UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 20-F
 
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the transition period from       to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report ___
 Commission File Number 001-33750
 
 MAXCOM TELECOMUNICACIONES, S.A.B. DE C.V.
 (Exact name of
Registrant as specified in its charter)
 MAXCOM TELECOMMUNICATIONS, INC.
 (Translation of
Registrants name into English)
 UNITED MEXICAN STATES
 (Jurisdiction of incorporation or organization)
 
 Guillermo González Camarena No. 2000
Colonia Centro de Ciudad Santa Fe
Mexico, D.F. 01210  (Address of principal executive offices)
 
 Securities
registered or to be registered pursuant to Section 12(b) of
the Act:
 
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
 Series A shares, no par value, common voting stock
    
    
    789,818,829
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
 Yes o       No þ
 If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
 Yes o       No þ
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
 Yes þ No o
 Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.

See the definitions of large
accelerated filer, accelerated filer and smaller
reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer
o

  
  Accelerated filer
o

  
  Non-accelerated filer
þ
(Do not check if a smaller reporting company)

  
  Smaller reporting company
o
 Indicate by check mark which financial statement item the registrant has elected to follow.
 Item 17 o Item 18 þ
 If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
 Yes o No þ




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##### 



TABLE OF CONTENTS
 PagePART I
    
    
    2ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    2ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3.
    
    KEY INFORMATION
    
    
    2A.
    
    Selected financial data
    
    
    2B.
    
    Capitalization and indebtedness
    
    
    5C.
    
    Reasons for offer and use of proceeds
    
    
    5D.
    
    Risk factors
    
    
    5ITEM 4.
    
    INFORMATION ON THE COMPANY
    
    
    16A.
    
    History and development of the Company
    
    
    16B.
    
    Business overview
    
    
    17C.
    
    Organizational structure
    
    
    47D.
    
    Property, plant and equipment
    
    
    48ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    49ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    49A.
    
    Operating Results
    
    
    51B.
    
    Liquidity and capital resources
    
    
    65C.
    
    Research and development, patents and licenses, etc.
    
    
    75D.
    
    Trend information
    
    
    75E.
    
    Off - balance sheet arrangements
    
    
    75F.
    
    Tabular disclosure of contractual obligations
    
    
    75ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    76A.
    
    Directors and senior management
    
    
    76B.
    
    Compensation
    
    
    79C.
    
    Board practices
    
    
    80D.
    
    Employees
    
    
    83E.
    
    Share ownership
    
    
    83ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    84A.
    
    Major Shareholders and Share Ownership
    
    
    84B.
    
    Related party transactions
    
    
    86C.
    
    Interest of experts and counsel
    
    
    86ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    86A.
    
    Consolidated statements and other financial information
    
    
    86B.
    
    Significant changes
    
    
    87
  i




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##### 



PageITEM 9.
    
    THE OFFER AND LISTING
    
    
    88ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    89A.
    
    Share capital
    
    
    89B.
    
    Memorandum and articles of association
    
    
    89C.
    
    Material contracts
    
    
    109D.
    
    Exchange controls
    
    
    110E.
    
    Taxation
    
    
    110F.
    
    Dividends and paying agents
    
    
    122G.
    
    Statement by experts
    
    
    122H.
    
    Documents on display
    
    
    122I.
    
    Subsidiary information
    
    
    122J.
    
    Corporate Governance Practices
    
    
    122ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    124ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    125PART II
    125ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    125ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    125ITEM 15T.
    
    CONTROLS AND PROCEDURES
    
    
    126ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    127ITEM 16B.
    
    CODE OF ETHICS
    
    
    127ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    127ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    128ITEM 16E.
    
    PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    128PART III
    128ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    128ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    128ITEM 19.
    
    EXHIBITS
    
    
    130Glossary of Telecommunications Terms
    
    
    G-1
 ii




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##### 



PRESENTATION OF FINANCIAL INFORMATION AND OTHER DATA
   SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    competition in local services, data, Internet and Voice over Internet Protocol services;
    
    our ability to service our debt;
    
    limitations on our access to sources of financing on competitive terms;
    
    significant economic or political developments in Mexico and the U.S.;
    
    changes in our regulatory environment, particularly developments affecting the regulation
of the telecommunications industry;
    
    our need for substantial capital;
    
    general economic conditions, including the economic slow-down in the U.S.;
    
    the global telecommunications downturn;
    
    performance of financial markets and thus our ability to refinance our financial
obligations when they come due;
    
    our history of operating losses;
    
    the risks associated with our ability to implement our growth strategy;
 
 1




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##### 




    
    customer attrition;
    
    technological innovations;
    
    currency fluctuations and inflation in Mexico;
    
    currency exchange rates, including the Mexican Peso  U.S. dollar exchange rate;
    
    changes in the policies of central banks and/or foreign governments; and
    
    the risk factors discussed under Risk Factors.
   
 PART I
 
 ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
 ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM
3. KEY INFORMATION
 
 A. Selected financial data
  Normas de Información Financiera)
 2




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##### 



As of the Year Ended December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2007(1)(unaudited)(Thousands of constant December 31, 2007 pesos and thousands of U.S.dollars(2), except per share data)Statement of Operations Data:Mexican GAAPNet revenues
    
    Ps.
    898,495
    
    
    Ps.
    968,604
    
    
    Ps.
    1,242,104
    
    
    Ps.
    1,741,692
    
    
    Ps.
    2,345,719
    
    
    U.S.$
    214,809Operating costs and expenses:Network operating costs
    
    
    (322,800
    )
    
    
    (341,823
    )
    
    
    (414,332
    )
    
    
    (676,977
    )
    
    
    (976,979
    )
    
    
    (89,467
    )Selling, general and administrative
    
    
    (452,391
    )
    
    
    (417,683
    )
    
    
    (505,566
    )
    
    
    (607,505
    )
    
    
    (725,875
    )
    
    
    (66,472
    )Depreciation and amortization
    
    
    (394,515
    )
    
    
    (373,606
    )
    
    
    (304,066
    )
    
    
    (300,468
    )
    
    
    (370,227
    )
    
    
    (33,904
    )Total operating costs and expenses
    
    
    (1,169,706
    )
    
    
    (1,133,112
    )
    
    
    (1,223,964
    )
    
    
    (1,584,950
    )
    
    
    (2,073,081
    )
    
    
    (189,843
    )Operating (loss) income
    
    
    (271,211
    )
    
    
    (164,508
    )
    
    
    18,140
    
    
    
    156,742
    
    
    
    272,638
    
    
    
    24,966Comprehensive cost (income) of financing:Interest expense, net
    
    
    (30,564
    )
    
    
    (41,818
    )
    
    
    (104,857
    )
    
    
    (147,691
    )
    
    
    (194,474
    )
    
    
    (17,809
    )Exchange (loss) gain, net
    
    
    (203,175
    )
    
    
    (1,567
    )
    
    
    21,564
    
    
    
    6,756
    
    
    
    25,247
    
    
    
    2,312Gain on net monetary position
    
    
    89,374
    
    
    
    96,132
    
    
    
    23,849
    
    
    
    33,753
    
    
    
    42,586
    
    
    
    3,200Total comprehensive cost of financing
    
    
    (144,365
    )
    
    
    52,747
    
    
    
    (59,444
    )
    
    
    (107,182
    )
    
    
    (126,641
    )
    
    
    (11,597
    )Other expense, net
    
    
    (177
    )
    
    
    (884
    )
    
    
    (6,883
    )
    
    
    (18,777
    )
    
    
    (12,819
    )
    
    
    (1,174
    )Tax
    
    
    (15,151
    )
    
    
    (31,277
    )
    
    
    (28,725
    )
    
    
    (60,050
    )
    
    
    (96,982
    )
    
    
    (8,881
    )Net (loss) income
    
    
    (430,904
    )
    
    
    (143,922
    )
    
    
    (76,912
    )
    
    
    (29,267
    )
    
    
    36,196
    
    
    
    3,314Earnings per share:Basic
    
    
    (1.68
    )
    
    
    (0.49
    )
    
    
    (0.19
    )
    
    
    (0.07
    )
    
    
    0.06
    
    
    
    0.005Diluted
    
    
    (1.68
    )
    
    
    (0.49
    )
    
    
    (0.19
    )
    
    
    (0.07
    )
    
    
    0.06
    
    
    
    0.005U.S. GAAPOperating (loss) income
    
    
    (308,912
    )
    
    
    (215,782
    )
    
    
    (5,891
    )
    
    
    (50,610
    )
    
    
    213,925
    
    
    
    19,590Net (loss) income
    
    
    (444,438
    )
    
    
    1,319,220
    
    
    
    185,616
    
    
    
    12,459
    
    
    
    160,999
    
    
    
    14,743Earnings per
share(6):Basic
    
    
    (30.30
    )
    
    
    6.55
    
    
    
    0.67
    
    
    
    (2.13
    )
    
    
    0.29
    
    
    
    0.027Diluted
    
    
    (30.30
    )
    
    
    6.55
    
    
    
    0.67
    
    
    
    (2.13
    )
    
    
    0.27
    
    
    
    0.025Balance Sheet Data:Mexican GAAPCash and cash equivalents
    
    
    48,979
    
    
    
    67,142
    
    
    
    241,218
    
    
    
    739,291
    
    
    
    2,539,535
    
    
    
    232,558Restricted cash
    
    
    
    
    
    
    6,198
    
    
    
    
    
    
    
    23,462
    
    
    
    
    
    
    
    Working capital(3)
    
    
    15,606
    
    
    
    (24,469
    )
    
    
    (126,398
    )
    
    
    29,083
    
    
    
    281,811
    
    
    
    25,807Restricted cash to long term
    
    
    
    
    
    
    14,149
    
    
    
    8,283
    
    
    
    
    
    
    
    
    
    
    
    Frequency rights, net
    
    
    112,979
    
    
    
    105,178
    
    
    
    92,960
    
    
    
    88,374
    
    
    
    80,930
    
    
    
    7,411Telephone network systems and equipment, net
    
    
    1,804,229
    
    
    
    1,925,911
    
    
    
    2,248,685
    
    
    
    3,157,197
    
    
    
    4,188,946
    
    
    
    383,603Preoperating expenses, net
    
    
    210,798
    
    
    
    171,240
    
    
    
    132,046
    
    
    
    98,340
    
    
    
    77,902
    
    
    
    7,134Intangible assets, net
    
    
    458,698
    
    
    
    408,463
    
    
    
    327,701
    
    
    
    334,489
    
    
    
    208,802
    
    
    
    19,121Labor obligations upon retirement
    
    
    
    
    
    
    
    
    
    
    15,977
    
    
    
    15,068
    
    
    
    17,650
    
    
    
    1,616Rent deposits and other assets
    
    
    250,437
    
    
    
    297,856
    
    
    
    470,905
    
    
    
    580,600
    
    
    
    618,524
    
    
    
    56,642Total assets
    
    
    2,901,726
    
    
    
    2,971,668
    
    
    
    3,411,377
    
    
    
    5,065,904
    
    
    
    8,014,100
    
    
    
    733,892Long-term liabilities
    
    
    2,375,840
    
    
    
    767,163
    
    
    
    953,927
    
    
    
    1,882,104
    
    
    
    2,380,424
    
    
    
    217,988Total liabilities
    
    
    2,598,756
    
    
    
    1,204,114
    
    
    
    1,485,455
    
    
    
    2,788,990
    
    
    
    2,983,261
    
    
    
    273,192Capital stock
    
    
    2,056,740
    
    
    
    2,700,151
    
    
    
    2,963,206
    
    
    
    3,327,482
    
    
    
    5,410,251
    
    
    
    495,444Additional paid-in capital
    
    
    1,722
    
    
    
    966,817
    
    
    
    237,114
    
    
    
    253,096
    
    
    
    888,056
    
    
    
    81,324Accumulated deficit
    
    
    (1,755,492
    )
    
    
    (1,899,414
    )
    
    
    (1,274,398
    )
    
    
    (1,303,664
    )
    
    
    (1,267,468
    )
    
    
    (116,068
    )Total shareholders equity
    
    
    302,970
    
    
    
    1,767,554
    
    
    
    1,925,922
    
    
    
    2,276,914
    
    
    
    5,030,839
    
    
    
    460,700Total number of shares
    
    
    176,013,680
    
    
    
    277,224,018
    
    
    
    277,224,018
    
    
    
    482,334,778
    
    
    
    789,818,829
    
    
    
    789,818,829U.S. GAAPLong-term liabilities
    
    
    2,000,960
    
    
    
    517,766
    
    
    
    756,921
    
    
    
    1,882,104
    
    
    
    2,380,424
    
    
    
    217,988Total Shareholders equity (deficit)
    
    
    (446,610
    )
    
    
    1,091,245
    
    
    
    1,276,860
    
    
    
    1,676,612
    
    
    
    4,555,341
    
    
    
    417,156Other Financial Data:Mexican GAAPCapital expenditures(4)
    
    
    147,120
    
    
    
    387,982
    
    
    
    482,669
    
    
    
    1,041,877
    
    
    
    1,248,407
    
    
    
    114,323Ratio of earnings to fixed charges(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.05
    
    
    
    1.51
    
    
    
    1.51Resources arising from (used in) operating
activities
    
    
    (55,291
    )
    
    
    298,753
    
    
    
    322,353
    
    
    
    87,898
    
    
    
    303,158
    
    
    
    27,762Resources derived from financing activities
    
    
    110,180
    
    
    
    107,390
    
    
    
    334,394
    
    
    
    1,452,052
    
    
    
    2,745,493
    
    
    
    251,419Resources used in investing activities
    
    
    (147,120
    )
    
    
    (387,982
    )
    
    
    (482,669
    )
    
    
    (1,041,877
    )
    
    
    (1,248,407
    )
    
    
    (114,323
    )U.S. GAAPCash (used in) provided by operating activities
    
    
    19,965
    
    
    
    156,994
    
    
    
    761,531
    
    
    
    (120,905
    )
    
    
    164,439
    
    
    
    15,059Cash provided by financing activities
    
    
    
    
    
    
    155,835
    
    
    
    103,205
    
    
    
    1,531,744
    
    
    
    2,916,477
    
    
    
    267,077Cash used in investing activities
    
    Ps.
    (76,342
    )
    
    Ps.
    (267,264
    )
    
    Ps.
    (470,451
    )
    
    Ps.
    (904,888
    )
    
    Ps.
    (1,245,081
    )
    
    U.S.$
    (114,018
    )Ratio of earnings to fixed charges(5)
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    1.6
    
    
    
    2.2
    
    
    
    2.2
 
 (1)
    
    Peso amounts were converted to U.S. dollars at the exchange rate of Ps.10.92 per
U.S.$1.00 reported by the Federal Reserve Bank of New York as its noon buying rate for pesos
on December 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
 3




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##### 



could be converted into U.S. dollars at the rate indicated, or at all.(2)
    
    Pursuant to Mexican GAAP, financial data for all periods in the financial statements have,
unless otherwise indicated, been restated in constant pesos as of December 31, 2007.
Restatement into December 31, 2007 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, 2007. The inflation index used in this annual
report for 2003 figures is 1.0398, for 2004 figures is 1.0519, for
2005 is 1.0333, for 2006 is 1.0405 and for 2007 is 1.0376.(3)
    
    Working capital is defined as current assets (excluding cash and cash equivalents and
restricted cash) less current liabilities (excluding short-term debt and current maturities of
long-term debt, which includes interest payable).(4)
    
    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.(5)
    
    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.415.0 million in 2003, Ps. 112.1 million in 2004 and
Ps.47.7 million in 2005. Under U.S. GAAP, the fixed charge coverage deficiency was Ps.429.1 million in 2003 and Ps.1,349.9 million in 2004.(6)
    
    As discussed further in note 21 of our consolidated financial statements, the company
has revised its presentation of earnings per share computed according to U.S. GAAP from
amounts reported previously to recognize the reduction of earnings available to the common
shareholder in 2006 for the fair value of a stock dividend paid to the preferred
shareholders in the form of the Companys common shares, and adjust the amount of earnings
available to the common shareholders for purposes of basic earnings per share as well as
the weighted average number of shares of common stock included in both the basic and
diluted per share computations in fiscal years 2003 through 2006 to account for the
participating rights of the preferred shareholders and the application of the if-converted
method in such prior periods.
 EXCHANGE RATES
  Noon Buying Rate(1)Period End
    
    
    Average(2)
    
    
    High
    
    
    Low2003
    
    Ps.
    11.24
    
    
    Ps.
    10.85
    
    
    Ps.
    11.41
    
    
    Ps.
    10.112004
    
    
    11.15
    
    
    
    11.31
    
    
    
    11.64
    
    
    
    10.812005
    
    
    10.63
    
    
    
    10.87
    
    
    
    11.41
    
    
    
    10.412006
    
    
    10.80
    
    
    
    10.90
    
    
    
    11.46
    
    
    
    10.432007
    
    
    10.92
    
    
    
    10.93
    
    
    
    11.27
    
    
    
    10.67November 2007
    
    
    10.90
    
    
    
    10.88
    
    
    
    11.00
    
    
    
    10.67December 2007
    
    
    10.92
    
    
    
    10.85
    
    
    
    10.92
    
    
    
    10.80January 2008
    
    
    10.82
    
    
    
    10.91
    
    
    
    10.97
    
    
    
    10.82February 2008
    
    
    10.73
    
    
    
    10.77
    
    
    
    10.82
    
    
    
    10.67March 2008
    
    
    10.63
    
    
    
    10.73
    
    
    
    10.85
    
    
    
    10.63April 2008
    
    
    10.51
    
    
    
    10.51
    
    
    
    10.60
    
    
    
    10.44May 2008
    
    
    10.31
    
    
    
    10.44
    
    
    
    10.57
    
    
    
    10.31June 2008
    
    
    10.39
    
    
    
    10.36
    
    
    
    10.44
    
    
    
    10.29
 
 (1)
    
    Source: Federal Reserve Bank of New York.(2)
    
    Represents the average rates for each period indicated, calculated by using the average of
the exchange rates on the last day of each month during the period.
   4




---



##### 



B. Capitalization and indebtedness
  
 C. Reasons for offer and use of proceeds
  
 D. Risk factors
 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.
  Because we have a history of losses and may continue to incur significant expenses, we cannot be
certain that we will achieve profitability.
  We may be unable to build out our network in a timely manner or without undue cost.
  
    
    municipal or regional political events or local rulings;
    
    our ability to obtain permits to use public rights of way;
    
    our ability to generate cash flow or to obtain future financing necessary for such
buildout;
    
    unforeseen delays, costs or impediments relating to the granting of municipal and
state permits for our
buildout;
    
    delays or disruptions resulting from physical damage, power loss, defective
equipment or the failure of third party suppliers or contractors to meet their
obligations in a timely and cost-effective manner; and
 
