets (excluding cash and temporary investments and restricted cash) less current liabilities (excluding current maturities of long-term debt, which includes interest payable).
(12)		As adjusted amounts as of March 31, 2007 giving effect to the consummation of our initial public offering and the use of proceeds therefrom. See “Use of Proceeds” and “Capitalization.”

 

An investment in the ADSs or CPOs involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of the ADSs and CPOs could decline due to any of these risks or other factors, and you may lose all or part of your investment.

 

The risks described below are not the only ones that may affect us or the ADSs and CPOs. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. In general, investing in the securities of issuers in emerging market countries such as Mexico involves risks that are different from the risks associated with investing in the securities of U.S. companies. Any of these risks could materially and adversely affect our business and results of operations. To the extent that information relates to, or is obtained from sources related to, the Mexican government or Mexican macroeconomic data, the following information has been extracted from official publications of the Mexican government and has not been independently verified by us.

 

Risks Relating to Maxcom

 

We may not be able to generate sufficient cash flows to meet our debt service obligations and implement our business plan.

 

Our business plan, including the expansion of our network and services, requires significant capital expenditures. In turn, our ability to fund these planned capital expenditures as well our operating expenses and our debt service obligations will depend on our ability to develop a significantly larger customer base and increase our operating cash flows. However, we may not succeed in attracting more customers and as a result our business may not generate sufficient operating cash flows to implement our business plan or even meet our existing debt service obligations. For example, from our incorporation in 1996 through 2003 we generated negative operating cash flows. If we cannot service our debt obligations, we may have to take actions such as selling assets, seeking additional equity investments, reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, or restructuring our indebtedness pursuant to in court or out of court procedures, any of which could have a material adverse effect on our business, results of operations and financial condition.

 

We will need additional financing to implement our business plan after 2007 and such capital may not be available to us on acceptable terms.

 

We may require additional capital in the future to:

 

 

Although we currently have sufficient resources to fund our budgeted capital expenditures of U.S.$96.9 million for 2007, we will need to incur additional financing to continue the implementation of our business plan beyond 2007. We cannot assure you that such financing will be available in the future or, if available, that it will be on terms favorable or acceptable to us, including at an interest rate we could service. The cost of capital is variable based on a number of factors, including general market conditions and market interest rates. The terms of available financing may place limits on our financial and operating flexibility. In addition, the indenture governing our 11% senior secured notes due 2014, which we refer to as the senior secured notes, contains financial and other restrictive covenants that limit our ability to incur additional indebtedness and obtain financing. If we cannot obtain additional financing, we may be forced to reduce our operations or it could impede the implementation of our business strategy or our entering into transactions that would otherwise benefit our business. Furthermore, our failure to obtain additional financing could reduce our competitiveness as our competitors may develop networks with better service or offer an expanded range of services. Moreover, to the extent that we incur additional indebtedness or other obligations, the risks associated with our substantial leverage, including the possible inability to service our existing indebtedness, would increase.

We may be unable to build out our network in a timely manner or without undue cost.

 

Our ability to achieve our strategic objectives will depend in large part upon the successful, timely and cost-effective buildout of our network. Factors that could affect such buildout include:

 

 

Although we believe that our cost estimates and buildout schedule are reasonable, we cannot assure you that the actual construction costs or time required to complete the buildout will not substantially exceed our current estimates. Any significant cost overrun or delay could hinder or prevent the successful implementation of our business plan and have a material adverse effect on our business, results of operations and financial condition.

 

The loss of key personnel could harm our business, results of operations and financial condition.

 

Our operations are managed by a small number of executive officers and key management personnel. Our continued success, including our ability to effectively expand our network, provide existing services and develop and introduce new services, largely depends on the efforts and abilities of our executive officers and other key management employees, as well as our ability to hire and retain highly skilled and qualified management personnel. Between 2000 and 2004, we experienced significant turnover in our executive ranks, including in the positions of chief executive officer, chief marketing officer and chief financial officer, which adversely affected our ability to develop and execute our business strategies during such period. The competition for highly qualified management personnel in the telecommunications industry is intense and, accordingly, we cannot assure you that we will be able to hire or retain the necessary management personnel. Our business could be materially and adversely affected if, for any reason, a number of our officers or key employees did not remain with us and we were unable to promptly replace them with qualified personnel.

 

We may not have sufficient personnel to grow as rapidly as we would like.

 

Our expected rate of growth will place a significant strain on our administrative, operational and financial personnel. We anticipate that continued growth will require us to recruit and hire a significant number of new non-executive managerial, finance, sales and marketing, accounting and support personnel. If we are unable to attract and retain qualified personnel who can support the implementation of our business plan, our growth may be limited and the quality of our services may be impaired. This inability could have a material adverse effect on our business, results of operations and financial condition.

 

We depend on Telmex for interconnection.

 

Teléfonos de México, S.A.B. de C.V., or Telmex, and its affiliates exert significant influence on all aspects of the telecommunications market in Mexico, including interconnection agreements for local and long-distance services. We use Telmex’s network for call termination to service virtually all of our customers’ calls to Telmex’s customers. Our current local interconnection agreement with Telmex incorporates a “bill and keep” procedure under which we do not pay Telmex an interconnection fee unless we exceed a certain level of traffic imbalance. Under the “bill and keep” arrangement, if the imbalance between calls originated by Telmex and terminated by

Maxcom and calls originated by Maxcom and terminated by Telmex during a month does not exceed 5%, excluding commercial traffic and customers who have had contracts for less than 180 days, then no interconnection fee amounts are payable by the net carrier of interconnection services. The interconnection rate is currently Ps.0.1076 (U.S.$0.00975) per minute. If the allowed percentage for imbalance of traffic for the “bill and keep” procedure is exceeded and/or if the “bill and keep” procedure is eliminated and we have to pay Telmex for local interconnection, we cannot assure you that we will be able to offer services at profitable and competitive rates. In addition, if the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes), which we refer to as SCT, or the Federal Telecommunications Commission (Comisión Federal de Telecomunicaciones), which we refer to as COFETEL, ceased to regulate Telmex’s pricing, the resulting competitive climate could have a material adverse effect on our business, results of operations and financial condition.

 

If we do not successfully upgrade our accounting, billing, customer service and management information systems as new technology becomes available, our business, results of operations and financial condition could be materially and adversely affected.

 

Sophisticated information and processing systems are important to our existing operations and future growth and our ability to monitor costs, deliver invoices, process customer orders, provide customer service and achieve operating efficiencies. While we have installed systems we deem necessary to conduct our operations efficiently, we intend to upgrade our accounting, information and processing systems as new and more cost efficient technology becomes available. We believe we have budgeted for the applicable expenditures and will have sufficient resources to make such investments. However, we cannot assure you that we will be able to successfully upgrade such systems as technology advances and any inability to do so could have a material adverse effect on our business, results of operations and financial condition.

 

Our operations are dependent upon our ability to protect and maintain our network infrastructure.

 

Our operations are dependent upon our ability to protect our network infrastructure against damage from fire, earthquakes, floods, power loss and other similar events and to construct future networks that are not vulnerable to the effects of such events. The occurrence of a natural disaster or other unanticipated problem at our facilities or at the sites of our switches could cause interruptions in the services we provide. The failure of a switch would result in the interruption of service to the customers served by that switch until necessary repairs are completed or replacement equipment is installed. The successful operation of our network and its components is highly dependent upon our ability to maintain the network and its components in reliable enough working order to provide sufficient quality of service to attract and maintain customers. Any damage or failure that causes interruptions in our operations or lack of adequate maintenance of our network could result in the loss of customers and could have a material adverse effect on our business, results of operations and financial condition.

 

We could be negatively affected by “by-pass” international traffic.

 

Pursuant to COFETEL regulations, international long-distance traffic in Mexico must be routed and terminated through authorized international gateways at established international settlement rates. However, less expensive alternatives which by-pass authorized gateways exist, particularly in the case of countries with whom Mexico exchanges a significant amount of traffic. Given the disparity between the government-authorized and alternative long-distance interconnection and termination rates through local service routes and/or IP services, an increasing portion of the long-distance market between Mexico and the United States is served by entities that circumvent or “by-pass” the international long-distance interconnection system. This practice is illegal under applicable law.

 

Maxcom cannot confirm whether any of its high-volume customers are engaging in “by-pass” activities because it is not required to make such a determination under Mexican regulations and therefore has not implemented a system to detect such activity. Maxcom is required, however, to comply with any COFETEL order to disconnect a customer deemed to be engaged in “by-pass” activities by COFETEL. In 2000, Mexican regulatory authorities announced their intention to conduct more rigorous audits of persons or companies believed to be engaged in “by-pass” activities. In December 2000, some of the major Mexican long-distance carriers, including Maxcom, signed a cooperation agreement to combat “by-pass” activities. If, as a consequence of such

actions, the regulatory authorities determine that any of our high-volume customers are engaged in “by-pass” activity, Maxcom would be required to disconnect their service and our revenues could be negatively affected.

 

Our telecommunications network infrastructure has several vulnerabilities and limitations.

 

Our telecommunications network is the source of all our revenues. Any problem with or limitation of our network may result in a reduction in the number of our customers or a reduction in the usage level by our customers, and a reduction in our revenues. The development and operation of our network is subject to problems and technological risks, including:

 

 

A failure to achieve current specifications for, or future upgrades of, our network could have a material adverse effect on our business, results of operations and financial condition.

 

Our results may be negatively impacted by high levels of churn.

 

A high rate of residential or business customer lines attrition, or “churn,” could have a material adverse effect on our business, results of operations and financial condition. Churn may be impacted by:

 

 

During 2006, we experienced churn of approximately 45,000 residential and business customer voice lines, which resulted in an average monthly churn rate of approximately 1.6%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of voice and wholesale lines. Although we have been able to reduce our churn rate, a high churn rate in the future would increase our cost of operations and reduce our operating income and thus could materially and adversely affect our business, results of operations and financial condition.

 

Our substantial indebtedness could have a material adverse effect on our financial condition, including our ability to fulfill our obligations under our notes and our ability to operate our business and implement our business plan.

 

We are highly leveraged. As of March 31, 2007, we had total indebtedness in the amount of Ps.2,311.2 million (U.S.$209.4 million), which consists primarily of U.S.$175 million aggregate principal of senior secured notes. Despite our current level of indebtedness, we may be able to incur substantial additional indebtedness, including secured indebtedness. Although the terms of the indenture governing our senior secured notes will restrict us and our restricted subsidiaries from incurring additional indebtedness, these restrictions are subject to important

exceptions and qualifications including with respect to our ability to incur additional senior secured indebtedness. If we or our subsidiaries incur additional indebtedness to finance working capital, capital expenditures, investments or acquisitions or for other purposes, the risks related to our business associated with our high level of indebtedness could be intensified. Specifically, our high level of indebtedness could have important consequences to our business, including the following:

 

 

If we and our subsidiaries incur substantial additional indebtedness in the future, the leverage-related risks that we now face could intensify and have a material adverse effect on business, results of operation and financial condition.

 

The indenture governing our senior secured notes contains restrictions on our ability to operate our business and to pursue our business strategies. Our failure to comply with these covenants could result in an acceleration of our indebtedness.

 

The indenture governing our senior secured notes contains covenants that restrict our ability to finance future operations or capital needs, to respond to changing business and economic conditions and to engage in certain transactions or business activities that may be important to our growth strategy, necessary to remain competitive or otherwise important to us. The indenture restricts, among others, our ability to:

 

 

If we do not comply with these restrictions, we could be in default despite our ability to service our indebtedness. If there were a default under the indenture of our senior secured notes, holders of the notes could demand immediate payment of the aggregate principal amount and accrued interest on the notes outstanding. This could lead to our inability to pay our obligations or to our bankruptcy or reorganization for the benefit of our creditors. Any additional financings we obtain in the future would most likely contain similar or more restrictive covenants.

Risks Relating to the Mexican Telecommunications Industry

 

We may face additional competition in the future from new market participants, which may result in lower prices for telecommunications services, lower margins and/or a loss of market share.

 

The telecommunications industry in Mexico is increasingly competitive. We compete primarily on the basis of features, quality, pricing and customer service. We face significant competition from Telmex in all of the areas where we operate. In particular, as the former state-owned telecommunications monopoly, Telmex has significantly greater financial and other resources than those available to us. In addition, Telmex has a nationwide network and an established customer base. An affiliate of Telmex also owns Mexico’s largest carrier of mobile telephony, Radiomovil Dipsa, S.A. de C.V., or Telcel. Telcel has gained penetration in some market segments where Telmex has not. We also face significant competition from recent entrants in the cities of Mexico City, Puebla and Queretaro, in part, because the Mexican government is granting local concessions to most of the long-distance carriers and cable TV companies. Some of our competitors have significantly greater financial and other resources than us.