 5




---



##### 




    
    regulatory and political risks relating to Mexico, such as the revocation or
termination of our concessions, the temporary seizure or permanent expropriation of
assets, import and export controls, political instability, changes in the regulation of
telecommunications and any future restrictions or easing of restrictions on the
repatriation of profits or on foreign investment.
  The loss of key personnel could harm our business, results of operations and financial condition.
  We may not have sufficient personnel to grow as rapidly as we would like.
  If we have to pay Telmex local interconnection fees, we may not be able to provide services at
competitive rates.
  Our inability to successfully upgrade our accounting, billing, customer service and management
information systems as new technology becomes available could increase our churn rates, inhibit our
ability to attract new customers and result in decreased revenue and increased costs.
  6




---



##### 



Service interruptions due to natural disasters or unanticipated problems with our network
infrastructure could result in customer loss.
  We could be negatively affected by by-pass international traffic.
   Our telecommunications network infrastructure has several vulnerabilities and limitations.
  
    
    physical damage;
    
    power loss;
    
    capacity limitations;
    
    software defects as well as hardware and software obsolescence;
 7




---



##### 




    
    breaches of security, whether by computer virus, break-in or otherwise;
    
    failure to interconnect with carriers linking us with our customers;
    
    denial of access to our sites for failure to obtain required municipal or other
regulatory approvals; and
    
    other factors which may cause interruptions in service or reduced capacity for our
customers.
 Our results may be negatively impacted by high levels of churn.
  
    
    customer delinquency;
    
    our limited coverage area that restricts our ability to continue providing service
when a customer moves;
    
    our failure to meet service levels required by our customers;
    
    our failure to provide, efficiently or on competitive terms, other services demanded
by our customers; and
    
    promotional and pricing strategies of our competitors;
 Our substantial indebtedness could have a material adverse effect on our financial condition,
including our ability to fulfill our obligations under our senior notes due 2014 and our ability to
operate our business and implement our business plan.
  
    
    make it more difficult for us to satisfy our obligations with respect to our
indebtedness;
    
    require us to dedicate a substantial portion of our cash flow from operations to
debt service payments, reducing the funds available for working capital, capital
expenditures, acquisitions and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in the
telecommunications industry;
 8




---



##### 




    
    limit our ability to take advantage of opportunities for acquisitions and other
business combinations;
    
    place us at a competitive disadvantage compared to our less leveraged competitors;
    
    increase our vulnerability to both general and industry-specific adverse economic
conditions; and
    
    limit our ability to obtain additional financing or obtain it on commercially
reasonable terms, to fund future working capital, capital expenditures, acquisitions or
other general corporate requirements and increasing our cost of borrowing.
  The indenture governing our senior notes due 2014 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.
  
    
    incur additional indebtedness;
    
    pay dividends or make other distributions on our capital stock or repurchase our
capital stock or subordinated indebtedness;
    
    make investments or other specified restricted payments;
    
    create liens;
    
    enter into mergers, consolidations, sales of substantially all of our assets and
other forms of business combinations;
    
    enter into change of control transactions;
    
    sell assets and subsidiary stock; and
    
    enter into transactions with affiliates.
   Risks Relating to the Mexican Telecommunications Industry
 9




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##### 



The telecommunications industry in Mexico is increasingly competitive, which may result in lower
prices for telecommunications services, lower margins and/or a loss of market share.
  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:
    
    increased competition and focus by our competitors on increasing market share;
    
    recent technological advances that permit substantial increases in the transmission
capacity of both new and existing fiber-optic networks, resulting in long-distance
overcapacity;
    
    increased participation of traditional fixed-line competitors;
    
    the entrance of cable television operators into certain markets where we currently
offer service; and
    
    the entrance of new competitors, such as broadcasting companies or the Comisión
Federal de Electricidad.
  If the Mexican government grants more concessions, the value of our concessions could be severely
impaired.
  We could lose our concessions if we do not fully comply with their terms or if we are not able to
renew our existing concessions.
  10




---



##### 



Fraudulent use of telecommunications networks increases our expenses.
  Rapid technological advances may require us to make significant capital expenditures to maintain
and improve the competitiveness of our service offerings.
  Under Mexican law, our concessions could be expropriated or temporarily seized.
 (Ley Federal de
Telecomunicaciones)
 
    
    rights and obligations granted under the concessions to install, operate and develop
public telecommunications networks may only be assigned with the prior authorization
of the Mexican Ministry of Communications and Transportation;
    
    neither the concession nor the rights thereunder or the related assets may be
assigned, pledged, mortgaged or sold to any government or country; and
 11




---



##### 




    
    the Mexican government (through the Mexican Ministry of Communications and
Transportation) may permanently expropriate any telecommunications concession and claim
any related asset for reason of public interest or may temporarily seize the assets
related to the concessions in the event of natural disasters, war, significant public
disturbance or threats to internal peace or for other reasons relating to economic or
public order.
   Long-distance Calling Party Pays system could result in a loss of customer traffic and revenue.
  Foreign ownership restrictions may limit our ability to raise equity capital.
  We operate in a highly regulated industry which is currently experiencing broad-based regulatory
changes.
   12




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##### 



(Ley Federal
de Competencia Económica)
 Risks Relating to Mexico
 Political conditions in Mexico may significantly affect our business, results of operations and
financial condition.
  Political situation
 (Tribunal Federal Electoral del Poder Judicial de la Federación) Partido Acción Nacional Partido de la Revolución Democrática Partido Acción Nacional
 Legal and regulatory situation
 Ley Federal de Radio y Televisión (Secretaría de Comunicaciones y Transportes)
 If Mexico experiences future economic crises, our business could be affected negatively.
   13




---



##### 



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.
  Peso devaluation relative to the U.S. dollar could make it more difficult for us to service our
indebtedness and could decrease the value of our securities.
   Exchange rate control rules enacted in the future could make it more difficult for us to service
our U.S. dollar-denominated debt, raise capital outside of Mexico and make capital expenditures.
  The price of our securities could decrease due to events in other countries, especially the United
States and emerging market countries.
  14




---



##### 



Less information about our Company may be publicly available because we are subject to different
corporate disclosure and accounting standards than U.S. companies.
  You may suffer a U.S. dollar shortfall if you obtain a judgment against us.
 (Banco de
México) (Diario Oficial de la Federación)
 If we were to be declared bankrupt, holders of our senior notes due 2014 may find it difficult to
collect payment on the notes.
 (Ley de Concursos Mercantiles) (en quiebra) (concurso mercantil) Unidades de Inversión
 High inflation rates in Mexico may decrease demand for our services while increasing our costs.
  
    
    inflation can adversely affect consumer purchasing power, thereby adversely
affecting consumer demand for our services and products; and
    
    to the extent inflation exceeds our price increases, our prices and revenues will be
adversely affected in real terms.
 High interest rates in Mexico could increase our financing costs.
 15




---



##### 



Minority shareholders may be less able to enforce their rights against us, our directors, or our
controlling shareholders in Mexico.
 (Ley del Mercado de Valores)
 Investors may experience difficulties in enforcing civil liabilities against us or our directors,
officers and controlling persons.
 órden
público
 
 ITEM
4. INFORMATION ON THE COMPANY
 
 A. History and development of the Company
 sociedad anónima bursátil de capital variable
    16




---



##### 



,
    
 B. Business overview
 Industry Overview
    Market Liberalization
  17




---



##### 



(Secretaría de Comunicaciones y Transportes),
 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
    Local Telephony Market
   18




---



##### 




    
    450 MHz, 1.9 GHz (Personal Communications Services) and 3.4-3.7 GHz (fixed wireless
local loop) nationwide and regional frequency bands;
    
    7, 15, 23 and 38 GHz frequency bands for nationwide point-to-point microwave
transmission links; and
    
    10.5 GHz frequency band for regional point-to-multipoint microwave transmission
service.
   Long-Distance Telephony Market
   
    
    Axtel, S.A.B. de C.V.;
    
    Alestra, S. de R.L. de C.V.;
    
    Bestel, S.A. de C.V.;
    
    Iusatel, S.A. de C.V.; and
    
    Marcatel, S.A. de C.V.
  Mobile Telephony Market
  
    
    Telcel, S.A. de C.V. with nationwide Personal Communications Services and cellular
concessions;
 19




---



##### 




    
    Movistar (Telefónica Móviles) with nationwide Personal Communications Services and
regional cellular (regions 1 through 4) concessions;
    
    Grupo Iusacell, S.A.B. de C.V. with regional cellular (regions 5 through 9) and
nationwide Personal Communications Services concessions;
    
    Unefón, S.A.B. de C.V., an affiliate of Grupo Iusacell, S.A.B. de C.V., with a
nationwide Personal Communications Services concession; and
    
    Nextel de México, S.A. de C.V. (NII Holdings, Inc.) through enhanced specialized
mobile radio licenses.
   Our Company
  .
   20




---



##### 



Competitive Strengths
  Wide Range of Service Offerings .
 21




---



##### 



History of High Penetration Rates.
 Cost Efficient, Flexible, Reliable Technology.
 Valuable Last-Mile Ownership.
 Recognized Brand Name and Customer Perception for Quality Services .
 History of Developing Strategic Alliances .
 22




---



##### 



Strategy
  Increase Penetration of Niche Markets with Unmet Demand for Telecommunication Services. (Instituto Nacional de Estadística, Geografía e Informática)
 Seize Wireline Opportunity Created by Highly Priced Wireless Offering .
 Expand Our Network on a Disciplined Demand-Driven, Modular Basis.
 Enhance Residential Penetration Rates and Average Revenue per User through Bundling .
 Maintain Our Service Quality Differentiation and Focus.
 23




---



##### 



Overview of Our Services
    Our Products
   
    
    LineaMax Residencial.This service provides a high-quality wireline telephone line
with value-added features available, including voice mail, call waiting, call
forwarding, three-way calling, call blocking, speed dialing and unlisted numbers.
    
    Larga Distancia Max.This product provides domestic and international long-distance
services to those of our local telephony customers who require long-distance service.
Approximately 97% of our local telephony customers also subscribe to Larga Distancia
Max. We do not offer our long-distance service separately from our local telephony
service.
    
    CentralMax.This service provides customers in residential developments with all of
the functions of a private branch exchange using centrex technology (central
functionality for simulating a private branch exchange), without having to acquire and
maintain equipment. It allows customers to communicate with the common areas of the
development with four-digit internal calling. The features offered under this product
include call waiting, call forwarding, three-way calling, direct inward dialing, direct
outward dialing, intercom dialing, call transfer, speed dialing, call hold, call pick
up, outgoing call blocking and distinctive ringing.
    
    I-line.This is our Voice over Internet Protocol service, which uses an
analog-to-digital telephone adapter to allow any conventional telephone to access the
telephone network through any broadband connection around the world.
 24




---



##### 




    
    Internet Max.This service uses a traditional telephone line and modem to provide
dial-up Internet access at speeds of up to 56 Kbps. We provide this service to
customers, regardless of whether they have a Maxcom telephone line.
    
    SpeediMax(ADSL). This is our broadband Internet access service with speeds of 128,
256 and 512 Kbps and also 1 and 2 Mbps using Asymmetric Digital Subscriber Line
(ADSL) transmission technology over ordinary telephone lines.
    
    AsistelMax.This service provides basic telephone medical and home assistance to
our residential customers in case of emergency.
    
    Paid TV services.This service provides digital television content to our
residential customers over our copper network using Internet Protocol.
    
    MaxcomCel:This is our mobile communication service. Which is provided through a
cellular network. This postpaid service is only available for our existing customers.
  
    
    LineaMax Comercial.This service is identical to LineaMax Residencial, except that
it also includes multi-line hunting.
    
    CentralMax.This service provides business customers with all of the functions of a
private branch exchange using centrex technology, without having to acquire and
maintain equipment. The features offered under this product include four-digit
internal calling, call waiting, call forwarding, three-way calling, direct inward
dialing, direct outward dialing, intercom dialing, call transfer, speed dialing, call
hold, call pick up, outgoing call blocking, single digit access to attendant and
distinctive ringing. Optional solutions include voice mail, music-on-hold, multi-line
hunting and operator services.
    
    TroncalMax Digital.This service provides digital trunks for business customers
that need highly reliable access to and from the public telephone network through their
existing Private Branch Exchange. This service is sold in groups of 10, 20 or 30
trunks. The groups can be configured with direct inward dial, direct outward dial,
caller identification or main telephone number assignments.
    
    TroncalMax Analógica.This service provides business customers with connectivity to
their analog private branch exchange or key systems. The features available with this
product are multi-line hunting, caller identification and call barring.
    
    MaxcomCel:This is our mobile communication service. Which is provided through a
cellular network. This postpaid service is only available for our existing customers.
    
    SpeediMax. This is our broadband Internet access service for small businesses with
speeds of 128, 256 and 512 Kbps and also 1 and 2 Mbps using Asymmetric Digital
Subscriber Line transmission technology over ordinary telephone lines. An Asymmetric
Digital Subscriber Line provides a secure, dedicated link to the Internet or a
companys internal data network.
    
    1-800 Numbers.This service is available to our customers interested in receiving
toll-free calls into their call centers or businesses.
    
    Dedicated Internet Access.This service offers Internet access at high speed within
a clear channel access to the Internet backbone.
    
    Digital private lines.This service provides highly reliable dedicated circuits
between two or more physical locations.
    
    Hosted Private Branch Exchange.This service provides our business customers with
all of the functions of an Internet Protocol Private Branch Exchange using Voice over
Internet Protocol
 25




---



##### 



technology, without having to acquire and maintain expensive equipment. The features
offered under this service include those of CentralMax as well as other Internet
Protocol enhanced services such as web portal setup, click to dial, hosted directory
and Microsoft Outlook integration.
    
    I-line.This is our Voice over Internet Protocol service, which uses an
analog-to-digital telephone adapter to allow any conventional telephone to access the
telephone network through a customers broadband connection. We market this service to
customers who make and receive a significant volume of international and domestic
long-distance calls. This service includes additional voice features such as call
waiting, caller identification and voice mail.
    
    E-Security.This service provides managed security including perimetral anti-virus,
content filter and spyware solutions. Maxcom supplies all of the software and hardware
equipment as an integrated solution for our customers.
    
    SOSMax.This service provides preventive and corrective maintenance to our
customers IT equipment.
    
    Audio Conference.This service provides our business customers with
operator-assisted and non-attendant teleconferencing services, with value-added
features including recording of the conference, sound options, warning entry, password
and e-mail notification.
  Pricing
  Income Distribution
  Year Ended December 31Segments*
    
    2007
    
    
    2006
    
    
    2005(In millions)Residential
    
    Ps.
    897.9
    
    
    Ps.
    685.5    
    
    Ps.
    595.0Commercial
    
    
    648.2
    
    
    
    495.4
    
    
    
    400.5Public Telephony
    
    
    386.4
    
    
    
    253.1
    
    
    
    64.2Wholesale
    
    
    376.0
    
    
    
    262.4
    
    
    
    149.6Other Revenue
    
    
    37.2
    
    
    
    45.3
    
    
    
    32.8Total Revenues
    
    Ps.
    2,345.7
    
    
    Ps.
    1,741.7
    
    
    Ps.
    1,242.1
 
 *
    
    The above segments are comprised of homogeneous customers. 26




---



##### 



Metropolitan
    
    
    CentralServices
    
    Area
    
    
    South
    
    
    North
    
    
    Total(In millions)Local
    
    Ps.
    1,398.7
    
    
    Ps.
    517.2
    
    
    
    
    
    
    Ps.
    1,915.9Long Distance
    
    
    171.3
    
    
    
    175.2
    
    
    Ps.
    10.3
    
    
    
    356.8Rent of dedicated links
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    0.3Sale of equipment to customers
    
    
    10.7
    
    
    
    3.7
    
    
    
    
    
    
    
    14.4Capacity Leasing
    
    
    58.3
    
    
    
    
    
    
    
    
    
    
    
    58.3Total Revenues
    
    Ps.
    1,639.2
    
    
    Ps.
    696.2
    
    
    Ps.
    10.3
    
    
    Ps.
    2,345.7
 Metropolitan
    
    
    CentralServices
    
    Area
    
    
    South
    
    
    North
    
    
    Total(In millions)Local
    
    Ps.
    934.5
    
    
    Ps.
    385.3
    
    
    
    
    
    
    Ps.
    1,319.8Long Distance
    
    
    220.1
    
    
    
    121.6
    
    
    Ps.
    28.4
    
    
    
    370.1Rent of dedicated links
    
    
    0.3
    
    
    
    0.2
    
    
    
    
    
    
    
    0.5Sale of equipment to customers
    
    
    6.1
    
    
    
    8.4
    
    
    
    
    
    
    
    14.5Capacity Leasing
    
    Ps.
    36.8
    
    
    
    
    
    
    
    
    
    
    
    36.8Total Revenues
    
    Ps.
    1,197.8
    
    
    Ps.
    515.5
    
    
    Ps.
    28.4
    
    
    Ps.
    1,741.7
 Metropolitan
    
    
    CentralServices
    
    Area
    
    
    South
    
    
    North
    
    
    Total(In millions)Local
    
    Ps.
    502.7
    
    
    Ps.
    327.7
    
    
    Ps.
    
    
    
    Ps.
    830.4Long Distance
    
    
    205.9
    
    
    
    173.9
    
    
    
    
    
    
    
    379.8Rent of dedicated links
    
    
    0.4
    
    
    
    0.5
    
    
    
    
    
    
    
    0.9Sale of equipment to customers
    
    
    2.9
    
    
    
    3.2
    
    
    
    
    
    
    
    6.1Capacity Leasing
    
    
    24.1
    
    
    
    
    
    
    
    
    
    
    
    24.1Other
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Total Revenues
    
    Ps.
    736.8
    
    
    Ps.
    505.3
    
    
    Ps.
    
    
    
    Ps.
    1,242.1
 Our Markets
 Concession Areas
   27




---



##### 



Clusters and Single Sites
   
    
    Identify clusters through market research. Our market research is designed to
identify residential customers and small- and medium-sized businesses. Once we
identify potential customers within the clusters, based on the marketing sales forecast
we design the deployment of the access network to cover them. We perform a return on
investment and profitability analysis for each cluster to assure that the investment
made in such cluster meets our return benchmarks.
    
    Deploy clusters through the implementation of a sales plan for each cluster based on
our network deployment schedule. We commence promoting our services at the same time
we build our network. These coordinated and parallel efforts help reduce the time
between network deployment and revenue generation.
    