 

On October 4, 2006, the federal government enacted a new directive known as the “Convergence Regulations,” (Acuerdo de Convergencia de Servicios Fijos de Telefonía Local y Televisión y/o Audio Restringidos que se Proporcionan a través de Redes Públicas Alámbricas e Inalámbricas). These regulations allow certain concessionaries of media and telecommunication services to provide other services not included in their original concessions through voluntary adherence to the regulations. Upon compliance with certain regulations, cable television providers are now allowed to provide voice and data services. Likewise, voice and data service providers, upon compliance with certain regulations, are now allowed to provide television services. In addition, the Mexican government is allowing cable companies to act as “carriers of carriers” by providing bi — directional data, Internet broadband services and voice services, including VoIP services. Additionally, these regulations have opened the opportunity for Telmex to request an amendment to its concessions to enable it to provide cable TV services. Several cable television network providers have requested that the SCT modify their concession titles to allow them to offer telephone services directly to the public. As a result, the successful implementation of our business plan may be impeded by cable operators who have substantial coverage of cities we currently serve and can offer the same services we provide at lower prices since telephony income represents incremental revenue to cable operators. We believe that we may face significant competition from new entrants providing telephony services, including cable television providers. Several companies without legal authorization have begun to target the Mexican telecommunications market to offer telephone services through the Internet. Moreover, although we have obtained the authorization to provide cable television services in most of our service areas, we are uncertain about our ability to provide profitably these new services due to the market penetration of current competitors providing similar services in such areas.

 

Additionally, in November 2006, the Mexican Federal Power Commission (Comisión Federal de Electricidad), which we refer to as CFE, announced that it had obtained a concession from the Mexican federal government, through the SCT, to use its power lines and infrastructure to provide telecommunication services using the new technology model known as power line communications, or PLC, and broadband over power lines communications, or BPL. We believe that this action will cause an important reduction in the prices on the lease of infrastructure, as the CFE owns approximately 14,000 kilometers of power lines that could be used to transmit voice, data and video. We are uncertain as to how the CFE concession to render telecommunication services could affect us as well as the telecommunications landscape in Mexico.

 

As a result of the World Trade Organization settlement between Mexico and the United States regarding the disputes over U.S. telecommunications companies’ access to the Mexican telecommunications market, on August 12, 2005, COFETEL published regulations authorizing the issuance of permits for the resale of national and international long-distance public switched telecommunications services, through the use of minutes of service obtained from concessionaires and using their infrastructure at all times. This authorization has increased competition in the long-distance segment.

 

We also depend on revenues from certain highly competitive segments. High volume business customers are one of the most attractive niches in the market. This segment is serviced by a number of carriers that offer competitive telecommunications services solutions. The loss of these business customers could have a material

adverse effect on our business, results of operations and financial condition. In addition, the Mexican government has announced its intention to auction during 2007 certain WiMax and WiFi frequency bands in the 3.4 – 3.8 GHz band. If we are not able to obtain spectrum in such frequency bands, we could be disadvantaged compared to the carriers obtaining such frequencies and against Telmex and Axtel who currently own concessions in such frequencies.

 

Rate pressure could have a material adverse effect on our business, results of operation and our financial condition.

 

We expect the Mexican telecommunications market to continue to experience rate pressure, primarily as a result of:

 

 

Continued rate pressure could have a material adverse effect on our business, financial condition and operating results if we are unable to generate sufficient traffic and increased revenues to offset the impact of the decreased rates on our operating margin.

 

If the Mexican government grants more concessions, the value of our concessions could be severely impaired.

 

The telecommunications industry is regulated by the Mexican government. Our concessions are not exclusive and the Mexican government is granting concessions covering the same geographic regions and frequency bands to other entrants. We cannot assure you that additional concessions to provide similar services to those we provide or plan to provide will not be granted to other competitors and that the value of our concessions will not be adversely affected.

 

We could lose our concessions if we do not fully comply with their terms.

 

Under the terms of our concessions, we are required to meet a number of technical, buildout and financial conditions. In September 2002 and November 2003, we notified COFETEL of our failure to provide coverage in certain towns and cities within the timeframe required by our local and long-distance concessions. In addition, we did not meet certain buildout obligations in certain towns and cities by September 2004, as required by our concessions. On December 2004, we obtained a modification to the buildout requirements of the concessions from COFETEL and we are now in compliance with all material aspects of our concessions. However, we cannot assure that we will not be fined for our past failure to comply with the terms of our concession.

 

A failure to comply with any of the terms of our concessions or to obtain a waiver or modification, including the modification described above, could result in the termination of any of our concessions, the imposition of fines or the loss of performance bonds that we have issued to the SCT for an amount of Ps.14.8 million with respect to our local telephony and long-distance concessions, Ps.13.4 million with respect to all seven of our point-to point microwave concessions and Ps.5.2 million with respect to all three of our point-to-multipoint microwave concessions. The Mexican government is not required to compensate us in case of such termination. See “Regulation — Concessions and Permits — Termination.” If any of our concessions were to be terminated, we would be unable to engage in our core business, which would have a material adverse effect on our business, results of operations and financial condition.

Fraudulent use of telecommunications networks increases our expenses.

 

The fraudulent use of telecommunications networks imposes a significant cost upon service providers, who must bear the cost of services provided to fraudulent users. We suffer a loss of revenue as a result of fraudulent use and a cash cost due to our obligation to reimburse carriers for the cost of services provided to fraudulent users. Although we have installed technology to combat fraudulent use and will continue to evaluate and select amongst new fraud detection technologies as they become available, technology does not eliminate fraud entirely. In addition, since we rely on other long-distance carriers for interconnection, some of which do not have anti-fraud technology in their networks, we are particularly exposed to this risk in our long-distance service and in traffic originating in our network to mobile users under the mode of “calling party pays.” In 2006, our expenses for the prevention and detection of fraud were not significant. Due to cost reduction measures, we may elect not to upgrade our licenses relating to anti-fraud software or to cover maintenance fees.

 

Rapid technological advances may require us to make significant capital expenditures to maintain and improve the competitiveness of our service offerings.

 

The telecommunications industry is subject to rapid and significant changes in technology and requires the introduction of new products and services. Like other operators, we cannot predict the effect of technological changes on our business. New services and technological advances may offer additional opportunities for competitors to compete against us on the basis of cost, quality or functionality. While we have been installing what we believe to be a technologically advanced fiber optic network with a microwave overlay, we cannot assure you that this technology will not be challenged by competition from new or improved digital or other technologies in the near future. Our future success depends, in part, on our ability to anticipate and respond in a timely manner to technological changes. This may require us to devote significant capital to the development, procurement or implementation of new technologies. Additionally, our adoption of new imported technology may be dependent upon the final cost and our ability to obtain additional financing. There can be no assurance as to the nature and extent of the impact of technological change on our viability or competitiveness. If any future technological change places at risk our viability or competitiveness, the cost of upgrading our products and technology to remain competitive could be significant and our ability to fund this upgrading may depend on our ability to obtain additional financing on terms acceptable to us.

 

We would be adversely affected if we are not able to renew our existing concessions or if the Mexican government revokes our concessions.

 

We hold concessions that enable us to provide fixed telephony services. All of our concessions have a specified duration and are scheduled to expire between 2016 and 2028. Mexican law provides that concessions, except for the microwave transmission concessions, may be renewed for a period equal to the period of the original concession if the renewal is requested prior to the termination of the original concession and all requirements set forth in the concession and applicable law are satisfied. The microwave transmission concessions, which were issued in April 1998, have a fixed term of 20 years and COFETEL will re-auction the frequencies covered by the concessions at least three years before their expiration date. There can be no assurances that any of our concessions will be renewed or under what terms they would be renewed as final approval of the renewal of concessions is always at the discretion of the SCT or that we will successfully bid for and retain the microwave transmission concessions. Failure to renew any of our concessions will have a material adverse effect on our business, results of operations and financial condition.

 

Under Mexican law, our concessions could be expropriated or temporarily seized.

 

Pursuant to the Mexican law, the public telecommunications networks are considered public domain. Holders of concessions to install, operate and develop public telecommunications networks are subject to the provisions of the Mexican Federal Telecommunications Law (Ley Federal de Telecomunicaciones) and any other provision

contained in the concession title. The Mexican Federal Telecommunications Law and other applicable laws provide, among other things, the following:

 

 

Mexican law sets forth the process for indemnification for direct damages arising out of the expropriation or temporary seizure of the assets related to the concessions, except in the event of war. However, in the event of expropriation, we cannot assure you that the indemnification will equal the market value of the concessions and related assets or that we will receive such indemnification in a timely manner.

 

Mexican law does not prohibit a grant of a security interest in the concessions and the assets by the concessionaire to its creditors (except for security granted to a foreign government or country), provided, however, that all applicable procedural laws are followed. In the event such security interest is enforced, the assignee must comply with the Mexican Federal Telecommunications Law’s provisions related to concessionaires, including, among others, the requirement to receive the authorization by the SCT to be a holder of the concession.

 

“Long-distance Calling Party Pays” system could increase our costs and result in a loss of traffic.

 

On December 18, 2006, COFETEL implemented the “Long-distance Calling Party Pays” system, whereby the customer originating the domestic or international call, from either a fixed line or mobile phone to a mobile phone, pays the entire fee for placing the call rather than the mobile telephone subscriber who receives such call. Even though the mobile telephone subscriber receiving the call does not pay to receive the call, the network from which the call originates must still compensate the terminating mobile network. Maxcom has negotiated with mobile carriers the “Long-distance Calling Party Pays” interconnection tariff for local and long-distance calls to be terminated in such mobile operators’ network, achieving a significant reduction of the original tariff contemplated by the agreements implementing this system issued by COFETEL. The per minute tariffs will be Ps.1.34 in 2007, Ps.1.21 in 2008, Ps.1.09 in 2009 and Ps.1.00 in 2010. Even though we have negotiated better interconnection tariffs than those proposed by COFETEL, we believe that this new system may have a material adverse effect on our business, results of operations and financial condition.

 

Foreign ownership restrictions may limit our ability to raise equity capital.

 

Mexican law currently provides that no more than 49% of the full voting stock of a Mexican corporation holding a concession to provide telecommunications services, other than mobile services, may be held by non-Mexicans. Following the consummation of this offering, non-Mexican shareholders will hold approximately 49% of our Series A common stock (the only class of our stock that will be outstanding upon completion of this offering) directly. In addition, Mexican authorities have mandated that our shares held by in the CPO trustee, which are also referred to as neutral investment shares, may not represent more than 95% of our total capital stock. Upon completion of this offering, the shares held by in the CPO trustee will represent     % of our total capital stock assuming the underwriters’ do not exercise their option to purchase additional CPOs and     % if the underwriters exercise there option to purchase additional CPOs in full. Because of such restrictions, we have limited flexibility to raise equity capital from non-Mexican investors. As a result, any future sales of equity securities may require substantial participation by Mexicans, the issuance of non-voting securities to foreign investors or a modification of Mexican foreign investment laws and regulations. We cannot assure you that such a modification would be passed.

Risks Relating to Mexico

 

Political conditions in Mexico may adversely affect our business, results of operations and financial condition.

 

We are incorporated in Mexico and substantially all of our assets and operations are located in Mexico. As a result, we are subject to political, legal and regulatory risks specific to Mexico which can have a significant impact on our business, results of operations and financial condition.

 

Political situation

 

The Mexican federal elections were held on July 2, 2006. The Federal Electoral Court of the Federal Judicial Power (Tribunal Federal Electoral del Poder Judicial de la Federación) determined on September 5, 2006 that Felipe de Jesús Calderón Hinojosa of the Partido Acción Nacional, or PAN, won the presidential elections and formally declared him to be president elect, with a very narrow margin over Andrés Manuel López Obrador of the Partido de la Revolución Democrática, or PRD. Citing electoral fraud, Mr. López Obrador refused to concede the election. In addition, Mr. López Obrador led demonstrations protesting the electoral process and the legitimacy of Mr. Calderón’s electoral victory. On December 1, 2006, Felipe Calderón officially became President of Mexico. Although the PAN won a plurality of the seats in the Mexican Congress after the election, no party succeeded in securing a majority in either chamber of the Mexican Congress. We believe that the absence of a clear majority by a single party and the lack of alignment between the president and the legislature is likely to continue. This situation may result in government gridlock and political uncertainty. We cannot provide any assurance that the current political situation or any future political developments in Mexico will not have a material adverse effect on the telecommunications industry or our business, results of operations and financial position.

 

Legal and regulatory situation

 

The Mexican Supreme Court is considering the constitutionality of several articles of the Federal Telecommunications Law and the Federal Law on Radio and Television (Ley Federal de Radio y Televisión) as well as the authority of the Congress to object to the President’s ability to appoint the commissioners of the COFETEL, aiming to reinstall the previous commissioners appointed by the President but rejected by the Senate. We cannot predict the impact that the final opinion of Mexico’s Supreme Court could have on the regulation of the telecommunications industry.

 

If Mexico experiences future economic crises, our business could be affected negatively.

 

We are a Mexican company with all of our operations in Mexico. Accordingly, the economic environment within Mexico can have a significant impact on our business, results of operations and financial condition.

 

Economic situation

 

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican federal governmental actions and policies concerning the economy could have a significant impact on private sector entities in general and on us in particular and on market conditions, prices and returns on Mexican securities, including our securities. We cannot assure you that changes in Mexican federal governmental policies will not adversely affect our business, results of operations and financial condition.

 

In the past, Mexico has experienced economic crises caused by internal and external factors, characterized by exchange rate instability, high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment. These economic conditions substantially reduced the purchasing power of the Mexican population and, as a result, the demand for telecommunications services. Crises such as these could have a material adverse effect on our business, results of operations and financial condition and on the market value of our securities.

Changes to Mexican laws, regulations and decrees applicable to us could have a material adverse effect on our business, results of operations and financial condition.

 

The telecommunications sector in Mexico is subject to extensive regulation by a number of governmental authorities, which are responsible for, among others, formulating policy, granting licenses, setting tariff schemes, regulating interconnection among providers, levying taxes on services and supervising the provision of services. The applicable regulatory scheme has been evolving since the privatization of the sector commenced in 1990.