    Fill in clusters by offering our services to all customers within the cluster.
Marketing efforts are focused on achieving the highest penetration within our clusters.
  Our Network
 28




---



##### 



Buildout Strategy
    Network Backbone
     Last-mile Connectivity
  29




---



##### 



Comisión Federal de Electricidad Compañía de Luz y Fuerza del Centro
  Switching
    Operational support systems
   
    
    offer a flexible, large selection of services;
    
    provide tailored service packages;
 30




---



##### 




    
    quickly introduce products and services;
    
    deliver near real-time activation and disconnection;
    
    deliver a high quality of service;
    
    minimize activation errors; and
    
    provide accurate and timely billing services.
  
    
    Spanish language support for invoices and documentation;
    
    a high degree of integration among all operational support systems components;
    
    flow-through of information, provisioning and service activation;
    
    capabilities to monitor, manage and resolve network problems;
    
    allowance for growth on a modular scalable basis; and
    
    support of administrative operations for financial controls.
 ,
    Strategic Alliances
 31




---



##### 



Megacable
   Multioperadora de Servicios (MOS)
   Alcatel Internet Protocol Television Supply Agreement
  Marketing and Sales
 General
  Sales and Distribution Channels
   32




---



##### 



Customer Service
  Centralized Call Center.
 Walk-in Center.
 Centralized Trouble-Shooting Center.
  Credit, Billing and Collection
    33




---



##### 



Competition
    Telmex
  Other Competitors
   34




---



##### 



Market Liberalization
 (Comisión Federal de Electricidad)
 35




---



##### 



Employees
 (Sindicato Nacional de Trabajadores de Telecomunicaciones, Telefonía,
Comunicaciones, Cibernética, Productos Eléctricos, Electrónicos, Similares y Conexos de la
República Mexicana)
 Facilities
   Legal Matters and Administrative Proceedings
  36




---



##### 



Mexican Federal Power Commission (Comisión Federal de Electricidad) Litigation
   Lucent Technologies Claim
 (prescripción)
 Telereunións Tax Audit for the Year 2004
 (crédito fiscal)
 REGULATION
 Overview
 (Ley Federal de Telecomunicaciones) (Ley de Vías Generales de Comunicación) (Reglamento de Telecomunicaciones)
  37




---



##### 




    
    enacting regulations and technical standards for the telecommunications industry;
    
    ensuring that holders fulfill the terms of their concessions and permits;
    
    suspending operators without concessions;
    
    resolving interconnection controversies between competitors; and
    
    maintaining a registry of applicable rates.
  (fianzas)
 Concessions and Permits
  38




---



##### 




    
    the type and technical specifications of the network, system or services that may be
provided;
    
    the allocated spectrum frequencies, if applicable;
    
    the geographical region in which the holder of the concession may provide the
service;
    
    the required capital expenditure program;
    
    the term during which such service may be provided;
    
    the payment, where applicable, required to be made to acquire the concession,
including, where applicable, the participation of the Mexican government in the
revenues of the holder of the concession;
    
    the amount of the performance bond; and
    
    rights granted to and obligations imposed on the concession holder.
  Ownership Restrictions
 (Ley Federal
de Inversión Extranjera
 
    
    Mexican individuals; and
    
    Mexican corporations in which non-Mexicans own 49% or less of the full voting stock
and that are not otherwise controlled by non-Mexicans, except in the case of
concessions for cellular and personal communications services, where foreign investment
participation may exceed 49% of the voting stock with prior approval of the Mexican
Foreign Investment Bureau of the Mexican Ministry of Economy (Secretaría de Economía).
 (certificados de participación ordinarios)
 39




---



##### 



Transfer
  Termination
  
    
    expiration of its term;
    
    resignation by the concession holder or the permit holder;
    
    revocation; or
    
    dissolution or bankruptcy of the concession holder or the permit holder.
  
    
    failure to exercise the rights of the concession within 180 days of the grant;
    
    failure to provide interconnection services to other holders of telecommunications
concessions and permits without reason;
    
    loss of the concession or permit holders Mexican nationality;
    
    unauthorized assignment, transfer or encumbrance of the concession or permit;
    
    unauthorized interruption of service;
    
    taking any action that impairs the rights of other concessionaires or permit
holders;
    
    failure to comply with the obligations or conditions specified in the concession or
permit (including making any necessary investments and capital expenditures); and
    
    failure to pay to the Mexican government its fee for the concession or, where
applicable, its participation in the revenues of the holder of the concession.
  Temporary Seizure
  40




---



##### 



Expropriation
   Rates for Telecommunications Services
  (Comisión Federal de Competencia)
 Our Concessions
  Local Telephony
   
    
    basic local telephony;
    
    the sale or lease of network capacity for the generation, transmission or reception
of signs, signals, writings, images, voice, sounds or other information of any nature;
 41




---



##### 




    
    the purchase and lease of network capacity from other carriers, including the lease
of digital circuits;
    
    value-added services;
    
    operator services;
    
    data, video, audio and video conference services, except for cable or other
restricted television, continuous music or digital audio;
    
    credit or debit telephone cards; and
    
    public telephony.
   Long-distance
   
    
    the carrying of switched traffic between two different local calling areas that
requires the use of a dialing prefix for its routing;
    
    the sale or lease of network capacity for the generation, transmission or reception
of signs, signals, writings, images, voice, sounds or other information of any nature;
    
    the purchase and lease of network capacity from other carriers and domestic and
international long-distance telephony.
  
    
    those which require a concession for frequency bands of the radio electric spectrum
for specific uses;
    
    those which require a concession to occupy and exploit geostationary orbital
positions and satellite orbits assigned to Mexico;
    
    those which require a concession to operate radio or television broadcasting
systems; and
    
    cable or other restricted television.
 
 42




---



##### 



Microwave Transmissions
 Point-to-point
  
    
    two consecutive frequency segments in the 15 GHz band, with a 56 MHz bandwidth;
    
    three consecutive frequency segments in the 23 GHz band, with a 56 MHz bandwidth;
and
    
    two consecutive frequency segments in the 23 GHz band, with a 100 MHz bandwidth.
  Point-to-multipoint
  43




---



##### 



Cable Television
   Mobile Network Operation
   Material Ongoing Obligations Relating to Our Concessions
  
    
    File information related to each concessionaires shareholders on the first quarter
of every year;
    
    Prepare a monthly report on any failures and interruptions of the services;
    
    Prepare quarterly quality of services reports which shall be filed before the
Mexican Ministry of
 44




---



##### 



Communications and Transportation if required;
    
    Prepare commercial practices guidelines which shall be available for review by any
third party;
    
    Prepare an emergency response plan which shall be filed before the Mexican Ministry
of Communications and Transportation during the following six months after the relevant
concession granting date;
    
    Notify the Mexican Ministry of Communications and Transportation of any relevant
event that could affect the provision of the services or the performance of the
network;
    
    Register its service fees with the Mexican Federal Telecommunications Commission
each time they are modified;
    
    File within the following 150 days after the last day of the preceding fiscal year
(i) the corresponding audited financial statements, (ii) a description of the principal
assets of the network, and (iii) a report on the employee training and teaching
programs that are being implemented;
    
    Prepare a quarterly report on the status of the expansion and coverage of the
network;
    
    Make available the internal statistics on traffic, routing and performance of the
network;
    
    Grant a surety bond in favor of the Federal Government to guarantee its obligations
under the concession;
    
    File with the Mexican Ministry of Communications and Transportation within the
following 60 days after the concession granting date a plan describing the coverage and
extension of the network; and
    
    File with the Mexican Ministry of Communications and Transportation the form of
agreement to be entered with the concessionaires subscribers.
  Interconnection
  Local Interconnection
   45




---



##### 



Mobile Interconnection
  Long-distance Interconnection
   Mexican Ministry of Communications and Transportation Approvals
 (Comisión Federal de Competencia)
 46




---



##### 



Antitrust Approvals
   Municipal and Other Regulatory Approvals
  
 C. Organizational structure
  47




---



##### 



D. Property, plant and equipment
     48




---



##### 



ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 All peso amounts discussed in this annual report are presented in constant December 31, 2007
pesos in accordance with Mexican GAAP, except as otherwise indicated. You should read the following
discussion and analysis in conjunction with the consolidated financial statements included
elsewhere in this annual report. The U.S. dollar translations provided in this annual report are
solely for the convenience of the reader and are, unless otherwise indicated, calculated utilizing
the noon buying rate at December 31, 2007, which was Ps.10.92 per U.S.$1.00 as reported by the
Federal Reserve Bank of New York. Sums may not add due to rounding.
  Normas de Información Financiera Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera, A.C.
  Recent Developments
 Reclassification of Capital Stock and 2007 Initial Public Offering
 (Certificados de Participación
Ordinarios),
 49




---



##### 



Acquisition of Sierra Comunicaciones Globales
    Private Placement of Senior Notes due 2014
  Currency Swap Transaction
  Capital Stock Increase and Acquisition of Grupo Telereunión
  50




---



##### 



(Capital Contable)
  
 A. Operating Results
 Devaluation and Inflation
  Gross InternationalMexican GDP
    
    
    Reserves as of theInflation
    
    
    Average
    
    
    Annual Growth
    
    
    End of Each YearYear Ended December 31
    
    Rate
    
    
    28-day Cetes
    
    
    Rate
    
    
    (Billion)2003
    
    
    4.0
    %
    
    
    6.2
    %
    
    
    1.4
    %
    
    U.S.$
    59.02004
    
    
    5.2
    %
    
    
    6.8
    %
    
    
    4.2
    %
    
    U.S.$
    64.22005
    
    
    3.3
    %
    
    
    9.2
    %
    
    
    3.0
    %
    
    U.S.$
    74.12006
    
    
    4.1
    %
    
    
    7.2
    %
    
    
    4.8
    %
    
    U.S.$
    76.32007
    
    
    3.8
    %
    
    
    7.2
    %
    
    
    3.3
    %
    
    U.S.$
    87.2
 
   
    
    increasing the peso-carrying costs of our U.S. dollar-denominated debt and capital
expenditure requirements;
    
    decreasing the purchasing power of Mexican consumers, resulting in a decrease in
demand for
 51




---



##### 



telephony services; and
    
    resulting in our inability, due to competitive pressures, to increase our prices in
response to such inflation.
  Impact of Foreign Currency Fluctuations
        Flat Rate Business Tax ( Impuesto Empresarial a Tasa Única )
  52




---



##### 



Capitalization of Pre-operating Expenses
   Revenues
   
    
    installation charges of voice lines;
    
    monthly fees for the rental of voice lines, which depending on the product, include
a certain number of free local calls;
    
    usage charges of voice lines, which can include a combination of local calls above
those already included in the monthly fees, long distance minutes, as well as minutes
to mobile numbers under the Long Distance Calling Party Pays system; and
    
    charges relating to value-added services such as voice mail, call waiting, call
forwarding, three-way calling and caller identification;
    
    public telephony services;
    
    mobile services;
    
    revenues derived from our strategic and commercial alliances with cable television
operators, which are offset by the corresponding amount we are charged by the cable
television operator; and
    
    the sale of telephone sets.Revenues from data services include:
 53




---



##### 




    
    Internet dial-up access;
    
    asymmetric digital subscriber line;
    
    dedicated Internet access;
    
    managed services;
    
    digital private lines; and
    
    lease of backbone capacity.
   Average Revenue Per User (ARPU)
   Revenue
Generating Units
   Operating Costs and Expenses
  
    
    network operating costs, which include: (i) technical expenses (comprised of
electric power, site leases and maintenance of telecommunications equipment); (ii)
installation expenses, when applicable; and (iii) disconnection expenses;
    
    selling, general and administrative expenses, which primarily include: (i) salaries,
wages and benefits; (ii) fees, which are primarily related to consulting, legal and
accounting services; (iii) leasing costs, which are primarily related to our
headquarters, warehouses and other facilities; (iv) marketing expenses, which are
primarily related to the implementation of our branding campaign, general advertising
and promotions; and (v) bad debt (related to past due accounts receivable); and
    
    depreciation and amortization mainly related to pre-operating expenses, frequency
rights, telephone network systems and equipment and intangibles.
  54




---



##### 



Comprehensive Cost of Financing
  
    
    net interest expense and interest income;
    
    net foreign exchange gains or losses; and
    
    net gains or losses on monetary position.
 Critical Accounting Policies
 Applications of Critical Accounting Policies and Estimates
   
    
    it requires us to make assumptions because information was not available at the time
or it included matters that were highly uncertain at the time we were making the
estimate; and
    
    changes in the estimate or different estimates that we could have selected would
have had a material impact on our financial condition or results of operations.
 Fair Value of Stock Options and Warrants
  Allowance of Doubtful Accounts Receivable
  55




---



##### 



Revenue Recognition
       56




---



##### 



Installation Revenues and Costs
  Valuation of Long-Lived Assets
    57




---



##### 



Deferred Taxes
    Year of Loss
    
    Amount
    
    
    Year of Maturity(in thousands of pesos)1999
    
    Ps.
    16,467
    
    
    
    20092000
    
    
    73,832
    
    
    
    20102001
    
    
    54,151
    
    
    
    20112002
    
    
    254,521
    
    
    
    20122003
    
    
    31,555
    
    
    
    20132004
    
    
    72,304
    
    
    
    20142005
    
    
    101,718
    
    
    
    20152006
    
    
    29,410
    
    
    
    20162007
    
    
    247,719
    
    
    
    2017Total
    
    Ps.
    881,677
  Results of Operations
  58




---



##### 



Year Ended December 312007
    
    
    2006
    
    
    2005Net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating cost and expenses:Network operating costs
    
    
    41.6
    
    
    
    38.9
    
    
    
    33.4Selling, general and administrative expenses
    
    
    30.9
    
    
    
    34.9
    
    
    
    40.7Depreciation and amortization
    
    
    15.8
    
    
    
    17.3
    
    
    
    24.5Total operating cost and expenses
    
    
    88.3
    
    
    
    91.0
    
    
    
    98.4Operating profit (loss)
    
    
    11.7
    
    
    
    9.0
    
    
    
    1.6Other expenses
    
    
    (0.5
    )
    
    
    (1.1
    )
    
    
    (0.6
    )Comprehensive (income)/cost of financing
    
    
    (5.4
    )
    
    
    (6.2
    )
    
    
    (4.8
    )Income tax
    
    
    (4.1
    )
    
    
    (3.4
    )
    
    
    (2.3
    )Net loss for the year
    
    
    1.5
    %
    
    
    (1.7
    )%
    
    
    (6.2
    )%
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Net revenues
  
    
    Residential revenues represented 38.3% of total revenues during 2007, compared with
39.4% in the previous year of 2006. Revenues in the residential business reached Ps.
897.9 million, an increase of 31.0% in comparison to Ps. 685.5 million in 2006. The
increase was mainly driven by the introduction of mobile services, residential Paid TV
RGUs, followed by data and voice in comparison to 2006.
    
    Commercial revenues represented 27.6% of total revenues during 2007, compared with
28.4% in 2006. Revenues in the commercial business totaled Ps. 648.2 million, an
increase of 30.8% in comparison to Ps. 495.4 million in the year 2006. This increase in
revenues was mainly attributed to the higher number of RGUs from other services, mobile
services, voice lines and data services in comparison to 2006.
    
    Public Telephony represented 16.5% of total revenues during 2007 in comparison with
14.5% in 2006. Revenues in this segment totaled Ps. 386.4 million, an increase of 52.6%
in compared to Ps. 253.1 million in 2006. The growth in the public telephony business
was primarily driven by the increase in number of public telephones, which grew 48.1%.
    
    In 2007, Wholesale revenues totaled Ps. 376.0 million, an increase of 43.4% or Ps.
113.6 million in comparison to Ps.262.4 million in the same period in 2006. This
year-over-year increase in the Wholesale business was mainly driven by the increase in
the long distance termination business lines in service.
    
    Revenue from other services accounted for 1.6% or Ps. 37.2 million of total revenues
in 2007, a decrease from the Ps. 45.3 million recorded in the same period last year.
Other revenues are primarily comprised of lease of microwave frequencies and CPE sales.
 59




---



##### 



Year Ended December 312007
    
    
    2006
    
    
    %(In millions)Residential
    
    Ps.
    897.9
    
    
    Ps.
    685.5
    
    
    
    31.0
    %Commercial
    
    
    648.2
    
    
    
    495.4
    
    
    
    30.8
    %Public Telephony
    
    
    386.4
    
    
    
    253.1
    
    
    
    52.6
    %Wholesale
    
    
    376.0
    
    
    
    262.4
    
    
    
    43.4
    %Other Revenue
    
    
    37.2
    
    
    
    45.3
    
    
    
    (17.9
    %)Total revenues
    
    Ps.
    2,345.7
    
    
    Ps.
    1,741.7
    
    
    
    34.7
    %
  ARPU2007
    
    
    2006
    
    
    %(In U.S. dollars)CompanyMonthly charges
    
    
    $15.7
    
    
    
    $15.5
    
    
    
    1.3
    %Usage
    
    
    29.0
    
    
    
    24.9
    
    
    
    16.5
    %Subtotal
    
    
    44.7
    
    
    
    40.4
    
    
    
    10.6
    %Non-recurring
    
    
    2.3
    
    
    
    2.4
    
    
    
    (4.2
    )%Total company
    
    
    $47.0
    
    
    
    $42.8
    
    
    
    9.8
    %
  Revenue Generating Units
   At December 312007
    
    
    2006
    
    
    %RGUs:Residential
    
    
    242,888
    
    
    
    201,911
    
    
    
    20.3
    %Commercial
    
    
    70,749
    
    
    
    55,922
    
    
    
    26.5
    %Public Telephony
    
    
    24,910
    
    
    
    16,815
    
    
    
    48.1
    %Wholesale lines
    
    
    22,395
    
    
    
    9,840
    
    
    
    127.6
    %Total lines
    
    
    360,942
    
    
    
    284,488
    
    
    
    26.9
    %
 Operating Costs and Expenses
  
    
    a Ps.275.8 million, or 50.5%, increase in network operating services resulting
mainly from:
 §
    
    a Ps.89.3 million higher operational cost of public telephony services
due to a 48.1% increase in lines in service;§
    
    a Ps.84.7 million increase in long distance interconnection costs as a
result of increased long distance traffic related to the 43.4% increase in
the wholesale business;
 60




---



##### 



§
    
    a Ps.60.1 million increase in local-to-mobile interconnection costs
associated with a significant increase in local-to-mobile traffic due to a
26.9% increase in overall RGU business;§
    
    a Ps.35.5 million increase in costs related to the lease of ports and
circuits required for our backbone and last mile connectivity as a result
of our network expansion; and§
    
    a Ps.6.2 million increase in other cost related to our paid TV content,
internet services, and CATV network cost, among others.
 
    
    a Ps.23.1 million, or 20.3%, increase in technical expenses primarily due to:
 §
    
    a Ps.26.0 million increase in maintenance costs as a result of an
increasing telephone network; and§
    
    a Ps.5.8 million increase in the cost associated with power and
electricity services.
  
    
    a Ps.1.1 million, or 6.3%, increase in installation expenses were mainly due to a
21.6% increase in RGUs installed in the residential and commercial division.
    
    a Ps.69.8 million, or 23.2%, increase in depreciation and amortization expenses
mainly related to:
 §
    
    a Ps.15.4 million increase due to new capital
investments;§
    
    a Ps.16.6 million increase due to a reduction in the useful life for
public telephony; and§
    
    a Ps.37.8 million increase due to Mexican GAAP inflation recognition
adjustments in accordance with Statement B-10 of the Mexicom
Institute of Public Accountants.
 
    
    Selling, general and administrative expenses increased Ps.90.8 million, or 14.9%
primarily due to:
 §
    
    a Ps.108.8 million increase in salaries, wages and benefits related to
an increasing headcount including the Ps.3.3 million paid for employee
profit sharing;§
    
    a  Ps.16.2 million increase in bad debt due to an increase in sales
volume and customers;§
    
    a  Ps.7.3 million increase in marketing, promotional and advertising
expenses; and
  Comprehensive Cost of Financing
   Year Ended December 312007
    
    
    2006
    
    
    %(In millions)Interest expense  Net
    
    Ps.
    (177.1
    )
    
    Ps.
    (127.3
    )
    
    
    39.2
    %Exchange gain (loss)  Net
    
    
    25.2
    
    
    
    (1.4
    )
    
    
    (1,878.6
    )%Gain on monetary position
    
    
    25.2
    
    
    
    21.5
    
    
    
    17.3
    %Total comprehensive cost of financing
    
    Ps.
    (126.6
    )
    
    Ps.
    (107.2
    )
    
    
    18.2
    %
 61




---



##### 




    
    a Ps.49.7 million, or 39.2%, increase in interest paid as a result of a higher
average outstanding balance of debt during 2007 compared to 2006;
    
    a Ps.26.6 million exchange loss on our dollar-denominated debt due to the effect of
peso appreciation of 0.1% during 2007 compared with 1.5% peso depreciation during 2006;
and
    
    a Ps.3.7 million, or 17.3%, increase in gain on net monetary position, as a result
of the effect on higher liabilities during 2007 when compared to 2006.
 Tax Provisions
   Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Net revenues
  
    
    a Ps.90.5 million, or 15.2% increase in residential revenues from Ps.595.0 million
in 2005 to Ps.685.5 million in 2006, that we attribute to a 24.5% increase in the
average RGUs in service during the period as we continued the buildout of our network
infrastructure;
    
    a Ps.94.9 million, or 23.7% increase in commercial revenues from Ps.400.5 million in
2005 to Ps.495.4 million in 2006, that we attribute to a 43.9% increase in the average
RGUs in service and an increased sales of backbone capacity;
    
    a Ps.188.9 million, or 294.2% increase in public telephony revenues from
Ps.64.2 million in 2005 to Ps.253.1 million in 2006, that we attribute to a 217.9%
increase in the public telephones in service;
    
    a Ps.112.8 million, or 75.4%, increase in wholesale revenues from Ps.149.6 million
in 2005 to Ps.262.4 million in 2006, driven by an increase in our long distance
termination business size unit, primarily as a result of the Grupo Telereunión
acquisition.
    
    a Ps.12.5 million, or 38.1%, increase in other revenues from Ps.32.8 million in 2005
to Ps.45.3 million in 2006, driven by an increase in revenues from lease of microwave
frequencies and CPE sales.
 62




---



##### 



Year Ended December 312006
    
    
    2005
    
    
    %(In millions)Residential
    
    Ps.
    685.5
    
    
    Ps.
    595.0
    
    
    
    15.2
    %Commercial
    
    
    495.4
    
    
    
    400.5
    
    
    
    23.7
    %Public Telephony
    
    
    253.1
    
    
    
    64.2
    
    
    
    294.2
    %Wholesale
    
    
    262.4
    
    
    
    149.6
    
    
    
    75.4
    %Other Revenue
    
    
    45.3
    
    
    
    32.8
    
    
    
    38.1
    %Total revenues
    
    Ps.
    1,741.7
    
    
    Ps.
    1,242.1
    
    
    
    40.2
    %
  ARPU2006
    
    
    2005
    
    
    %(In U.S. dollars)CompanyMonthly charges
    
    
    $15.5
    
    
    
    $17.1
    
    
    
    (9.4
    )%Usage
    
    
    24.9
    
    
    
    22.4
    
    
    
    11.2
    %Subtotal
    
    
    40.4
    
    
    
    39.5
    
    
    
    2.0
    %Non-recurring
    
    
    2.4
    
    
    
    2.7
    
    
    
    (11.1
    )%Total company
    
    
    $42.8
    
    
    
    $42.2
    
    
    
    1.2
    %
  Revenue Generating Units
  At December 312006
    
    
    2005
    
    
    %RGUs:Residential
    
    
    201,911
    
    
    
    162,190
    
    
    
    24.5
    %Commercial
    
    
    55,922
    
    
    
    38,853
    
    
    
    43.9
    %Public Telephony
    
    
    16,815
    
    
    
    5,289
    
    
    
    217.9
    %Wholesale lines
    
    
    9,840
    
    
    
    8,970
    
    
    
    9.7
    %Total lines
    
    
    284,488
    
    
    
    215,302
    
    
    
    32.1
    %
 Operating Costs and Expenses
  
    
    a Ps.249.6 million, or 84.3%, increase in network operating services resulting
mainly from:
 §
    
    a Ps.42.2 million increase in local-to-mobile interconnection costs
associated with a significant increase in local-to-mobile traffic;§
    
    a Ps.92.1 million increase in long distance interconnection costs as a
result of increased long distance traffic;§
    
    a Ps.64.2 million higher operational cost of public telephony services
due to a 218% increase in lines in service;§
    
    a Ps.34.3 million increase in costs related to the lease of ports and
circuits required for our backbone and last mile connectivity as a result
of our network growth;
 63




---



##### 



§
    
    a Ps.10.9 million increase in costs associated with the operation of the
CATV network;§
    
    a Ps.4.7 million increase in Internet service costs; and§
    
    a Ps.1.2 million increase in cost of other services.
 
    
    a Ps12.6 million, or 12.5%, increase in technical expenses primarily due to:
 §
    
    a Ps.5.7 million, or 13.2%, increase in maintenance costs as a result of
our larger telephone network;§
    
    a Ps.3.0 million, or 9.0%, increase in the cost of sites leasing and
expenses related to the operation of our telephone network; and§
    
    a Ps.3.9 million, or 15.9%, increase in other expenses.
 
    
    a Ps.3.6 million, or 1.2%, decrease in depreciation and amortization expenses mainly
related to a supplementary adjustment in the depreciation of certain fixed assets in
accordance with Statement B-10 of the Mexican Institute of Public Accountants and NIF
C-6, Property, Machinery and Equipment.
    
    a Ps.0.3 million, or 1.8%, increase in installation expenses.
    
    Selling, general and administrative expenses increased Ps.102.1 million, or 20.2%
primarily due to:
 §
    
    a  Ps.73.0 million increase in salaries, wages and benefits related to
increased headcount;§
    
    a Ps.16.2 million increase in sales commissions as a result of higher
gross installed lines;§
    
    a Ps.10.9 million increase in advertising expenses;§
    
    a  Ps.6.6 million increase in bad debt;§
    
    a  Ps.3.8 million increase in other general and administrative expenses;
and§
    
    a Ps.0.8 million increase in lease expenses.
  Comprehensive Cost of Financing
   Year Ended December 312006
    
    
    2005
    
    
    %(In millions)Interest expense  Net
    
    Ps.
    (127.3
    )
    
    Ps.
    (105.0
    )
    
    
    21.2
    %Exchange gain (loss)  Net
    
    
    (1.5
    )
    
    
    21.6
    
    
    
    (106.9
    )%Gain on monetary position
    
    
    21.5
    
    
    
    23.9
    
    
    
    (10.0
    )%Total comprehensive cost of financing
    
    Ps.
    (107.3
    )
    
    Ps.
    (59.5
    )
    
    
    80.3
    %
  
    
    a Ps.22.4 million, or 21.4%, increase in interest paid as a result of a higher
average outstanding balance of debt during 2006 compared to 2005;
 64




---



##### 




    
    a Ps.23.0 million exchange loss on our dollar-denominated debt due to the effect of
a 1.5% peso depreciation during 2006 compared to a 4.7% peso appreciation during 2005;
and
    
    a Ps.2.4 million, or 10%, decrease in gain on net monetary position, as a result of
(i) the effect on liabilities of a higher inflation rate during 2006 when compared to
2005 and (ii) supplementary adjustments in the value of fixed assets according to
Statement B-10.
 Tax Provisions
    
 B. Liquidity and capital resources
 Financing Sources and Liquidity
     65




---



##### 



3 4
  
    
    indebtedness, not to exceed U.S.$10.0 million at any time outstanding, represented
by capital lease obligations, financings or purchase money obligations, in each case,
incurred for the purpose of financing all or any part of the purchase price or cost of
design, construction, installation or improvement of property,
plant or equipment used in the permitted business of the company, in an aggregate
principal amount, including all permitted refinancing indebtedness incurred to renew,
refund, refinance, replace, defease or discharge any such indebtedness;
    
    hedging obligations for the purpose of managing our exposure to fluctuations in
interest rates with respect to indebtedness permitted to be incurred by us pursuant to
the indenture or protecting us against currency fluctuations in the ordinary course of
business and not for speculative purposes; and
    
    indebtedness not to exceed U.S.$10.0 million in an aggregate principal amount at any
time outstanding, including all permitted refinancing indebtedness incurred to renew,
refund, refinance, replace, defease or discharge such indebtedness.
  66




---



##### 



Indebtedness
   As of December 31,
    
    
    As of December 31,2007(1)
    
    
    2006(2)Pesos
    
    
    Dollars
    
    
    Pesos
    
    
    Dollars(In thousands)Short Term Commercial Paper Denominated in Pesos:Short term commercial paper
    
    Ps.
    
    
    
    U.S.$
    
    
    
    Ps.
    150,000.0
    
    
    U.S.$
    13,792.5Accrued interest
    
    
    
    
    
    
    
    
    
    
    1,500.0
    
    
    
    137.9Total short term commercial paper denominated in
pesos
    
    
    
    
    
    
    
    
    
    
    151,500.0
    
    
    
    13,930.4Short Term and Long Term Vendor Financing:Vendor financing denominated in pesos
    
    
    11,479.2
    
    
    
    1,056.4
    
    
    
    23,655.8
    
    
    
    2,175.1Vendor financing denominated in dollars
    
    
    1,293.8
    
    
    
    119.1
    
    
    
    54,199.8
    
    
    
    4,983.7Total vendor financing
    
    
    12,773.0
    
    
    
    1,175.5
    
    
    
    77,855.6
    
    
    
    7,158.8Short Term Payable Bonds Denominated in U.S. Dollars:U.S.$11.6 million 13 3/4% notes (issued on March 17,
2000) bearing interest at a rate of 13.75% maturing
on April 1, 2007
    
    
    
    
    
    
    
    
    
    
    126,047.0
    
    
    
    11,590.0Total short term payable bonds denominated in U.S.
Dollars
    
    
    
    
    
    
    
    
    
    
    126,047.0
    
    
    
    11,590.0Long Term Payable Bonds Denominated in U.S. Dollars:U.S.$200 million senior notes due 2014 (U.S.$150
million issued on December 20, 2006, U.S.$25
million issued on January 10, 2007 and U.S.$25
million issued on September 5, 2007) bearing
interest at a rate of 11%, maturing on
December 15, 2014
    
    
    2,173,240.0
    
    
    
    200,000.0
    
    
    
    1,631,325.0
    
    
    
    150,000.0Accrued interest
    
    
    11,172.2
    
    
    
    1,028.2
    
    
    
    6,813.0
    
    
    
    626.5Total long term payable bonds denominated in
U.S. dollars
    
    Ps.
    2,184,412.2
    
    
    U.S.$
    201,028.2
    
    
    Ps.
    1,638,138.0
    
    
    U.S.$
    150,626.5
 
 (1)
    
    Constant pesos as of December 31, 2007. Peso amounts were converted to U.S. dollars solely for the convenience
of the reader at the rate of Ps.10.8662 per U.S.$1.00 as reported by the Banco de México on December 31, 2007. Such
conversions should not be construed as a representation 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.(2)
    
    Constant pesos as of December 31, 2006. Peso amounts were converted to U.S. dollars solely for the convenience
of the reader at the rate of Ps.10.8755 per U.S.$1.00 as reported by the Banco de México on December 31, 2006. Such
conversions should not be construed as a representation 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. 67




---



##### 



Resources from Operating, Financing and Investing Activities
 At December 312007
    
    
    2006
    
    
    %(Thousands of constant pesos)Net resources provided by operating activities
    
    Ps.
    303,158.0
    
    
    Ps.
    87,898.3
    
    
    
    244.9
    %Net resources used in investing activities
    
    
    (1,248,407.4
    )
    
    
    (1,041,877.4
    )
    
    
    19.8
    %Net resources provided by financing activities
    
    
    2,745,493.3
    
    
    
    1,452,052.4
    
    
    
    89.1
    %
 At December 312006
    
    
    2005
    
    
    %(Thousands of constant
pesos)Net resources provided by operating activities
    
    Ps.
    87,898.3
    
    
    Ps.
    322,353.2
    
    
    
    (72.7
    )%Net resources used in investing activities
    
    
    (1,041,877.4
    )
    
    
    (482,669.3
    )
    
    
    115.9
    %Net resources provided by financing activities
    
    
    1,452,052.4
    
    
    
    334,394.1
    
    
    
    334.2
    %
   Resources Provided by Operating Activities
  
    
    Ps.34.0 million decrease in resources resulting from an increase in accounts
receivable when compared to the Ps.251.0 million used in 2006 with the Ps.285.0 million
used in 2007 as a result of our incremental operations, including a larger customer
base and higher revenues;
    
    Ps.77.2 million increase in resources resulting from a increase in liabilities and
other assets when compared to the Ps.14.7 million decrease in resources provided in
2006 with the Ps.62.5 million increase in resources provided in 2007;
    
    Ps.38.6 million increase in resources resulting from a decrease in restricted cash
when compared to the Ps.15.2 million used in 2006 with the Ps.23.4 reduced in 2007 due
to the cancellation of bank credits with IXE, Banorte and one swap transaction made on
December 2007;
    
    Ps.21.7 million increase in resources resulting from an decrease in inventory, when
compared to the Ps.19.2 million used in 2006 with the Ps.2.5 million reduced in 2007;
and
    
    Ps.14.3 million decrease in resources resulting from a increase in prepaid expenses,
when compared to the Ps.18.4 million used in 2006 with the Ps.4.1 million used in 2007.
  68




---



##### 




    
    Ps.183.4 million decrease in resources resulting from an increase in accounts
receivable as a result of our incremental operations;
    
    Ps.178.2 million decrease in resources resulting from a decrease in short term
liabilities;
    
    Ps.15.1 million decrease in resources resulting from an increase in inventory; and
    
    Ps.29.9 million increase in case resulting from a decrease in prepaid expenses.
  
    
    Ps.49.7 million decrease in resources resulting from an increase in accounts
receivable as a result of the increase in our operations;
    
    Ps.12.0 million decrease in resources resulting from a decrease in restricted cash
as a result of the repayment of credit facilities to Banco Santander Serfin, S.A.;
    
    Ps.71.9 million increase in resources resulting from an increase in short term
liabilities;
    
    Ps.13.2 million decrease in resources resulting from an increase in inventory; and
    
    Ps.0.8 million decrease in resources resulting from an increase in prepaid expenses.
 Resources Provided by Financing Activities
  
    
    Ps.2,643.4 million provided from the net proceeds of our initial public offering in
2007 when compared to with the Ps.364 million generated in 2006 by the sale of our
common stock to Grupo VAC;
    
    Ps.456.6 million provided by the senior notes due 2014 issuance (U.S.$50 million) in
2007 including a hedge valuation of Ps. 24.0 million when compared with Ps. 1,209.2
million net proceeds for senior notes due 2014 issuance (issuance of US$150 million and
payment of US$42.7 million) made in 2006;
    
    Ps.130.8 million used to redeem U.S.$11,590 of our 133/4% B series bonds maturing on
April 1, 2007;
    
    Ps.155.6 million used to redeem Ps. 150.0 million plus accrued interest of our
commercial paper maturing May 17, 2007;
    
    Ps. 80.8 million used to pay vendor financing in 2006 compared to Ps. 12.8 million
used in 2007, a Ps.68.0 million decrease. Most of our vendor financing is related to
vehicles, telecommunications and office equipment; and
    
    Ps.157.3 million used to pay bank financing (a Ps. 78.4 million credit facility with
IXE Bank and a Ps.78.9 million credit facility with Banorte Bank) and Ps.36.0 million
used to pay other financing activities in 2006.
  
    
    Ps.364.3 million provided by the sale of our common stock to Grupo VAC Investors for
U.S.$ 31.2 million;
 69




---



##### 




    
    Ps.1,692.6 million provided by the senior notes due 2014 issuance;
    
    Ps.483.4 million used to pay (i) $5.1 million of senior notes due 2007 and (ii) $
36.1 million of senior step-up note due 2009;
    
    Ps.157.3 million used to pay (i) Ps.51.4 million on the Ixe Banco short term credit
facility, (ii) Ps.20.5 million on the Banco Mercantil del Norte short term credit
facility, (iii) Ps.27.0 million on the Ixe Banco long term credit facility, and (iv)
Ps.58.4 million on the Banco Mercantil del Norte long term credit facility;
    
    Ps.235.4 million used for the capitalization of liabilities held with a related
party in connection with the acquisition and sale of a subsidiary; and
    
    Ps.63.1 million used for other operating activities.
  