 

The operation of telecommunications systems in Mexico is subject to laws and regulations administered by the SCT and COFETEL. These governmental agencies may make regulatory interpretations or take regulatory actions that could damage our business. Effective April 11, 2006, the Mexican Congress enacted amendments to the Federal Law on Radio and Television and to the Federal Telecommunications Law, which are both currently under review by the Mexican Supreme Court. Pursuant to these amendments, COFETEL now also has the ability to regulate broadcasting (radio and television). We cannot predict how the SCT or COFETEL will interpret and implement the amendments to the Federal Law on Radio and Television and the Federal Telecommunications Law and thus how these new rules could affect our business. The Federal Telecommunications Law may be further amended, among other reasons, to permit a greater non-Mexican participation in our business. If any such amendment were passed, additional market entrants may purchase or initiate business in Mexico similar to our business. Such competitors may have greater resources than us and may start competing against us. Increased competition arising from amendments to the regulatory environment could have a material adverse effect on our business, results of operations and financial condition.

 

Exchange rate instability may have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

 

While our revenues are almost entirely denominated in pesos, the majority of our obligations and all of our long-term indebtedness are denominated in U.S. dollars. In addition, substantially all of our capital expenditures are denominated in U.S. dollars. We are, and will be, exposed to peso devaluation risk. The peso has devalued substantially against the U.S. dollar in the past and may devalue significantly in the future. For example, the noon buying rate rose from Ps.3.45 per U.S.$1.00 on December 19, 1994 to Ps.5.00 per U.S.$1.00 on December 31, 1994 and Ps.7.74 per U.S.$1.00 on December 31, 1995, representing a 124.6% devaluation of the peso relative to the U.S. dollar from December 19, 1994 to December 31, 1995. In 2003, the peso depreciated 9.0% relative to the U.S. dollar. The peso depreciated relative to the U.S. dollar 0.3% in 2004, appreciated 4.9% in 2005 and depreciated 1.5% in 2006.

 

The peso-to-dollar exchange rate may experience significant devaluations in the future. Further declines in the value of the peso relative to the U.S. dollar could adversely affect our ability to meet our U.S. dollar-denominated obligations, including our senior secured notes. In addition, any further decrease in the value of the peso may negatively affect the value of Mexican securities such as ours.

 

In the past, the Mexican government has issued exchange control rules that, although not in effect today, may be enacted in the future. If so enacted, exchange control rules are likely to have an impact on our business, results of operations and financial condition.

 

Developments in other countries may impact the price of our securities.

 

We cannot assure you that the price of our securities will not be adversely affected by events elsewhere, especially in the United States and in emerging market countries. Mexican financial and securities markets are, to varying degrees, influenced by economic and market conditions in other countries. Although economic conditions are different in each country, investor reaction to developments in one country has had and can have significant effects on the prices of securities of issuers in other countries, including Mexico. For example, each of the 1997 Asian economic crisis, the 1998 Russian debt moratorium and currency devaluation, the 1999 Brazilian currency devaluation and the 2001 Argentine debt default and currency devaluation triggered market volatility in Latin America. The economic slowdown in the United States, the military conflict in Iraq, the threat of terrorism and political and financial crises in certain emerging markets have had a significant negative impact on the financial and securities markets in many emerging market countries, including Mexico.

We are subject to different corporate disclosure and accounting standards than U.S. companies.

 

A principal objective of the securities laws of the United States and Mexico is to promote full and fair disclosure of all material corporate information. However, there may be less publicly available information about foreign issuers of securities listed in the United States and of Mexican issuers in Mexico than is regularly published by or about U.S. issuers of listed securities. In addition, we prepare our consolidated financial statements in accordance with Mexican GAAP. Mexican GAAP differs in significant respects from U.S. GAAP, including in the treatment of deferred income taxes, employees’ profit sharing accounting for retirement obligations, the capitalization of preoperating expenses and interest, the restructuring of troubled debt and the presentation of cash flow information. In particular, all Mexican companies must incorporate the effects of inflation directly in their accounting records and in published financial statements. We cannot assure you that these will be the only differences in the future. See note 22 to the consolidated financial statements for a description of the principal differences between Mexican GAAP and U.S. GAAP applicable to us.

 

You may suffer a U.S. dollar shortfall if you obtain a judgment against us.

 

In the event you are awarded a judgment from a Mexican court enforcing our U.S. dollar-denominated obligations under our senior secured notes, we will have the right to discharge our obligations by paying you in pesos at the exchange rate in effect on the date of payment of such judgment. The exchange rate is currently determined by the Central Bank of Mexico (Banco de México) every banking day in Mexico and published the following banking day in the Official Gazette of the Federation (Diario Oficial de la Federación). As a result of such currency conversion, you could face a shortfall in U.S. dollars. No separate actions exist or are enforceable in Mexico for compensation for any such shortfall.

 

If we were to be declared bankrupt, holders of the senior secured notes may find it difficult to collect payment on the notes.

 

Under the Mexican Bankruptcy Law (Ley de Concursos Mercantiles), if we or any of the guarantors of our senior secured notes were declared bankrupt (en quiebra) by a Mexican Court, or were to become subject to reorganization proceeding (concurso mercantil), our obligations under the notes and the applicable guarantor’s obligations under the guarantee of the senior secured notes: (i) would be converted into pesos at the exchange rate published by the Central Bank of Mexico prevailing at the time of the declaration of reorganization proceeding and then from pesos into Unidades de Inversión, or UDIs, inflation indexed units and would not be adjusted to take into account any devaluation of the peso relative to the U.S. dollar occurring after such conversion, (ii) would be subject to the outcome of, and priorities recognized in, the relevant proceedings, (iii) would be satisfied at the time claims of all of our creditors are satisfied after the relevant proceedings have been substantially advanced, (iv) would cease to accrue interest from the date a reorganization proceeding or bankruptcy is declared and, (v) would be subject to certain statutory preferences including tax, social security and labor claims and claims of secured creditors.

 

High inflation rates in Mexico may decrease demand for our services while increasing our costs.

 

In recent years, Mexico has experienced high levels of inflation relative to the United States, its main commercial partner. Mexico’s annual rate of inflation was 5.7% in 2002, 4.0% in 2003, 5.2% in 2004, 3.3% in 2005 and 4.1% in 2006. High inflation rates can adversely affect us as follows:

 

 

High interest rates in Mexico could increase our financing costs.

 

Mexico has, and is expected to continue to have, high real and nominal interest rates, relative to the United States, its main commercial partner. The interest rates on 28-day Mexican government treasury securities averaged, 7.1% in 2002, 6.2% in 2003, 6.8% in 2004, 9.2% in 2005 and 7.2% in 2006. Although we do not currently

have any peso-denominated indebtedness, if we need to incur such indebtedness in the future, it will likely be at high interest rates.

 

Risks Relating to the Offering and our Securities

 

An active public market for the CPOs and ADSs may not develop.

 

Prior to this global offering, there has been no public market for the ADSs or CPOs in the United States, Mexico or elsewhere. We have applied to list the ADSs on the           and the CPOs on the Mexican Stock Exchange. We cannot give assurance, however, whether an active liquid public trading market for the ADSs or CPOs will develop or be sustained. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. Liquidity of a securities market is often a function of the volume of the shares that are publicly held by unrelated parties. Limited liquidity of the CPOs or ADSs may have an adverse effect on their respective prices.

 

The initial public offering price of the CPOs and ADSs will be determined by negotiation between us and representatives of the underwriters based upon a number of factors and may not be indicative of prices that will prevail following the completion of this offering. The market price of the CPOs and ADSs stock may decline below the initial public offering price, and you may not be able to resell your CPOs or ADSs at or above the initial public offering price.

 

As a result of the lower level of liquidity and the higher level of volatility of the Mexican securities market, the market price of the CPOs, and as a result, the ADSs, may experience extreme price and trading volume fluctuations.

 

The Mexican Stock Exchange is one of Latin America’s largest exchanges in terms of market capitalization, but it remains relatively small, illiquid and volatile compared to other major world markets. Although the public participates in the trading of securities on the Mexican Stock Exchange, a substantial portion of such activity consists of transactions by or on behalf of institutional investors, including non-Mexican investors. These market characteristics may limit the ability of a holder of CPOs to sell its security and may also adversely affect the market price of the CPOs and, as a result, the market price of the ADSs. The trading volume for securities issued by emerging market companies tends to be lower than the trading volume of securities issued by companies in more developed countries.

 

We do not currently intend to pay dividends on the CPOs (or the underlying shares of Series A common stock).

 

We do not expect to declare or pay any cash dividends on the CPOs (or the underlying shares of Series A common stock) in the foreseeable future. In addition, our ability to pay dividends depends on our subsidiaries’ ability to transfer income and dividends to us. Our ability to pay dividends to our shareholders depends on the continued transfer to us of dividends and other revenue from our wholly owned subsidiaries. Our ability to pay dividends, and the ability of our subsidiaries to pay dividends to us, is limited by the requirement under Mexican law that we and our subsidiaries allocate earnings to our respective legal reserve funds prior to paying dividends, that no unpaid losses exist for prior fiscal years and that shareholders approve the payment. The indenture governing our senior secured notes due 2014 also restricts our ability to pay dividends. As a result, the only opportunity to achieve a return on an investment in CPOs or ADSs will likely be if the market price of the CPOs and ADSs appreciates and are sold by the investor at a profit. We cannot assure you that the market price of the CPOs or ADSs will ever exceed the offering price or any price subsequently paid. See “Description of Capital Stock — Dividends” and “Dividend Policy.”

 

We will be controlled by our pre-existing investors whose interests may differ from those of other shareholders.

 

Upon completion of this offering, our pre-existing investors will collectively own approximately           shares of Series A common stock (either directly our through the ownership of CPOs), or     % of the total shares of our outstanding common stock. As a result, these investors will have the ability to control the

election of our directors, the appointment of new management and the potential outcome of all matters submitted to a vote of our shareholders, including entering into mergers, the sale of substantially all of our assets and other extraordinary items. The interests of these investors with respect to such matters could conflict with your interests as holders of the ADSs and CPOs. See “Principal and Selling Shareholders.”

 

You will likely suffer dilution in the book value of your investment.

 

The initial public offering price of the CPOs is considerably more than the as adjusted net tangible book value per share of our outstanding common stock. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors in our shares of Series A common stock paid substantially less than the initial public offering price of the CPOs when they purchased their shares. Investors purchasing CPOs in this offering will incur immediate dilution of U.S.$      in as adjusted net tangible book value per CPO and investors purchasing ADSs in this offering will incur immediate dilution of U.S.$      in as adjusted net tangible book value per ADS, in each case based on the initial public offering price of $      per share, the midpoint of the price range on the front cover of this prospectus. In addition, if we raise funds by issuing additional securities, the newly issued shares will further dilute your percentage ownership of us. See “Dilution.”

 

Substantial sales of the ADSs or CPOs after this offering could cause the price of the ADSs or CPOs to decrease.

 

We, the selling shareholders, our directors and executive officers and certain of our other shareholders have agreed that, subject to certain limited exceptions, we and they will not issue or transfer until 180 days after the date of this prospectus any ADSs or CPOs or any options or warrants to purchase the ADSs or CPOs, or any securities convertible into, or exchangeable for, or that represent the right to receive, ADSs or CPOs. In addition, in the event that either (1) during the last 17 days of the “lock-up” period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the “lockup” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the representative of the international underwriter waives, in writing, such an extension. After these lock-up agreements expire, their ADSs and CPOs will be eligible for sale in the public market. The market price of the ADSs and CPOs could drop significantly if the holders of the ADSs or CPOs sell them or the market perceives that they intend to sell them.

 

In connection with our business strategy, we may finance future acquisitions or corporate needs and expenditures by using shares of Series A common stock, to be evidenced by CPOs or ADSs. Any such issuances of such shares could result in a dilution of your ownership stake or a decrease in the market price of the ADSs or the CPOs.

 

You may not be entitled to participate in future preemptive rights offerings, and, as a result, holders of CPOs and ADSs may suffer dilution.

 

Except in certain circumstances, under Mexican law, if we issue new shares of Series A common stock for cash as part of a capital increase, we generally grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in our company. Rights to purchase shares in these circumstances are known as preemptive rights. We may not legally be permitted to allow holders of ADSs or holders of CPOs in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the U.S. Securities and Exchange Commission, or the SEC, with respect to that future issuance of shares or the offering qualifies for an exemption from the registration requirements of the Securities Act. Similar restrictions may apply to holders of ADSs and CPOs in other jurisdictions. We cannot assure you that we will file a registration statement with the SEC, or any other regulatory authority, to allow holders of ADSs or holders of CPOs in the United States, or any other jurisdiction, to participate in a preemptive rights offering. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether we will file such a registration

statement. Under Mexican law, sales by the depositary of preemptive rights and distribution of the proceeds from such sales to you, the ADS holders, is not possible.