    
    Ps.235.4 million provided by the capitalization of liabilities held with a related
party in connection with the acquisition of a subsidiary;
    
    Ps.163.5 million provided by a short term financing denominated in pesos with
commercial paper including Ps.1.7 million of accrued interest;
    
    Ps.78.3 million provided by a bank financing denominated in pesos obtained from Ixe
Banco;
    
    Ps.79.0 million provided by a bank financing denominated in pesos obtained from
Banco Mercantil del Norte;
    
    Ps.20.3 million provided an exchange rate stability hedging transaction obtained
from Ixe Banco;
    
    Ps.193.5 million used for the repayment of a bank financing denominated in pesos to
Banco Santander; and
    
    Ps.48.7 million used for the inflationary effect on our long term payable bonds.
 Resources Used for Investing Activities
    70




---



##### 



Capital Expenditures
  Dividend Policy
  
    
    a minimum consolidated leverage ratio of less than 4.25 to 1.00 on or before
December 31, 2007, 4.00 to 1.00 on or after January 1, 2008 and on or before December
31, 2009 and 3.50 to 1.00 on or after January 1, 2010;
    
    a minimum fixed charge coverage ratio of 2.00 to 1.00;
    
    no default (as defined in the indenture) must have occurred and be continuing or
result from the payment of the cash dividend; and
    
    the dividend payments together with the aggregate amount of all other restricted
payments (as defined in the indenture) do not exceed certain amount determined in the
indenture based on, among other things: (i) the consolidated net income of the company,
(ii) the net cash flows from equity offerings, (iii) the lesser of the return on the
restricted investments or the original amount of the restricted investment, (iv) the
lesser of the fair market value (as defined in the indenture) of the companys
investment on a subsidiary after its redesignation as a restricted subsidiary or the
original fair value as of the date in which such subsidiary was originally designated
as unrestricted subsidiary.
  Effect of Inflation on Financial Information
     71




---



##### 




    
    net interest expense and interest income;
    
    net foreign exchange gains or losses; and
    
    net gains or losses on monetary position.
   Principal Differences between Mexican GAAP and U.S. GAAP
  Recent United States Accounting Pronouncements
    72




---



##### 



Recent Mexican Accounting Pronouncements
  Statement for Changes in the
Financial Position
 Recognition of the
Effect of Inflation in Financial Information
 73




---



##### 



Foreign
Currency Transactions and Translation of Financial Statements of Foreign Operations
 Labor
Obligations
 Accounting for
income tax, asset tax and employees profit sharing"
       74




---



##### 



C.
    
    Research and development, patents and licenses, etc.
 
  
 D.
    
    Trend information
  
    
    The growth in broadband access;
    
    The convergence of services and industries, as evidenced by the introduction of
voice, data and video bundles in the market;
    
    Multi-service IP services; and
    
    Mobile services.
   
 E.
    
    Off - balance sheet arrangements
  
 F.
    
    Tabular disclosure of contractual obligations
  Payment Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands of pesos)Contractual Obligations:Long-Term Debt Obligations
    
    
    Ps.2,173,240.0
    
    
    
    Ps.
    
    
    
    Ps.
    
    
    
    Ps.
    
    
    
    Ps.2,173,240.0Capital (Finance) Lease Obligation
    
    
    1,280.9
    
    
    
    1,276.2
    
    
    
    4.7
    
    
    
    
    
    
    
    Vendor Financing
    
    
    10,767.9
    
    
    
    6,558.7
    
    
    
    4,209.2
    
    
    
    
    
    
    
    Capital Lease and Vendor
Financing Accrued 
Interest at
December 31, 2007

    
    724.3
    
    
    
    628.2
    
    
    
    96.1
    
    
    
    
    
    
    
    Accounts Payable to CFE
    
    
    36,476.4
    
    
    
    1,276.1
    
    
    
    2,552.3
    
    
    
    2,552.3
    
    
    
    30,095.7Debt Obligations Interest
    
    
    1,657,019.7
    
    
    
    245,121.3
    
    
    
    470,632.8
    
    
    
    470,632.8
    
    
    
    470,632.8Sierra Comunicaciones Globales,
S.A. de C.V. purchase payments
due
    
    
    13,582.8
    
    
    
    13,582.8Operating Lease Obligation
    
    
    198,643.0
    
    
    
    47,675.0
    
    
    
    88,363.0
    
    
    
    62,605.0
    
    
    
    Interest to Account Payable to CFE
    
    
    52,282.8
    
    
    
    3,589.1
    
    
    
    6,795.5
    
    
    
    6,285.0
    
    
    
    35,613.2Total
    
    
    Ps.4,144,017.8
    
    
    
    Ps.319,707.4
    
    
    
    Ps.572,653.6
    
    
    
    Ps.542,075.1
    
    
    
    Ps.2,709,581.7
 75




---



##### 



ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
 A.
    
    Directors and senior management
 Directors
   Name
    
    
    Age
    
    
    PositionAdrián Aguirre Gómez
    
    
    57
    
    
    Director and Chairman of the BoardEduardo Vázquez
    
    
    45
    
    
    Director and Vice Chairman of the BoardGabriel Vázquez
    
    
    47
    
    
    DirectorLauro A. González Moreno*
    
    
    46
    
    
    DirectorMarco Provencio Muñoz*
    
    
    49
    
    
    DirectorRodrigo Guerra Botello*
    
    
    65
    
    
    DirectorJacques Gliksberg
    
    
    50
    
    
    DirectorAlfonso González Migoya*
    
    
    63
    
    
    DirectorRené S. Sagastuy Ferrandiz
    
    
    47
    
    
    Director
 
 *
    
    Independent Directors pursuant to the United States Securities Exchange Act of 1934, as
amended and Rule 10 A-3 of the Mexican Securities Market Law.     Adrián Aguirre Gómez
 Lauro González Moreno
 76




---



##### 



Marco Provencio Muñoz
 Rodrigo Guerra Botello
 Eduardo Vázquez
 Jacques Gliksberg
 Alfonso González Migoya
 René Sagastuy
 77




---



##### 



Gabriel Vázquez
 Senior Management
   Name
    
    Age
    
    PositionRené Sagastuy
    
    
    47
    
    
    President and Chief Executive OfficerJosé Antonio Solbes
    
    
    42
    
    
    Chief Financial OfficerRicardo Arévalo Ruiz
    
    
    44
    
    
    Chief Operating and Technology OfficerAlejandro Díaz y Díaz
    
    
    37
    
    
    Vice President of Residential Sales
  José Antonio Solbes
 Ricardo Arévalo Ruiz
 Alejandro Díaz y Díaz
 
 78




---



##### 



B.
    
    Compensation
    (Ley Federal del Trabajo)
 First Executive Stock Option Plan
   Second Executive Stock Option Plan
    79




---



##### 



Composition of the Board of Directors
 Comisión Nacional Bancaria y de Valores
  Authority of the Board of Directors
   
    
    our general strategy;
    
    guidelines for the use of corporate assets;
    
    on an individual basis, any transactions with related parties, subject to certain
limited exceptions;
    
    unusual or non-recurrent transactions and any transactions that imply the
acquisition or sale of assets with a value equal to or exceeding 5% of our consolidated
assets or the provision of collateral or guarantees or the assumption of liabilities
equal to or exceeding 5% of our consolidated assets;
    
    the appointment or removal of the chief executive officer;
    
    accounting and internal control policies; and
    
    policies for disclosure of information.
  
 C.
    
    Board practices
   80




---



##### 



Committees
  Audit and Corporate Practices Committee
     
    
    advise the board of directors with respect to matters assigned to it under the
Mexican Securities Market Law, including: (a) our internal control and internal audit
guidelines, (b) our accounting policies by referenced to financial reporting standards,
(c) our financial statements, (d) the appointment of our external auditors, and (e)
transactions that either are outside the ordinary course of our business or, in
relation to the results of the immediately preceding fiscal quarter, constitute (i) the
acquisition or disposition of assets or (ii) the provision of guaranties or the
assumption of liabilities, in each case, equal to or greater than 5% of our
consolidated assets;
    
    evaluate, analyze and supervise the work performed by our external auditors,
including (a) review with them our annual and interim financial statements; (b) approve
non-audit services provided by them; (c) resolve any disagreements between them and
management; and (d) ensure their independence and objectivity;
    
    discuss our financial statements with the chief financial officer for their
preparation and review and issue a recommendation to the board of directors with
respect to committees approval;
 81




---



##### 




    
    inform the board of directors of the status of the internal control and internal
audit system, including any detected irregularities;
    
    advise the board of directors with respect to the annual report of our chief
financial officer;
    
    assist the board of directors in preparation of the report on our principal
accounting and financial information policies and criteria;
    
    seek the opinion of independent experts and other advisors when required or deemed
necessary;
    
    investigate possible violations of operational guidelines and policies or of the
internal control, internal audit and accounting records system;
    
    request periodic meetings with management and any information related to internal
control and internal audit;
    
    call a shareholders meeting and request the inclusion of matters it considers
appropriate on the agenda;
    
    supervise and discuss with the board of directors our internal control system
relating to risk management and compliance with applicable laws;
    
    ensure the existence of control mechanisms to provide that consistent unaudited
financial information is presented to the board of directors;
    
    report to the board of directors on any detected significant irregularities and on
its activities in general and review and propose amendments to its rules;
    
    supervise, review and discuss the audit procedures of our internal audit;
    
    receive form our external auditors a report that includes an analysis of: (a) all
critical accounting policies utilized by us; (b) all policies and financial reporting
standards that differ from those utilized by us and that have been discussed with
management, including the implications of using such policies and practices; and (c)
any other written communications regarding significant matters between our external
auditors and management, including the annual letter to management, in which our
external auditors summarize their recommendations regarding our internal controls
identified during the audit process;
    
    establish procedures for receiving, retaining and addressing complaints regarding
accounting, internal controls and audit matters, including procedures for confidential
submission of such complaints;
    
    review and analyze with management and our external auditors this annual report and
the quarterly results presented to the Securities and Exchange Commission, or SEC;
    
    oversee the execution of resolutions adopted at shareholders meetings by the board
of directors; and
    
    perform any other functions pursuant to its mandate or expressly conferred by the
board of directors.
  Operating Advisory Committee
  82




---



##### 



Director and Officer Indemnification and Limitation on Liability
      
 D.
    
    Employees
  
 E.
    
    Share ownership
   83




---



##### 



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
 A.
    
    Major Shareholders and Share Ownership
  
    
    each person that is a beneficial owner of 5% or more of our outstanding shares of
capital stock;
    
    each of our executive officers;
    
    each of our directors; and
    
    all of our executive officers and directors as a group.
  Series A Common StockBeneficial Ownership
    
    
    SharesShareholders
    
    Number
    
    
    Percentage
    
    
    Underlying CPOsBank of America Corporation(1)
    
    
    315,261,170
    
    
    
    39.92
    %
    
    
    283,261,169Adrián Aguirre Gómez(2)
    
    
    14,549,048
    
    
    
    1.84
    %
    
    
    11,549,043Eduardo Vázquez(3)
    
    
    78,843,503
    
    
    
    9.98
    %
    
    
    50,843,502Lauro González Moreno
    
    
    *
    
    
    
    *
    
    
    
    Maria Guadalupe Aguirre Gómez(2)
    
    
    *
    
    
    
    *
    
    
    
    Rodrigo Guerra Botello
    
    
    *
    
    
    
    *
    
    
    
    Jacques Gliksberg(1)
    
    
    315,261,170
    
    
    
    39.92
    %
    
    
    283,261,169Alfonso González Migoya
    
    
    *
    
    
    
    *
    
    
    
    Marco Viola(1)
    
    
    315,261,170
    
    
    
    39.92
    %
    
    
    283,261,169René Sagastuy Fernandiz
    
    
    *
    
    
    
    *
    
    
    
    Marco Provencio Muñoz
    
    
    *
    
    
    
    *
    
    
    
    José Antonio Solbes
    
    
    *
    
    
    
    *
    
    
    
    Ricardo Arévalo Ruiz
    
    
    *
    
    
    
    *
    
    
    
    Alejandro Diaz y Diaz
    
    
    *
    
    
    
    *
    
    
    
    All executive officers and directors as a group
(12 persons)
    
    
    411,718,662
    
    
    
    52.12
    %
    
    
    345,808,714
 
 *
    
    Less than one percent. Pursuant to the Instruction to Item 6E of Form 20-F, individual share
ownership is not disclosed.(1)
    
    Includes 2,661,345 shares of Series A common stock held by BAS Capital Funding Corporation, an
indirect wholly-owned subsidiary of Bank of America Corporation, 294,573 shares of Series A common
stock held by BankAmerica Investment Corporation, a wholly-owned subsidiary of Bank of America
Corporation, 85,741,830 shares of Series A common stock held by BASCFC-Maxcom Holdings I, LLC, a
wholly-owned subsidiary of Bank of America Corporation, 305,000 shares of Series A common stock
held by Nexus Partners I, LLC, an indirect wholly-owned subsidiary of Bank of America Corporation
and 194,258,418 shares of Series A common stock held by Nexus-Maxcom Holdings I, LLC, a subsidiary
of Bank of America Corporation. Nexus Partners I, LLC, the ultimate general partner of Nexus-Maxcom
Holdings I, LLC, Marco Viola and Jacques Gliksberg contractually manage the shares of the Company
beneficially owned by Bank of America Corporation and, as such, may be deemed to share voting and
investment power with respect to the shares beneficially owned by Bank of America Corporation. Bank
of America Corporation is an affiliate of certain registered broker-dealers, including Bank of
America Securities LLC. The securities beneficially owned by Bank of America Corporation were
acquired in the ordinary course of business and at the time of purchase, Bank of America
Corporation had no agreements or understandings, directly or indirectly, with any person to
distribute these securities.(2)
    
    Includes 10,763,036 shares of Series A common stock beneficially owned, directly or
indirectly, by the Aguirre Gómez family.(3)
    
    Includes 47,506,213 shares of Series A common stock beneficially owned, directly or
indirectly, by the Vazquez Family. Significant Changes in Share Ownership
  84




---



##### 



Differences in Voting Rights
  Securityholders Agreement
  Registration Rights Agreement
  Demand Rights.
 Piggyback Rights.
 Conditions and Limitations; Expenses.
  85




---



##### 



B.
    
    Related party transactions
 General policy
  Acquisition of Sierra Comunicaciones Globales
  Advertising
  Spin-off and sale of subsidiary
   
 C.
    
    Interest of experts and counsel
  
 ITEM 8. FINANCIAL INFORMATION
 
 A.
    
    Consolidated statements and other financial information
 Financial Statements
  Legal Proceedings
  86




---



##### 



Dividend Policy
  
 B.
    
    Significant changes
 Reclassification of Capital Stock and 2007 Initial Public Offering
 (Certificados de Participación
Ordinarios),
  Capital Stock Increase and Acquisition of Grupo Telereunión
    87




---



##### 



(Capital Contable)
  
 ITEM 9. THE OFFER AND LISTING
 Trading Market
   Mexican Stock Exchange
    
    
    New York Stock Exchange(Mexican pesos per CPO)
    
    
    (U.S. dollars per ADS)High
    
    
    Low
    
    
    High
    
    
    LowAnnual Highs and Lows2008 (through June 11, 2008)
    
    Ps.
    23.70
    
    
    Ps.
    16.10
    
    
    $
    16.03
    
    
    $
    9.442007 (beginning October 19, 2007)
    
    
    31.00
    
    
    
    19.00
    
    
    
    19.98
    
    
    
    12.17Quarterly Highs and Lows2008:First Quarter
    
    Ps.
    20.39
    
    
    Ps.
    16.50
    
    
    $
    13.25
    
    
    $
    9.89Second Quarter (through June 11, 2008)
    
    
    23.70
    
    
    
    16.10
    
    
    
    16.03
    
    
    
    9.442007:Fourth Quarter (beginning October 19, 2007)
    
    
    31.00
    
    
    
    19.00
    
    
    
    19.98
    
    
    
    12.17Monthly2008:January
    
    Ps.
    19.94
    
    
    Ps.
    16.50
    
    
    $
    12.90
    
    
    $
    9.89February
    
    
    20.39
    
    
    
    18.53
    
    
    
    13.25
    
    
    
    11.76March
    
    
    19.28
    
    
    
    17.29
    
    
    
    12.52
    
    
    
    11.02April
    
    
    19.20
    
    
    
    16.38
    
    
    
    12.53
    
    
    
    9.44May
    
    
    21.80
    
    
    
    16.10
    
    
    
    14.66
    
    
    
    10.61June (through June 11, 2008)
    
    
    23.70
    
    
    
    19.10
    
    
    
    16.03
    
    
    
    12.762007:October (beginning October 19, 2007)
    
    
    31.00
    
    
    
    26.60
    
    
    
    19.98
    
    
    
    17.01November
    
    
    27.70
    
    
    
    22.67
    
    
    
    18.80
    
    
    
    14.35December
    
    
    26.32
    
    
    
    19.00
    
    
    
    17.83
    
    
    
    12.17
 Trading on the Mexican Stock Exchange
 sociedad anónima bursátil de capital variable
 88




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##### 



(Comisión Nacional Bancaria y de Valores) S.D. Indeval,
Institución para el Deposito de Valores, S.A. de C.V.,
  
 ITEM 10. ADDITIONAL INFORMATION
 
 A.
    
    Share capital
  
 B.
    
    Memorandum and articles of association
 General
     % of TotalNumber
    
    
    CapitalClass of Shares
    
    of Shares
    
    
    StructureSeries A common stock
    
    
    789,818,829
    
    
    
    100
    %Total
    
    
    789,818,829
    
    
    
    100
    %
 Dirección
General de Inversión Extranjera
 DESCRIPTION OF CAPITAL STOCK
 The following information describes our outstanding capital stock and provisions of our
bylaws. This description may not contain all of the information that is important to you. To
understand them fully, you should read our bylaws, a copy of which is filed with the SEC as an
exhibit to the registration statement filed with the SEC on October 17, 2007. The following
descriptions are qualified in their entirety by reference to the bylaws and to
applicable provisions of Mexican law.
 89




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##### 



Outstanding Capital Stock
  Changes to Capital Stock
  Registration and Transfer
  Shareholders Meetings
  
    
    our board of directors and the president or secretary of the board;
    
    shareholders representing at least 10% of our outstanding capital stock who request
the board of directors or the audit and corporate practices committee to call a
shareholders meeting;
    
    a Mexican court of competent jurisdiction, in the event the board of directors does
not comply with a valid request of the shareholders described immediately above;
    
    the audit and corporate practices committee; and
    
    any shareholder, provided that no annual ordinary meeting has been held for two
consecutive years or the annual shareholders meeting did not to address the matters
required to be addressed in an annual shareholders meeting.
  90




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##### 



General Ordinary Shareholders Meetings.
 
    
    approve the financial statements for the preceding fiscal year;
    
    elect directors;
    
    discuss and approve the audit and corporate practices committees, the board of
directors and the chief executive officers annual report;
    
    determine how to allocate net profits for the preceding year (including, if
applicable, the payment of dividends); and
    
    determine the maximum amount of resources allocated to share repurchases.
   General Extraordinary Shareholders Meetings.
 
    
    an extension of our duration or voluntary dissolution;
    
    an increase or decrease in the fixed portion of our capital stock;
    
    any change in our corporate purpose or nationality;
    
    any merger or transformation into another type of company;
    
    any issuance of preferred stock;
    
    the redemption of shares with retained earnings;
    
    any amendments to our bylaws;
    
    any other matters provided for by law or our bylaws; or
    
    the cancellation of the registration of our class A common stock or CPOs
representing such shares at the Mexican National Securities Registry or any stock
exchange (except for automated quotation systems).
 91




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##### 



Special Shareholders Meetings.
 Cumulative Voting.
 Voting Rights
  Ownership Restrictions
  Preemptive Rights
  92




---



##### 



Dividends
  Redemption
 pro rata pro rata
 Dissolution or Liquidation
  Certain Minority Protections
  
    
    Holders of at least 5% of our outstanding shares, whether directly or through CPOs
or ADSs, are required to initiate action against some or all of our directors for
violations of their duty of care or duty of loyalty, for our benefit, in an amount
equal to the damages or losses caused to us. Actions initiated on these grounds have a
five year statute of limitations.
    