 

Additional CPOs may be issued only if the CPO deed permits the issuance of a number of CPOs sufficient to represent the shares to be issued to and held by the CPO trustee upon the exercise of preemptive rights. Because non-Mexican holders of CPOs and ADSs are not entitled to acquire direct ownership of the underlying shares of Series A common stock, they may not be able to exercise their preemptive rights if the CPO deed will not permit additional CPOs to be delivered in an amount sufficient to represent the shares of Series A common stock to be issued as a result of the exercise of preemptive rights on behalf on non-Mexican CPO holders unless the CPO deed is modified, or a new CPO deed is entered into which permits delivery of the number of CPOs necessary to represent the shares of Series A common stock to be subscribed and paid as a result of the exercise of such preemptive rights. Although we expect to take all measures necessary to maintain sufficient CPOs available to permit non-Mexican holders of CPOs or ADSs to exercise preemptive rights, if and when applicable, no assurances can be made that we will be able to do so, particularly because regulatory approvals in Mexico are necessary for the issuances of CPOs. As a result of the limitations described above, if we issue additional shares in the future in connection with circumstances giving rise to preemptive rights, the equity interests of holders of CPOs and ADSs may be diluted. See “Description of Capital Stock — Preemptive Rights” and ‘‘Description of the CPO Trust — Preemptive Rights.”

 

Mexican holders of our securities will determine the outcome of most shareholder votes.

 

Except in certain limited circumstances, the aggregate voting rights of non-Mexican direct holders of shares of Series A common stock, CPOs and ADSs cannot exceed 49% of the total voting rights. Because Mexican investors are required to hold no less than 51% of our shares of Series A common stock directly and may vote or cause to be voted shares of Series A common stock underlying our CPOs, Mexican investors may determine the outcome of most of our shareholder matters. Mexican investors may have different interests than those of non-Mexican investors in our CPOs. See “Description of Capital Stock — Voting Rights” and “Description of the CPO Trust — Voting Rights with Respect to Underlying Shares.”

 

ADS holders may only vote through the depositary and are not entitled to attend shareholders’ meetings.

 

As an ADS holder, you will not be entitled to attend shareholders’ meetings and will not be entitled to vote shares of Series A common stock underlying the CPOs underlying your ADSs. Under the terms of the ADSs, you have a right to instruct the depositary,          , to vote the shares underlying the ADSs. If we request the depositary to ask for your instructions, the depositary will notify you of shareholders’ meetings. Otherwise, you may not be able to exercise your right to vote unless you withdraw the CPOs underlying the ADSs. We will use our best efforts to request that the depositary notify you of upcoming votes and ask for your instructions. However, you may not receive voting materials in time to ensure that you are able to instruct the depositary to vote your shares or otherwise learn of shareholders’ meetings to withdraw your CPOs to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send out voting information in sufficient time to allow you to instruct it how to vote or carry out your voting instructions in the manner you have instructed. As a result, you may not be able to exercise your right to vote and you may lack recourse if the shares of Series A common stock underlying CPOs underlying your ADSs are not voted as you requested. See “Description of American Depositary Shares — Voting Rights” for further discussion regarding the deposit agreement and your voting rights.

 

Holders of CPOs may face disadvantages when attempting to exercise voting rights as compared to any ordinary shareholder.

 

Mexican holders of CPOs may instruct the CPO trustee to vote the shares of Series A common stock underlying the CPOs on all matters or obtain a proxy from the CPO trustee to vote the underlying shares. Non-Mexican holders of CPOs are not entitled to exercise directly any voting rights with respect to the shares of Series A common stock held by the CPO trustee (voting rights attributable to such shares are exercisable only by the CPO trustee). Non-Mexican holders of CPOs are only entitled to instruct the CPO trustee (or in the case of a holder of ADSs, instruct the ADS depositary to instruct the CPO trustee), to exercise the voting rights in respect of the shares of Series A common stock underlying such CPOs. We cannot assure CPO holders that they will receive the voting

materials in time to ensure that they can give timely instructions as to how to vote the shares of Series A common stock underlying the applicable CPOs. As a result, holders of CPOs may find it more complex to exercise their voting rights and recourse may be difficult to exercise if their voting instructions are not followed. See “Description of Capital Stock — Voting Rights” and “Description of the CPO Trust — Voting Rights with Respect to Underlying Shares.”

 

Provisions of Mexican law, our bylaws and the CPO trust agreement may make a takeover more difficult, which may impede the ability of holders of CPOs or ADSs to benefit from a change in control or to change our management and board of directors.

 

Provisions of Mexican law, our bylaws and the CPO trust agreement may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that our management and board of directors oppose. Holders of CPOs and ADSs might desire to participate in one of these transactions, but may not have an opportunity to do so. For example, Mexican law, our bylaws and the CPO trust agreement contain provisions that, among other things:

 

 

These provisions could substantially impede the ability of public stockholders to benefit from a change in control or to change our management and board of directors. See “Description of Capital Stock — Other Provisions — Anti-takeover Provisions,” “Description of Capital Stock — Ownership Restrictions,” “Description of Capital Stock — Voting Rights” and “Description of Capital Stock — Other Provisions — Foreign Investment Regulations.”

 

Future sales of CPOs or ADSs, or the perception in the public markets that these sales may occur, could depress our the market price of the CPOs and ADSs.

 

Sales of substantial amounts of CPOs or ADSs in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of the CPOs and ADSs and could impair our ability to raise capital through the sale of additional shares. Upon completion of this offering,            CPOs will be outstanding (including CPOs underlying ADSs). Of these CPOs, the           sold in this offering will be freely tradable, without restriction, in the public market. After the lock-up agreements pertaining to this offering expire, an additional           CPOs will be eligible for sale in the public market, subject to applicable manner of sale and other limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Following the expiration of the lock-up period, parties to our registration rights agreement, subject to certain exceptions, will have demand registration rights with respect to the registration of CPOs under the Securities Act. If these rights are exercised, holders of all CPOs subject to the registration rights agreement will be entitled to participate in such registration. By exercising their registration rights, and selling a large number of CPOs, these holders could cause the price of the CPOs to decline.            CPOs will be subject to our registration rights agreement upon completion of the offering. See “Related Party Transactions — Registration Rights Agreement.”

Non-Mexican investors in the CPOs or ADSs will not be entitled to acquire direct ownership of the shares of Series A common stock underlying such CPOs or ADSs.

 

Non-Mexican investors in the CPOs or ADSs will not be entitled to acquire direct ownership of the shares of Series A common stock underlying such CPOs or ADSs. Such shares must be held through the CPO trust. Upon expiration of the 50-year term of our CPO trust, such trust must be extended or the underlying shares of Series A common stock must be placed in a new trust similar to the current CPO trust for non-Mexican investors to hold an economic interest in such shares. We cannot assure you that a new trust similar to the CPO trust will be created if the current CPO trust terminates. In the event a new trust is not established at the end of such 50-year term or the relevant shares of Series A common stock are not placed in such a trust, the shares of Series A common stock underlying the CPOs held by non-Mexicans may be required to be sold to a Mexican individual or corporation. In such event, a large number of shares may be sold in a relatively short period of time and there may not be sufficient demand for large blocks of our shares. We cannot assure you that the volume of such sales would not adversely affect the market price of the Series A common stock. See “Description of the CPO Trust — Deposit and Withdrawal of Shares” and “Description of CPO Trust — Termination of the CPO Trust.”