    Holders of at least 10% of our outstanding share capital, whether directly or
through CPOs or ADSs, are able to:
 
    
    request a call for a shareholders meeting;
    
    request that resolutions with respect to any matter on which they were not
sufficiently informed be postponed; and
    
    appoint one member of our board of directors and one alternate member of our
board of directors except that for non-Mexican holders of CPOs or ADSs this right
will only be exercisable if a majority of our directors are appointed by Mexican
investors. See Description of the CPO Trust.
 
    
    Holders, whether directly or through CPOs or ADSs, of 20% of our outstanding share
capital to oppose any resolution adopted at a shareholders meeting and file a petition
for a court order to suspend the resolution within 15 days following the adjournment of
the meeting at which the action was taken,
 93




---



##### 



provided that the challenged resolution violates Mexican law or our bylaws, the opposing
shareholders either did not attend the meeting or voted against the challenged
resolution, and the opposing shareholders deliver a bond to the court to secure payment
of any damages that we may suffer as a result of suspending the resolution in the event
that the court ultimately rules against the opposing shareholder.
 Other Provisions
 Foreign Investment Regulations
 (Dirección General de Inversión Extranjera)
 Purchase of Shares by Us
 Comisión Nacional Bancaria y de Valores
 Purchases of Shares by our Subsidiaries
  Conflicts of Interest
   94




---



##### 



Exclusive Jurisdiction
  Withdrawal Rights
  Cancellation of Registration in the Mexican National Securities Registry
  
    
    the average quotation price on the Mexican Stock Exchange for the 30 days prior to
the date of the offer; or
    
    the book value, as reflected in the report filed with the CNBV and the Mexican Stock
Exchange.
   Elimination of Foreign Ownership Restrictions
  
    
    concurrently with the termination of the CPO trust and distribution of the
underlying shares, the registration of the Series A common stock with the Mexican
National Securities Registry maintained by the CNBV and, if necessary, the registration
of the distribution of such shares under the Securities Act;
 95




---



##### 




    
    the listing of the shares on the Mexican Stock Exchange;
    
    those required to modify our bylaws to permit unrestricted foreign ownership and/or
control of our capital stock (and the CPOs);
    
    the preparation of proxy materials for and the solicitation of shareholder, and CPO
holder, approval of the termination of CPO trust and any required or advisable
amendments to our bylaws; and
    
    causing all filings, notices, applications and permits related to, and obtaining
approvals and authorizations of, such termination and distribution.
  Forfeiture of Stock
 (Secretaría de Relaciones Exteriores)
 Duration and Dissolution
  
    
    the impossibility of continuing with our current line of business;
    
    the resolution of our shareholders at an extraordinary general shareholders
meeting;
    
    the reduction of the number of our shareholders to fewer than two; and
    
    the loss of two-thirds of our capital stock.
 Anti-takeover Provisions
   DESCRIPTION OF THE CPO TRUST
 The following information describes our outstanding CPOs. This description may not contain all
of the information that is important to you. To understand it fully, you should read the CPO trust
agreement, a translated copy of which is filed with the SEC as an exhibit to our registration
statement filed with the SEC on October 17, 2007.
 96




---



##### 



The following descriptions are qualified in their entirety by reference to the CPO trust
agreement and to the applicable provisions of Mexican law.
 General
  Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de
Desarrollo,
 
    
    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, pursuant to which the CPO trustee will issue CPOs in accordance
with the CPO trust agreement.
  Authorization
 (Secretaría de Economía)
 Voting Rights with Respect to Underlying Shares
    97




---



##### 



Deposit and Withdrawal of Shares
   Registration and Transfer
  Dividends and Other Distributions
  98




---



##### 



(Secretaría de Salud)
 Cash Dividends and Distributions.
 Stock Dividends.
 Other Distributions.
 Preemptive Rights
   Withdrawal Rights
  99




---



##### 



Changes Affecting the CPOs
  
    
    a split or a consolidation of our Series A common stock;
    
    a capitalization affecting or redemption of our Series A common stock;
    
    any other reclassification or restructuring of our Series A common stock; or
    
    any merger, consolidation, or spin-off.
  Administration of the CPO Trust
  The Common Representative
  
    
    verification of the due execution and terms of the CPO trust;
    
    verification of the existence of the shares Series A common stock being held in the
CPO trust;
    
    authentication, by its signature, of the certificates evidencing the CPOs;
 100




---



##### 




    
    exercise the rights of CPO holders in connection with the payment of any dividend to
which they are entitled;
    
    undertaking of any other action required to protect the rights, actions or remedies
to which they are entitled;
    
    calling and presiding over general meetings of CPO holders; and
    
    execution of decisions adopted at general meetings of CPO holders.
  General Meetings of CPO Holders
     Enforcement of Rights of CPO Holders
  
    
    the right to cause the CPO trustee to distribute dividends or other distributions it
has received;
    
    the right to cause the common representative to enforce and protect rights of CPO
holders; and
    
    the right to bring action against the common representative, for civil liabilities
in the event of willful misconduct.
 Termination of the CPO Trust
 101




---



##### 




    
    distribute the shares of Series A common stock underlying CPOs held by Mexican
holders of on a pro rata basis; and
    
    with respect to shares of Series A common stock underlying CPOs held by
non-Mexicans, the CPO trustee will:
 
    
    sell or distribute the applicable shares Series A common stock in the CPO trust,
and then distribute the proceeds to CPO holders on a pro rata basis;
    
    extend the period for the CPO trust agreement; or
    
    create a new trust similar to the CPO trust to which it will transfer all of the
applicable shares of Series A common stock, so that the non-Mexican holders may be
the beneficiaries of economic rights in respect of such shares on a pro rata basis.
 Fees of the CPO Trustee and the Common Representative
  DESCRIPTION OF AMERICAN DEPOSITARY SHARES
 The following information describes the material terms of the ADS deposit agreement. This
description may not contain all of the information that is important to you. To understand it
fully, you should read the deposit agreement and the form of American Depository Receipt, a copy of
which is filed with the SEC as an exhibit to the registration statement filed with the SEC on
October 17, 2007.
 General
     102




---



##### 



Dividends and Other Distributions
  Cash Dividends and Distributions.
 Share Dividends and Distributions.
 Rights to Purchase Additional CPOs.
 Other Distributions.
 Unlawful or Impracticable Distributions.
 103




---



##### 



Deposit, Withdrawal and Cancellation
 Issuance of ADS Securities.
 Withdrawal of Deposited Securities.
 Interchange between certificated ADSs and uncertificated ADSs.
 Voting Rights
   Right to Deliver Notices to the Company and the Common Representative
  104




---



##### 



Fees and Expenses
   Payment of Taxes
  Reclassifications, Recapitalizations and Mergers
  
    
    Changes the nominal or par value of the CPOs;
    
    Reclassifies, splits or consolidates any of the deposited securities;
    
    Distributes securities on the CPOs that are not distributed to ADS holders;
    
    Recapitalizes, reorganizes, merges, liquidates, sells all or substantially all of
our assets, or take any similar action
  
    
    The cash, shares or other securities received by the depositary will become
deposited securities. Each ADS will automatically represent its equal share of the new
deposited securities.
    
    The depositary may, and will if we ask it to, distribute some or all of the cash,
shares or other securities it received. It may also deliver new ADRs or ask ADR holders
to surrender their outstanding ADRs in exchange for new ADRs identifying the new
deposited securities.
 Amendment and Termination
  105




---



##### 



Limits on our Obligations and the Obligations of the Depositary, Limits on Liability to Holders of
ADSs
  
    
    are only obligated to take the actions specifically set forth in the deposit
agreement without negligence or bad faith;
    
    are not liable if either of us is prevented or delayed by law or circumstances
beyond our control from performing our obligations under the deposit agreement;
    
    are not liable if either of us exercises discretion permitted under the deposit
agreement;
    
    are not liable for the inability of any holder of ADSs to benefit from any
distribution on deposited securities that is not made available to holders of ADSs
under the terms of the deposit agreement;
    
    are not liable for any special, consequential or punitive damages for any breach of
the terms of the deposit agreement;
    
    have no obligation to become involved in a lawsuit or other proceeding related to
the ADSs or the deposit agreement on an ADS holders behalf or on behalf of any other
person; and
    
    may rely upon any documents we believe in good faith to be genuine and to have been
signed or presented by the proper person.
  Requirements for Depositary Actions
  
    
    payment of stock transfer or other taxes or other governmental charges and transfer
or registration fees charged by third parties for the transfer of any CPOs or other
deposited securities;
    
    satisfactory proof of the identity and genuineness of any signature or other
information it deems necessary; and
 106




---



##### 




    
    compliance with regulations it may establish, from time to time, consistent with the
deposit agreement, including presentation of transfer documents.
  ADS Holders Right to Receive the CPOs Underlying ADRs
  
    
    when temporary delays arise because: (i) the depositary, the CPO trustee or the
Foreign Registrar has closed its transfer books or we have closed our transfer books;
(ii) the transfer of CPOs is blocked to permit voting at a shareholders meeting; or
(iii) we are paying a dividend on our Series A common stock or any other security
deposited with the CPO trustee;
    
    if the ADS holder owes money to pay fees, taxes and similar charges; and
    
    when it is necessary to prohibit withdrawals in order to comply with any laws or
governmental regulations that apply to the ADSs or to the withdrawal of CPOs or other
deposited securities.
  Pre-release of ADSs
  Direct Registration System
   107




---



##### 



Shareholder Communications and Inspection of Register of Holders of ADSs
  DIVIDEND POLICY
       
    
    a minimum consolidated leverage ratio of less than 4.25 to 1.00 on or before
December 31, 2007, 4.00 to 1.00 on or after January 1, 2008 and on or before December
31, 2009 and 3.50 to 1.00 on or after January 1, 2010;
    
    no default (as defined in the indenture) must have occurred and be continuing or
result from the payment of the cash dividend; and
 108




---



##### 




    
    the dividend payments together with the aggregate amount of all other restricted
payments (as defined in the indenture) do not exceed a certain amount determined in the
indenture based on, among other things: (i) the consolidated net income of the company,
(ii) the net cash flows from equity offerings, (iii) the lesser of the return on the
restricted investments or the original amount of the restricted investment, (iv) the
lesser of the fair market value (as defined in the indenture) of the companys
investment on a subsidiary after its redesignation as a restricted subsidiary or the
original fair value as of the date in which such subsidiary was originally designated
as unrestricted subsidiary.
   
 C.

    Material contracts
 Securityholders Agreement
  Grupo VAC Investors Agreements
    Spin-off and Sale of Subsidiary Mijolife, S.A. de C.V.
  109




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##### 



Senior Notes due 2014
  Currency Swap Agreement
  Alcatel IPTV Supply Agreement
 ®
 
 D.
    
    Exchange controls
   
 E.
    
    Taxation
 Certain Material United States Federal Income Tax Considerations
 IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the U.S.
Internal Revenue Service, we inform you that any tax advice contained in this document (including
any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for
the purpose of avoiding tax-related penalties under the U.S. Internal Revenue Code. The tax advice
contained in this document
 110




---



##### 



(including any attachments) was written to support the promotion or marketing of the
transaction(s) or matter(s) addressed by the document. Each taxpayer should seek advice based on
the taxpayers particular circumstances from an independent tax advisor.
    EACH HOLDER IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF HOLDING CPOs, ADSs, OR SENIOR NOTES.
 Senior Notes due 2014
  U.S. Tax Characterization of the Senior Notes
  111




---



##### 



U.S. Holders of Senior Notes
 Payments of Interest
  Sale or Other Taxable Disposition of the Senior Notes
  Acquisition Premium
 112




---



##### 



Market Discount
    Mexican Withholding Tax
    113




---



##### 



Information Reporting and Backup Withholding
  Non-U.S. Holders of Senior Notes
   CPOs or ADSs
   U.S. Holders of CPOs or ADSs
 Taxation of Dividends and Other Distributions.
  114




---



##### 



Sale or Other Disposition of the CPOs or ADSs.
   115




---



##### 



Passive Foreign Investment Company Considerations
      116




---



##### 



Controlled Foreign Corporation Considerations
  117




---



##### 



U.S. Information Reporting and Backup Withholding.
  Non-U.S. Holders of CPOs or ADSs
  U.S. Information Reporting and Backup Withholding.
   THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES
ONLY. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE FEDERAL, STATE AND LOCAL
AND NON-U.S. TAX CONSIDERATIONS OF OWNING OUR SENIOR NOTES, OR CPOs, OR ADSs.
 Mexican Income Tax Considerations
 Ley
del Impuesto sobre la Renta
 118




---



##### 



Mexican Tax Residence
   United States of America/Mexico and Other Tax Treaties
  Mexican Tax Consequences to Foreign Holders of the Senior Notes
 Taxation of Interest and Principal
  119




---



##### 




    
    the senior notes are placed through banks or brokerage houses in a country with which Mexico has
entered into a tax treaty for the avoidance of double taxation that
is in force;
    
    we have delivered notice of the offering of the senior notes to the Mexican National Banking and
Securities Commission (Comisión Nacional Bancaria y de Valores) pursuant to Article 7 of the
Mexican Securities Market Law (Ley del Mercado de Valores); and
    
    certain periodic information requirements by the Mexican Ministry of Finance (Secretaría de
Hacienda y Crédito Público) are complied with.
  Secretaría de Hacienda y
Crédito Público
  
    
    our shareholders who own, directly or indirectly, individually or jointly with related parties,
more than 10% of our voting stock; or
    
    legal entities 20% or more of whose stock is owned, directly or indirectly, individually or
jointly with related parties, by the us or by persons related to us.
 Secretaría de
Hacienda y Crédito Público
     Sale or disposition of the senior notes
 120




---



##### 



Other Taxes
 IETU)
 Mexican Tax Consequences to Foreign Holders of the CPOs and ADSs
 Taxation of Dividends and Other Distributions.
    Sale or Disposition of CPOs or ADSs.
    121




---



##### 



Other Taxes.
 IETU),
 
 F.
    
    Dividends and paying agents
  
 G.
    
    Statement by experts
  
 H.
    
    Documents on display
   
 I.
    
    Subsidiary information
  
 J.
    
    Corporate Governance Practices
   NYSE Standards
    
    Our Corporate Governance PracticesDirector Independence.Majority of board of
directors must be independent.
§303A.01
    
    Director Independence.Pursuant to the Mexican
Securities Market Law and our bylaws, our
shareholders are required to appoint a Board of
Directors of no more than 21 members, 25% of
whom must be independent. Certain persons are per
se non-independent, including insiders, control
persons, major suppliers and any relatives of such
persons. In accordance with the Mexican Securities
Market Law, our shareholders meeting is required
to make a determination as to the independence of our
 122




---



##### 



NYSE Standards
    
    Our Corporate Governance Practicesdirectors, though such determination may be
challenged by the CNBV. There is no exemption
from the independence requirement for controlled
companies.Executive Sessions. Non-management directors must
meet regularly in executive sessions without
management. Independent directors should meet
alone in an executive session at least once a year.
§303A.03
    
    Executive Sessions. Our non-management directors
have not held executive sessions without
management
in the past, and under our bylaws and applicable
Mexican law, they are not required to do so.Nominating/Corporate Governance Committee.
Nominating/corporate governance committee of
independent directors is required. The committee
must have a charter specifying the purpose, duties
and
evaluation procedures of the committee.
§303A.04
    
    Nominating Committee.We currently do not have,
and are not required to have, a nominating committee.
However, Mexican law requires us to have one or
more committees that oversee the corporate
governance function. We have an audit and corporate
practices committee and an operating advisory
committee, which together perform corporate
governance functions.Compensation Committee. Compensation
committee of independent directors is required,
which
must evaluate and approve executive officer
compensation. The committee must have a charter
specifying the purpose, duties and evaluation
procedures of the committee.
§303A.05
    
    Compensation Committee. We are not required to
have a compensation committee. We have an audit
and corporate practices committee, which assists our
board of directors in evaluating and compensating
our senior executives. All of the members of the audit
and corporate practices committee are independent.Audit Committee.Audit committee satisfying the
independence and other requirements of Exchange
Act Rule 10A-3 and the more stringent requirements
under the NYSE standards is required. §§303A.06,
303A.07
    
    Audit Committee. We have an audit and corporate
practices committee of three members. Each member
of this committee is independent, as independence is
defined under the Mexican Securities Market Law,
and also meets the independence requirements of
Exchange Act Rule 10A-3. Our audit committee
operates primarily pursuant to (1) a written charter
adopted by our board of directors and (2) Mexican
law. For a detailed description of the duties of our
audit and corporate practices committee, see
Management  Committees  Audit and
Corporate Practices Committee.Equity Compensation Plans.Equity compensation
plans require shareholder approval, subject to limited
exemptions. §§303A.08 & 312.03
    
    Equity Compensation Plans. Shareholder approval
is required for the adoption and amendment of an
equity-compensation plan.Shareholder Approval for Issuance of Securities.
Issuances of securities (1) that will result in a change
of control of the issuer, (2) that are to a related party
or someone closely related to a related party, (3) that
have voting power equal to at least 20% of the
outstanding common stock voting power before such
issuance or (4) that will increase the number of shares
of common stock by at least 20% of the number of
outstanding shares before such issuance require
shareholder approval. §§312.03(b)-(d)
    
    Shareholder Approval for Issuance of Securities.
 Mexican law and our bylaws require us to obtain
 shareholder approval of the issuance of equity
 securities. Treasury stock, however, may be issued by
the board of directors without shareholder approval.
 123




---



##### 



NYSE Standards
    
    Our Corporate Governance PracticesCode of Business Conduct and Ethics. Corporate
governance guidelines and a code of business conduct
and ethics is required, with disclosure of any waiver
for directors or executive officers. The code must
contain compliance standards and procedures that will
facilitate the effective operation of the code.
§303A.10
    
    Code of Business Conduct and Ethics. We have
adopted a code of ethics, which has been accepted by
all of our directors and executive officers and other
personnel. We will provide a complimentary copy of
our code of ethics upon request.Conflicts of Interest.Determination of how to
review and oversee related party transactions is left to
the listed company. The audit committee or
comparable body, however, could be considered the
forum for such review and oversight. §307.00.
Certain issuances of common stock to a related
party require shareholder approval. §312.03(b)
    
    Conflicts of Interest. In accordance with Mexican
law and our bylaws, the audit and corporate practices
committee must provide an opinion regarding any
transaction with a related party that is outside of the
ordinary course of business, which transactions must
also be approved by the board of directors. Pursuant
to the Mexican Securities Market Law, our Board of
Directors will establish certain guidelines regarding
related party transactions that do not require Board
approval.Solicitation of Proxies. Solicitation of proxies and
provision of proxy materials is required for all
meetings of shareholders. Copies of such proxy
solicitations are to be provided to NYSE. §§402.00 &
402.04
    
    Solicitation of Proxies.We are required under
Mexican law to solicit proxies and provide proxy
materials for meetings of shareholders. In accordance
with Mexican law and our bylaws, we are also
required to inform shareholders of all meetings by
public notice, which states the requirements for
admission to the meeting, provides a mechanism by
which shareholders can vote by proxy and makes
proxies available. Under the deposit agreement
relating to the ADSs, holders of the ADSs receive
notices of shareholders meetings and, where
applicable, instructions on how to vote at the
shareholders meeting either in person or through a
person having a proxy specifically designated by the
shareholder.
 