 

Minority shareholders may be less able to enforce their rights against us, our directors, or our controlling shareholders in Mexico.

 

Under Mexican law and our bylaws which are governed by Mexican law, the protections afforded to minority shareholders are different from those afforded to minority shareholders in the United States. For example, because provisions concerning fiduciary duties of directors have only recently been incorporated into the Mexican Securities Market Law (Ley del Mercado de Valores) and are not as developed as in the United States, it may be difficult for CPO holders to bring an action against directors for breach of this duty and achieve the same results as in most jurisdictions in the United States. Procedures for class action lawsuits do not exist under applicable Mexican law. Furthermore, if investors hold our securities through the CPO trustee, their minority rights may only be exercised through instructions of the CPO trustee. Such indirect ownership arrangement may further limit such investor’s rights. Therefore, it may be more difficult for CPO holders to enforce their rights against us, our directors, or our controlling shareholders than it would be for minority shareholders of a U.S. company.

 

Investors may experience difficulties in enforcing civil liabilities against us or our directors, officers and controlling persons.

 

We are organized under the laws of Mexico, and most of our directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and our directors and officers’ assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgements against them, including any action based on civil liabilities under the U.S. federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to enforce judgements of U.S. courts, of liabilities based solely on the U.S. federal securities laws.

 

This prospectus contains forward-looking statements. Statements that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will” and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties. Accordingly, our actual results of operations may be different from our current expectations, and prospective investors should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.

 

These statements are based on management’s current expectations, assumptions and beliefs in light of the information currently available to us. These expectations, assumptions and beliefs also involve risks and uncertainties which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Potential risks and uncertainties include, without limitation:

 

 

The net proceeds to us from the sale of the CPOs and the ADSs in this offering are expected to be approximately U.S.$      million after deducting estimated discounts and commissions and expenses payable by us, and U.S.$      million if the underwriters exercise their over-allotment option in full, assuming an initial public offering of $      per ADS, the midpoint of the range set forth on the cover of this prospectus. We currently intend to use the net proceeds from this offering for capital expenditures. However, we currently have no commitments or agreements to use the net proceeds of this offering for capital expenditures, and we may use net proceeds of the offering for general corporate purposes, including repayment of debt, investment in our subsidiaries, working capital, repurchases of stock or the financing of possible acquisitions or business opportunities. We have not determined the amounts we plan to spend on any of the uses described above or the timing of these expenditures. The net proceeds may be invested temporarily or applied to repay short-term debt until they are used for other purposes.

 

We will not receive any proceeds from the sale of CPOs and ADSs by the selling shareholders.

 

For every Ps.1.00 increase or decrease in the price per CPO in this offering, the amount of proceeds to us will increase or decrease by approximately Ps.           million.

 

The following table sets forth, for the periods indicated, the period-end, average, high and low noon buying rates, in each case for the purchase of U.S. dollars, all expressed in nominal pesos per U.S. dollar. The noon buying rate on July 19, 2007 was Ps.10.73 per U.S.$1.00.

 

 

 

 

Our inclusion of these exchange ratios is not meant to suggest that the peso amounts actually represent such U.S. dollars or that such amounts could have been converted into U.S. dollars at such rate or any other rate.

 

Except for the period from September through December 1982, during a liquidity crisis, the Mexican Central Bank has consistently made foreign currency available to Mexican private-sector entities (such as us) to meet their foreign currency obligations. Nevertheless, in the event of renewed shortages of foreign currency, there can be no assurance that foreign currency would continue to be available to private-sector companies or that foreign currency needed by us to service foreign currency obligations or to import goods could be purchased in the open market without substantial additional cost.

 

The following table sets forth our consolidated capitalization at March 31, 2007 on an actual basis and as adjusted to reflect the receipt of U.S.$      million in net proceeds from the issuance and sale of the CPOs and ADSs in this offering after deducting estimated discounts and commissions and expenses payable by us. These adjustments are based on our assumed initial price of U.S.$      per ADS, the midpoint of the range set forth on the cover of this prospectus. This table should be read in conjunction with, and is qualified in its entirety by reference to, “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the notes thereto and “Selected Consolidated Financial Information” included elsewhere in this prospectus.

 

 

 

 

At March 31, 2007, we had a net tangible book value under Mexican GAAP of Ps.3.32 per Series A common share, Ps.3.32 per CPO, or U.S.$      per ADS based on the ratio of one share of Series A common stock per CPO and          CPOs per ADS, respectively. Net tangible book value represents the amount of our total tangible assets less total liabilities, divided by the total number of equity shares outstanding at March 31, 2007. After giving effect to the sale of the ADSs offered by us in the international offering and the CPOs offered by us in the Mexican offering, and, assuming the underwriters’ over-allotment option is not exercised, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated at March 31, 2007 would have been approximately Ps.          , representing Ps.           per share, Ps.           per CPO, or U.S.$      per ADS, which is the midpoint of the price range included on the front cover of this prospectus. At an assumed initial public offering price of U.S.$      per ADS, this represents an immediate increase in net tangible book value of Ps.           per share, Ps.           per CPO, or U.S.$      per ADS, to existing shareholders and an immediate dilution in net tangible book value of U.S.$      per ADS to new investors purchasing ADSs in this offering. Dilution for this purpose represents the difference between the price per CPO or ADS paid by these purchasers and net tangible book value per share or ADS immediately after the completion of the offerings.

 

The following table illustrates the dilution in net tangible book value per ADS to purchasers of ADSs in the global offering:

 

 

 

 

The following table summarizes on a pro forma basis, March 31, 2007, the difference between our existing shareholders and new investors with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid:

 

 

 

The foregoing discussions and tables are based upon 483,182,721 shares of our Series A common stock issued and outstanding as of March 31, 2007, after giving pro forma effect to the reclassification of such shares into a single class. This number excludes:

 

 

To the extent outstanding options, or options or warrants we may issue in the future with exercise prices below the initial public offering price, are exercised, there will be further dilution to new public investors.

 

The following tables present our selected consolidated financial information for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, our financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our financial statements are prepared in accordance with Mexican GAAP, which differs in certain significant respects from U.S. GAAP. See note 22 to our audited financial statements for the year ended December 31, 2006 for a discussion of the significant differences between Mexican GAAP and U.S. GAAP as they relate to our business. Results of the interim periods are not necessarily indicative of results that may be expected for a full fiscal year or any other future period.

 

We have derived this selected financial information as of and for the years ended December 31, 2002, 2003, 2004, 2005 and 2006 from our historical audited consolidated financial statements. The selected consolidated financial information as of and for the three months ended March 31, 2006 and March 31, 2007, has been derived from our historical unaudited consolidated financial statements.

 

As reported by the Banco de México, the rate of inflation was 0.7% for the period from December 31, 2006 to March 31, 2007 and 4.3% for the period from March 31, 2006 to March 31, 2007.