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
  Foreign Exchange Risk
 124




---



##### 



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 125




---



##### 



Reclassification of Capital Stock and 2007 Initial Public Offering
 (Certificados de Participación
Ordinarios),
  
 ITEM 15T. CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures
  (b) Managements Annual Report on Internal Control over Financial Reporting
   126




---



##### 



Attestation report of the registered public accounting firm
  (c) Changes in Internal Control over Financial Reporting
  
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
    
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year Ended December 312007
    
    
    2006(In millions)Audit Fees(1)
    
    Ps.
    8.1
    
    
    Ps.
    6.4Audit-Related Fees(2)
    
    
    1.1
    
    
    
    0.9Tax Fees (3)
    
    
    0.4
    
    
    
    0.7All Other Fees
    
    Ps.
    0.0
    
    
    Ps.
    0.5
 
 (1)
    
    Audit Fees include fees associated with the annual audit of our consolidated financial statements. Audit fees also include
fees associated with Securities and Exchange Commission statutory and annual reporting audit requirements.(2)
    
    Audit-Related Fees are fees that support the auditing and reporting process, but are not directly related to it.(3)
    
    Tax Fees include fees associated with preparation of tax filings and fees
for assistance with tax planning and tax compliance
matters. 127




---



##### 



ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM
16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
 PageMaxcom Telecomunicaciones, S.A.B. de C.V. and SubsidiariesReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    F-3Consolidated Income Statements for the years ended December 31, 2007, 2006 and 2005
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the years ended
December 31, 2007 and 2006
    
    
    F-5Consolidated Statements of Changes in Financial Position for the years ended
December 31, 2007, 2006 and 2005
    
    
    F-6Notes to the Consolidated Financial Statements for the years ended December 31,
2007, 2006 and 2005
    
    
    F-7
 128




---



##### 



MAXCOM TELECOMUNICACIONES, S. A. B. DE C. V. AND SUBSIDIARIES
 AUDITED CONSOLIDATED FINANCIAL STATEMENTS  AS OF DECEMBER 31, 2007, 2006 AND 2005
 INDEX
 Contents
    
    PagesIndependent Auditors Report
    
    F-1Consolidated Financial Statements:Consolidated Balance Sheets
    
    
    F-3Consolidated Income Statements
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity
    
    
    F-5Consolidated Statements of Changes in Financial Position
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-7
 129




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
   
 F-1




---



##### 



F-2




---



##### 



MAXCOM TELECOMUNICACIONES, S. A. B DE C. V. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  AS OF DECEMBER 31, 2007 AND 2006
 Thousands of Mexican
pesos (Ps.) as of December 31, 2007 purchasing power
 2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    Ps.
    2,539,535
    
    
    Ps.
    739,291Restricted cash (Note 11)
    
    
    
    
    
    
    23,4622,539,535
    
    
    
    762,753Accounts receivable:Customers, net of allowance for doubtful accounts
of Ps.107,652 and Ps.92,733 in 2007 and 2006, respectively
    
    
    517,254
    
    
    
    333,948Value added tax recoverable
    
    
    198,583
    
    
    
    110,823Other accounts receivable
    
    
    54,676
    
    
    
    40,486770,513
    
    
    
    485,257Inventory
    
    
    33,249
    
    
    
    35,790Prepaid expenses  Net
    
    
    40,341
    
    
    
    40,193Total current assets
    
    
    3,383,638
    
    
    
    1,323,993Telephone network systems and equipment  Net (Note 6)
    
    
    4,188,946
    
    
    
    3,301,437Intangible assets  Net (Note 7)
    
    
    208,802
    
    
    
    190,249Preoperating expenses  Net
    
    
    77,902
    
    
    
    98,340Frequency rights  Net (Note 8)
    
    
    80,930
    
    
    
    88,374Other assets:Labor obligations at retirement (Note 14)
    
    
    17,650
    
    
    
    15,068Prepaid expenses long term
    
    
    21,289
    
    
    
    25,547Guaranty deposits
    
    
    6,943
    
    
    
    5,973Derivative financial instruments (Notes 5s. and 13)
    
    
    13,475
    
    
    
    8,175Other assets
    
    
    14,525
    
    
    
    8,748Total assets
    
    Ps.
    8,014,100
    
    
    Ps.
    5,065,904LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    Ps.
    489,486
    
    
    Ps.
    500,471Provisions
    
    
    24,109
    
    
    
    27,130Notes payable short term
    
    
    8,087
    
    
    
    38,931Client deposits
    
    
    2,801
    
    
    
    2,734Other taxes payable
    
    
    67,182
    
    
    
    27,369Derivative financial instruments (Notes 5s. and 13)
    
    
    
    
    
    
    15,202Senior notes (Note 11)
    
    
    
    
    
    
    130,785Accrued interest (Note 11)
    
    
    11,172
    
    
    
    7,069Commercial paper (Note 10)
    
    
    

    
    
    
    157,195Total current liabilities
    
    
    602,837
    
    
    
    906,886Long-term liabilities:Senior notes (Note 11)
    
    
    2,173,240
    
    
    
    1,692,647Notes payable
    
    
    4,686
    
    
    
    41,851Other accounts payables
    
    
    78,174
    
    
    
    37,154Deferred income tax (Note 19)
    
    
    97,742
    
    
    
    88,696Labor obligations at retirement (Note 14)
    
    
    26,582
    
    
    
    21,756Total long-term liabilities
    
    
    2,380,424
    
    
    
    1,882,104Total liabilities
    
    
    2,983,261
    
    
    
    2,788,990Shareholders equity (Notes 15 and 16):Capital stock
    
    
    5,410,251
    
    
    
    3,327,482Premium on issuance of shares
    
    
    888,056
    
    
    
    253,096Accumulated deficit
    
    
    (1,267,468
    )
    
    
    (1,303,664
    )Total shareholders equity
    
    
    5,030,839
    
    
    
    2,276,914Commitments and contingencies (Note 20)Total liabilities and shareholders equity
    
    Ps.
    8,014,100
    
    
    Ps.
    5,065,904
  F-3




---



##### 



MAXCOM TELECOMUNICACIONES, S. A. B. DE C. V. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS  FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 Thousands of Mexican pesos
(Ps.) as of December 31, 2007 purchasing power,  except for number of shares and per-share amounts
 2007
    
    
    2006
    
    
    2005Net revenues (Note 17)
    
    Ps.
    2,345,719
    
    
    Ps.
    1,741,692
    
    
    Ps.
    1,242,104Costs and expenses:Network operating costs
    
    
    (976,979
    )
    
    
    (676,977
    )
    
    
    (414,332
    )Selling, general and administrative expenses
    
    
    (725,875
    )
    
    
    (607,505
    )
    
    
    (505,566
    )Depreciation and amortization
    
    
    (370,227
    )
    
    
    (300,468
    )
    
    
    (304,066
    )Total operating costs and expenses
    
    
    (2,073,081
    )
    
    
    (1,584,950
    )
    
    
    (1,223,964
    )Operating income
    
    
    272,638
    
    
    
    156,742
    
    
    
    18,140Other expenses (Notes 3c. and 5)
    
    
    (12,819
    )
    
    
    (18,777
    )
    
    
    (6,883
    )Comprehensive financing results  Net (Note 18)
    
    
    (126,641
    )
    
    
    (107,182
    )
    
    
    (59,444
    )Income (loss) before provision for taxes
    
    
    133,178
    
    
    
    30,783
    
    
    
    (48,187
    )Provision for taxes (Note 19):Current income tax
    
    
    (50,700
    )
    
    
    
    
    
    
    (686
    )Deferred income tax
    
    
    (46,282
    )
    
    
    (60,050
    )
    
    
    (28,039
    )Total provision for taxes
    
    
    (96,982
    )
    
    
    (60,050
    )
    
    
    (28,725
    )Net income (loss) for the year
    
    Ps.
    36,196
    
    
    Ps.
    (29,267
    )
    
    Ps.
    (76,912
    )Earnings (loss) per share (Note 5t.):Basic earnings (loss) per ordinary share (in pesos)
    
    Ps.
    0.06
    
    
    Ps.
    (0.07
    )
    
    Ps.
    (0.19
    )Diluted earnings (loss) per ordinary share (in pesos)
    
    Ps.
    0.06
    
    
    Ps.
    (0.07
    )
    
    Ps.
    (0.19
    )
  F-4




---



##### 



MAXCOM TELECOMUNICACIONES, S. A. B. DE C. V. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY  FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 Thousands of Mexican pesos
(Ps.) as of December 31, 2007 purchasing power
 Premium on
    
    
    
    
    
    
    TotalCapital
    
    
    issuance of
    
    
    Accumulated
    
    
    shareholdersstock
    
    
    shares
    
    
    deficit
    
    
    equityBalances as of December 31, 2004
    
    Ps.
    2,700,150
    
    
    Ps.
    966,817
    
    
    Ps.
    (1,899,414
    )
    
    Ps.
    1,767,553Spin off effect (Note 3c.)
    
    
    (702,039
    )
    
    
    
    
    
    
    701,929
    
    
    
    (110
    )Capitalization of premium on issuance of shares (Note 15)
    
    
    965,095
    
    
    
    (965,095
    )
    
    
    
    
    
    
    Capitalization of liabilities(Notes 3c. y 15)
    
    
    
    
    
    
    235,392
    
    
    
    
    
    
    
    235,392Net comprehensive loss for the year
    
    
    
    
    
    
    
    
    
    
    (76,912
    )
    
    
    (76,912
    )Balance as of December 31, 2005
    
    
    2,963,206
    
    
    
    237,114
    
    
    
    (1,274,397
    )
    
    
    1,925,923Increase in capital stock (Note 15)
    
    
    364,276
    
    
    
    
    
    
    
    
    
    
    
    364,276Stock option plan (Note 16)
    
    
    
    
    
    
    15,982
    
    
    
    
    
    
    
    15,982Net comprehensive loss for the year
    
    
    
    
    
    
    
    
    
    
    (29,267
    )
    
    
    (29,267
    )Balances as of December 31, 2006
    
    
    3,327,482
    
    
    
    253,096
    
    
    
    (1,303,664
    )
    
    
    2,276,914Increase in capital stock (Note 15)
    
    
    2,082,769
    
    
    
    597,836
    
    
    
    
    
    
    
    2,680,605Stock option plan (Note 16)
    
    
    
    
    
    
    37,124
    
    
    
    
    
    
    
    37,124Net comprehensive income for the year
    
    
    
    
    
    
    
    
    
    
    36,196
    
    
    
    36,196Balances as of December 31, 2007
    
    Ps.
    5,410,251
    
    
    Ps.
    888,056
    
    
    Ps.
    (1,267,468
    )
    
    Ps.
    5,030,839
  F-5




---



##### 



MAXCOM TELECOMUNICACIONES, S. A. B. DE C. V. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION  FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 Thousands of Mexican Pesos
(Ps.) as of December 31, 2007 purchasing power
 2007
    
    
    2006
    
    
    2005Operating activities:Net income (loss) for the year
    
    Ps.
    36,196
    
    
    Ps.
    (29,267
    )
    
    Ps.
    (76,912
    )Charges to income not affecting resources:Depreciation and amortization
    
    
    370,227
    
    
    
    300,467
    
    
    
    304,067Deferred income tax
    
    
    46,282
    
    
    
    60,051
    
    
    
    28,040Cost of stock option plan
    
    
    37,124
    
    
    
    15,982
    
    
    
    Accelerated amortization of debt
    
    
    
    
    
    
    17,671
    
    
    
    Labor obligations at retirement
    
    
    5,752
    
    
    
    4,642
    
    
    
    2,046Net (increase) decrease in:Accounts receivables
    
    
    (285,004
    )
    
    
    (251,021
    )
    
    
    (67,461
    )Inventory
    
    
    2,540
    
    
    
    (19,160
    )
    
    
    (4,010
    )Prepaid expenses
    
    
    4,109
    
    
    
    18,414
    
    
    
    (11,650
    )Restricted cash and other current assets and liabilities
    
    
    85,932
    
    
    
    (29,881
    )
    
    
    148,233Resources provided by operating activities
    
    
    303,158
    
    
    
    87,898
    
    
    
    322,353Financing activities:Capital stock increase
    
    
    2,643,369
    
    
    
    364,276
    
    
    
    Issuance of long-term bonds and contracting of bank loans,
net of payments and capitalizations
    
    
    126,160
    
    
    
    1,092,993
    
    
    
    78,774Capitalization of liabilities
    
    
    
    
    
    
    
    
    
    
    235,392Derivative financial instruments
    
    
    (24,036
    )
    
    
    (5,217
    )
    
    
    20,338Spin off effect
    
    
    
    
    
    
    
    
    
    
    (110
    )Resources provided by financing activities
    
    
    2,745,493
    
    
    
    1,452,052
    
    
    
    334,394Investment activities:Telephone network system and
equipment  Net
    
    
    (1,160,359
    )
    
    
    (1,130,118
    )
    
    
    (476,198
    )Acquisition of subsidiaries
    
    
    (33,576
    )
    
    
    (101,173
    )
    
    
    Intangible assets
    
    
    (54,472
    )
    
    
    190,425
    
    
    
    (18,468
    )Other assets
    
    
    
    
    
    
    (1,011
    )
    
    
    11,997Resources used in investment activities
    
    
    (1,248,407
    )
    
    
    (1,041,877
    )
    
    
    (482,669
    )Increase in cash and cash equivalents
    
    
    1,800,244
    
    
    
    498,073
    
    
    
    174,078Cash and cash equivalents at beginning of the year
    
    
    739,291
    
    
    
    241,218
    
    
    
    67,140Cash and cash equivalents at end of the year
    
    Ps.
    2,539,535
    
    
    Ps.
    739,291
    
    
    Ps.
    241,218
  F-6




---



##### 



MAXCOM TELECOMUNICACIONES, S. A. B. DE C. V. AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 Ps.
 NOTE 1  INCORPORATION AND BUSINESS
   NOTE 2  CONCESSIONS, FREQUENCY RIGHTS AND INTERCONNECTION AGREEMENTS
 Concessions
  F-7




---



##### 



Frequency rights
   Convergence agreement
  F-8




---



##### 



Interconnection agreements
      NOTE 3  RELEVANT CORPORATE EVENTS
 Acquisition of Sierra Comunicaciones Globales
 Ps. Ps.
 F-9




---



##### 



Net assetsBook Value
    
    
    
    
    
    
    recognized atof net assets as
    
    
    
    
    
    
    Fair valueof November 15,
    
    
    Goodwill
    
    
    November 15,2007
    
    
    allocation
    
    
    2007Assets:Current assets
    
    Ps.
    45
    
    
    
    
    
    
    Ps.
    45Fixed assets
    
    
    10,935
    
    
    Ps.
    21,814
    
    
    
    32,74910,980
    
    
    
    21,814
    
    
    
    32,794Liabilities:Current liabilities
    
    
    (112
    )
    
    
    
    
    
    
    (112
    )Net acquired assets
    
    
    10,868
    
    
    
    21,814
    
    
    
    32,682Net assets fair value
    
    
    (32,682
    )
    
    
    
    
    
    
    (32,682
    )Value in excess over
investment on subsidiaries
    
    Ps.
    (21,814
    )
    
    Ps.
    21,814
    
    
    Ps.
    
  Acquisition of Grupo Telereunión
   F-10




---



##### 



Net assetsBook Value of
    
    
    Negative
    
    
    recognized atnet assets as of
    
    
    Goodwill
    
    
    Fair value as ofJune 30, 2006
    
    
    allocation
    
    
    June 30,2006Assets:Current assets
    
    Ps.
    56,530
    
    
    
    
    
    
    Ps.
    56,530Fixed assets
    
    
    421,572
    
    
    Ps.
    (264,250
    )
    
    
    157,322Intangible assets
    
    
    224,844
    
    
    
    (127,538
    )
    
    
    97,306Deferred taxes
    
    
    37,467
    
    
    
    (37,467
    )
    
    
    740,413
    
    
    
    (429,255
    )
    
    
    311,158Liabilities:Current liabilities
    
    
    (211,278
    )
    
    
    
    
    
    
    (211,278
    )Net acquired assets
    
    
    529,135
    
    
    
    (429,255
    )
    
    
    99,880Net assets fair value
    
    
    (99,880
    )
    
    
    
    
    
    
    (99,880
    )Value in excess over
investment on subsidiaries
(negative goodwill)
    
    Ps.
    429,255
    
    
    Ps.
    (429,255
    )
    
    Ps.
    
    Revenue
    
    Ps.
    88,414Cost
    
    
    (61,223
    )Expenses
    
    
    (1,259
    )Depreciation
    
    
    (10,418
    )Operating Income
    
    Ps.
    15,514Net income
    
    Ps.
    26,755
 F-11




---



##### 



Spin off and sale of subsidiary
 Ps. Ps. Ps.
  Consolidatedbalances
    
    
    Consolidated balancesof Maxcom
    
    
    after spin offbefore spin off
    
    
    Mijolife
    
    
    MaxcomAssetsCurrent assets
    
    Ps.
    171,194
    
    
    
    
    
    
    Ps.
    171,194Accounts receivables and
Other accounts receivables
    
    
    220,983
    
    
    Ps.
    9,061
    
    
    
    211,922Fixed assets and other long term assets
    
    
    2,668,897
    
    
    
    

    
    
    
    2,668,897Total assets
    
    Ps.
    3,061,074
    
    
    Ps.
    9,061
    
    
    Ps.
    3,052,013Liabilities and Shareholders equityTotal liabilities
    
    Ps.
    1,512,188
    
    
    Ps.
    8,951
    
    
    Ps.
    1,503,237Shareholders equity
    
    
    1,548,886
    
    
    
    110
    
    
    
    1,548,776Total liabilities and shareholders equity
    
    Ps.
    3,061,074
    
    
    Ps.
    9,061
    
    
    Ps.
    3,052,013
 Ps. Ps.
  F-12




---



##### 



NOTE 4  CONSOLIDATION BASIS
  Subsidiary company
    
    Line of businessCorporativo en Telecomunicaciones, S. A. de C. V.
    
    Technical servicesMaxcom Servicios Administrativos, S. A. de C. V.
    
    Administrative personnel servicesMaxcom SF, S. A. de C. V.
    
    Rendering of financial servicesOutsourcing Operadora de Personal, S. A. de C. V.
    
    Operating personnel servicesTECBTC Estratégias de Promoción, S. A. de C. V.(formerly Técnicos Especializados enTelecomunicaciones, S. A. de C. V.)
    
    Operating personal servicesMaxcom TV, S. A. de C. V.
    
    Cable television servicesMaxcom USA, Inc.
    
    International communications
servicesTelereunión, S. A. de C. V.
    
    Long distance and infrastructure
provider.Telscape de México, S. A. de C. V.
    
    Computer service providerSierra Comunications USA, Inc.
    
    International communication
servicesSierra Comunicaciones Globales,
S. A. de C. V.
    
    Infrastructure leasing
     NOTE 5  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Ps.
 F-13




---



##### 



Ps. Ps.
   Recognition of the effects of the inflation
  i.
    
    The Company restates its income statement to reflect the purchasing power of the Mexican
peso as of the most recent reporting date (December 31, 2007), using a restatement factor
derived from the change in the National Consumer Price Index (NCPI) from the month in
which the transaction occurred to the most recent year-end. These financial statements have
been restated to Mexican pesos as of December 31, 2007 purchasing power, using the NCPI as
of that date. The financial statements of the previous years have also been restated in
terms of the purchasing power of the Mexican peso as of the most recent financial reporting
date, thus making them comparable. The restatement is determined by using a restatement
factor derived from the change in the NCPI, which for 2007, 2006 and 2005 was 1.000, 1.0376
and 1.0405, respectively. Therefore, these amounts differ from those previously reported.
 F-14




---



##### 



ii.
    
    Capital stock, premium on shares subscription, deficit, fixed assets and intangible
represents the value of these items stated in purchasing power at the end of the last fiscal
year. These values are determined by applying the restatement factors derived from the NCPI.iii.
    
    Comprehensive income (loss) is represented by the net income (loss), plus those entries
required by specific accounting standards to be reflected in shareholders equity but which
do not constitute capital contributions, reductions or distributions, and it is restated on
the basis of NCPI factors.iv.
    
    The gain on monetary position represents the effect of inflation, measured in terms of
the NCPI, on net monthly monetary assets and liabilities for the year, expressed in pesos of
purchasing power as of the most recent fiscal year.v.
    
    Comprehensive cost of financing consists of interest income and expenses, net exchange
gains or losses, and the gain or loss on the net monetary position. The comprehensive cost
of financing during the development stage period was capitalized to preoperating expenses.
Once the Company commenced operations, amortization of these costs began over a ten-year
term.
 Cash and cash equivalents
  Inventories
  F-15




---



##### 



Telephone network systems and equipment
   Ps. Ps. Ps.
   Ps. Ps.
 Ps. Ps.
  F-16




---



##### 



Intangibles
   Ps. Ps.
 Ps.
 Concessions
  Frequency rights
  F-17




---



##### 



Preoperating expenses
  Ps. Ps. Ps. Ps. Ps.
 Long-lived assets
   Liabilities and provisions
  Transactions in foreign currencies
  Income tax (ISR) and flat rate business tax (IETU)
  F-18




---



##### 



Employees statutory profit sharing (PTU)
 Ps.
 Labor obligations at retirement
   Financial instruments
  Revenue recognition
  F-19




---



##### 



F-20




---



##### 



Stock-options compensation
     Ps. Ps.
 Ps.
  F-21




---



##### 



2007
    
    2006
    
    2005Expected yield
    
    
    
    
    
    
    
    
    
    
    Volatility of expected price per share
    
    
    30.00
    %
    
    
    30.00
    %
    
    
    55.00
    %Risk-free interest rate
    
    
    4.89
    %
    
    
    5.00
    %
    
    
    4.35
    %Expected life of options
    
    
    3.25
    
    
    
    3.5
    
    
    
    10
 Information by segments
   Derivative financial instruments
 Ps. Ps.
 Ps. Ps.
 Earnings (loss) per share
  F-22




---



##### 



2007
    
    2006
    
    2005Numerator:Net (loss) income under MEX GAAP
    
    Ps.
    36,196
    
    
    
    (Ps. 29,267
    )
    
    
    (Ps. 76,912
    )Denominator:Weighted average of common shares used in basic computation
    
    
    560,176
    
    
    
    442,928
    
    
    
    403,521Add: dilutive impact of stock options and warrants
    
    
    45,968
    
    
    
    24,700
    
    
    
    Weighted average of common shares used in dilutive computation
    
    
    606,144
    
    
    
    442,928
    
    
    
    403,521Earnings (loss) per share, basic
    
    
    0.06
    
    
    
    (0.07
    )
    
    
    (0.19
    )Earnings (loss) per share, diluted
    
    
    0.06
    
    
    
    (0.07
    )
    
    
    (0.19
    )
 New accounting standards
    F-23




---



##### 



F-24




---



##### 



NOTE 6  TELEPHONE NETWORK SYSTEMS AND EQUIPMENT  NET
  Estimatedusefullife (years)2007
    
    
    2006
    
    
    2007
    
    
    2006Telecommunications network and equipment
    
    Ps.
    2,944,366
    
    
    Ps.
    2,207,946
    
    
    
    17
    
    
    
    17Public telephony equipment
    
    
    377,916
    
    
    
    168,393
    
    
    
    8
    
    
    
    17Leasehold improvements
    
    
    821,883
    
    
    
    545,151
    
    
    
    10
    (1)
    
    
    10Radio equipment
    
    
    330,736
    
    
    
    307,074
    
    
    
    30
    
    
    
    30Line installation cost
    
    
    402,306
    
    
    
    372,562
    
    
    
    20
    
    
    
    20Electronic equipment
    
    
    266,047
    
    
    
    264,775
    
    
    
    25
    
    
    
    25Capitalized expenses due to construction
of networks
    
    
    337,159
    
    
    
    265,107
    
    
    
    30
    
    
    
    30Capitalized comprehensive financing cost
    
    
    66,525
    
    
    
    30,933
    
    
    
    10
    
    
    
    10Computer equipment
    
    
    147,703
    
    
    
    109,354
    
    
    
    5
    
    
    
    5Transportation equipment
    
    
    52,112
    
    
    
    36,527
    
    
    
    4
    
    
    
    4Office furniture
    
    
    26,863
    
    
    
    22,201
    
    
    
    10
    
    
    
    10Other
    
    
    20,476
    
    
    
    19,734
    
    
    
    10
    
    
    
    10Engineering equipment
    
    
    13,227
    
    
    
    12,898
    
    
    
    10
    
    
    
    10Subtotal
    
    
    5,807,319
    
    
    
    4,362,655Accumulated depreciation and amortization
    
    
    (2,082,785
    )
    
    
    (1,513,707
    )Subtotal
    
    
    3,724,534
    
    
    
    2,848,948Constructions in progress
    
    
    464,412
    
    
    
    452,489Ps.
    4,188,946
    
    
    Ps.
    3,301,437
 
 (1)
    
    Considers the original term of the contract plus an additional similar term, based on renewal
experience. F-25




---



##### 



Ps. Ps.
 Ps. Ps. Ps.
     2007
    
    
    2006Computer equipment
    
    
    
    
    
    Ps.
    2,278Transportation equipment
    
    Ps.
    3,534
    
    
    
    8,790Telecommunications equipment
    
    
    
    
    
    
    43,257Total
    
    Ps.
    3,534
    
    
    Ps.
    54,325
 NOTE 7  INTANGIBLE ASSETS
  Usefullife (years)2007
    
    
    2006
    
    
    2007Infrastructure rights
    
    Ps.
    178,964
    
    
    Ps.
    177,512
    
    
    30 and 15Debt issuance costs
    
    
    60,340
    
    
    
    42,408
    
    
    
    8Software licenses
    
    
    213,543
    
    
    
    178,672
    
    
    
    3.3452,847
    
    
    
    398,592Accumulated amortization
    
    
    (244,045
    )
    
    
    (208,343
    )Ps.
    208,802
    
    
    Ps.
    190,249
 F-26




---



##### 



Ps. Ps. Ps. Ps. Ps. Ps.
 Ps.
 NOTE 8  FREQUENCY RIGHTS
  2007
    
    
    2006Frequency rights
    
    Ps.
    155,309
    
    
    Ps.
    155,309Less  Accumulated amortization
    
    
    (74,379
    )
    
    
    (66,935
    )Ps.
    80,930
    
    
    Ps.
    88,374
 Ps. Ps. Ps.
 NOTE 9  RELATED PARTIES
   2007
    
    
    2006
    
    
    2005Electromecánica de Guadalajara, S. A. de C. V. (1)
    
    Ps.
    7,425
    
    
    
    
    
    
    
    Road Telco & Consulting, S. A. de C. V. (2)
    
    
    2,309
    
    
    Ps.
    1,639
    
    
    
    Vázquez Eduardo (3)
    
    
    459
    
    
    
    
    
    
    
    Vázquez Gabriel Agustín (3)
    
    
    459
    
    
    
    
    
    
    
    Bank of America, Co. (4)
    
    
    378
    
    
    
    397
    
    
    Ps.
    527Autokam Regiomontana, S. A. de C. V. (5)
    
    
    343
    
    
    
    
    
    
    
    Sierra Madre Automotriz, S. A. de C. V. (5)
    
    
    318
    
    
    
    
    
    
    
    Inmobiliaria AutoKam, S. A. de C. V. (3)
    
    
    98
    
    
    
    
    
    
    
    Comercializadora Road el Camino, S. A. de C. V. (6)
    
    
    
    
    
    
    323
    
    
    
    1,541Servicios de publicidad proporcionados porDifusión Panorámica, S. A. de C. V. (7)
    
    
    
    
    
    
    22
    
    
    
    36Ps.
    11,789
    
    
    Ps.
    2,381
    
    
    Ps.
    2,104Revenues from telephony services collected from
related parties
    
    Ps.
    1,020
    
    
    Ps.
    940
    
    
    Ps.
    930
 F-27




---



##### 



(1)
    
    Corresponds to interest payments and a portion of the capital pertaining to a loan to settle
Telereunións debt with the Comisión Federal de Electricidad (CFE). See Note 20.(2)
    
    Mr. Adrián Aguirre (Maxcom shareholder) is also a shareholder of Road Telco & Consulting.
The 2007 and 2006 transactions correspond to administrative services.(3)
    
    Corresponds to leases of sites and offices owned by a relative of a Maxcom shareholder.(4)
    
    Corresponds to expenses related to the debt restructuring and travel expenses of Bank of
America (Maxcom shareholder).(5)
    
    Corresponds to costs related to the purchase of vehicles.(6)
    
    Mr. Adrián Aguirre (Maxcom shareholder) is also a shareholder of Comercializadora Road el
Camino, S. A. de C. V. 2006 and 2005 transactions correspond to administrative services and
sales of telephone lines.(7)
    
    Corresponds to advertising services. Ps. Ps. Ps.
 NOTE 10  COMMERCIAL PAPER
 Ps. Ps.
 F-28




---



##### 



NOTE 11  PAYABLE BONDS
  2007
    
    
    2006Short term:$11,590: Series B Bonds (issued on March 17, 2000)
bearing interest at a rate of 133/4%, maturing April 1,
2007.1
    
    
    
    
    
    Ps.
    130,785Long term:$200,000: Senior Notes maturing in 2014, bearing interest
at a fixed annual rate of 11%, payable semiannually as from
June 15, 2007.2
    
    Ps.
    2,173,240
    
    
    Ps.
    1,692,647
 
 1
    
    On April 2, 2007, the Company paid at maturity the
$11,590 Series B bonds.2
    
    On December 20, 2006, the Company issued debt
instruments denominated Bonds in the international markets in the amount of
$150,000 in accordance with Rule 144A and Regulation S, both part of the U.S.
Securities Act of 1933. On January 10, 2007 and September 5, 2007, the Company
issued additional Bonds in the amount of $25,000 each, on the same global offer
and under the same terms as those of the initial placement. Ps.
       Ps.
 F-29




---



##### 



NOTE 12  FOREIGN CURRENCY POSITION
  2007
    
    
    2006U.S. dollars:Assets
    
    $
    223,278
    
    
    $
    69,050Liabilities
    
    
    (223,196
    )
    
    
    (174,234
    )Net assets (liabilities) in U.S. dollars
    
    $
    82
    
    
    $
    (105,184
    )Exchange rate at end of the year (Ps. to the U.S.$1.00)
    
    Ps.
    10.87
    
    
    Ps.
    10.88
 NOTE 13  DERIVATIVE FINANCIAL INSTRUMENTS
 Ps. Ps.
 Ps.
 Ps. Ps.
 F-30




---



##### 



NOTE 14  LABOR OBLIGATIONS AT RETIREMENT
   Seniority premiums
 2007
    
    
    2006Current benefit obligations
    
    Ps.
    1,283
    
    
    Ps.
    1,010Less: plan assets
    
    
    
    
    
    
    Current net liabilities
    
    
    1,283
    
    
    
    1,010Less: projected net liabilities
    
    
    (1,676
    )
    
    
    (1,439
    )Additional liabilities
    
    Ps.
    
    
    
    Ps.
    Projected benefit obligation
    
    Ps.
    1,480
    
    
    Ps.
    1,167Plus (less): Items to be amortized in 22 and 24 years:Net transition asset
    
    
    507
    
    
    
    527Profit from changes in assumptions
    
    
    (311
    )
    
    
    (255
    )Projected net liabilities
    
    Ps.
    1,676
    
    
    Ps.
    1,439Net cost for the period:Labor cost
    
    Ps.
    364
    
    
    Ps.
    236Financial cost
    
    
    46
    
    
    
    30Transition asset amortization
    
    
    (11
    )
    
    
    (23
    )Total net cost for the period (*)
    
    Ps.
    399
    
    
    Ps.
    243
 F-31




---



##### 



Termination of employment
 2007
    
    
    2006Current benefit obligations
    
    Ps.
    24,906
    
    
    Ps.
    20,317Less: plan assets
    
    
    
    
    
    
    Current net liabilities
    
    
    24,906
    
    
    
    20,317Less: projected net liabilities
    
    
    (7,256
    )
    
    
    (5,249
    )Additional liabilities/ Intangible asset
    
    Ps.
    17,650
    
    
    Ps.
    15,068Projected benefit obligation
    
    Ps.
    33,002
    
    
    Ps.
    26,956Plus (less): Items to be amortized in 22 and 24 yearsNet transition liability
    
    
    (19,295
    )
    
    
    (20,291
    )Profit from changes in assumptions
    
    
    (6,452
    )
    
    
    (1,416
    )Projected net liabilities
    
    Ps.
    7,255
    
    
    Ps.
    5,249Net cost for the period:Labor cost
    
    Ps.
    3,265
    
    
    Ps.
    2,751Financial cost
    
    
    1,045
    
    
    
    850Amortization of transition asset
    
    
    1,043
    
    
    
    1,041Total net cost for the period (*)
    
    Ps.
    5,353
    
    
    Ps.
    4,642
 
 (*)
    
    As of December 31, 2007 and 2006, the net cost of the period was Ps.5,752 and Ps.4,866,
respectively, and was determined in the same manner as projected benefit obligations, using an
expected real rates of return of 4% and an average salary increase of 1.5%. See Note 5n.  2007
    
    
    2006Current benefit obligations upon termination of employment
    
    Ps.
    24,906
    
    
    Ps.
    20,317Seniority premium net projected liability
    
    
    1,676
    
    
    
    1,439Total labor obligations at retirement
    
    Ps.
    26,582
    
    
    Ps.
    21,756
 F-32




---



##### 



NOTE 15  SHAREHOLDERS EQUITY
  (Dirección General de Inversión Extranjera)
    
    
    6,088,896 Series A-1 shares to Series A shares, at a one to one ratio;
    
    10,181,950 Series B-1 shares to Series B shares, at a one to one ratio;
    
    220,714,874 Series N-1 shares to Series N shares, at a one to one ratio, and
    
    26,867,820 Series N-2 shares to Series N shares, at a one to one ratio.
 F-33




---



##### 



Series and Class of Shares
    
    2007
    
    2006
    
    2005Issued and outstanding:Series A Class I (fixed portion)
    
    
    1,528,827
    
    
    
    1,528,827
    
    
    
    1,528,827Series A Class II (variable portion)
    
    
    788,290,002
    
    
    
    15,760,793
    
    
    
    2,979,817Series A1 Class II (variable portion)
    
    
    
    
    
    
    
    
    
    
    6,088,896Series B Class II (variable portion)
    
    
    
    
    
    
    16,611,595
    
    
    
    Series B1 Class II (variable portion)
    
    
    
    
    
    
    
    
    
    
    10,181,950Series N Class II (variable portion)
    
    
    
    
    
    
    448,433,563
    
    
    
    8,861,834Series N1 Class II (variable portion)
    
    
    
    
    
    
    
    
    
    
    220,714,874Series N2 Class II (variable portion)
    
    
    
    
    
    
    
    
    
    
    26,867,820Subtotal
    
    
    789,818,829
    
    
    
    482,334,778
    
    
    
    277,224,018Authorized shares not outstanding:(treasury shares)Serie A
    
    
    307,010Series N
    
    
    
    
    
    
    45,901,176
    
    
    
    3,024,011Series N1
    
    
    
    
    
    
    
    
    
    
    23,110,943Subtotal
    
    
    307,010
    
    
    
    45,901,176
    
    
    
    26,134,954Total authorized shares
    
    
    790,125,839
    
    
    
    528,235,954
    
    
    
    303,358,972
  2007
    
    

2006Capital stock
    
    Ps.
    4,814,435
    
    
    Ps.
    2,863,807Restatement effect
    
    
    595,816
    
    
    
    463,675Total capital stock
    
    Ps.
    5,410,251
    
    
    Ps.
    3,327,482
  F-34




---



##### 



Ps. Ps.
 Ps. Ps.
 Ps. Ps.
  F-35




---



##### 



1.
    
    To make a public offering of Ordinary Participation Certificates (CPO) in Mexico, in the form
of shares by offering these securities at the Bolsa Mexicana de Valores, S.A. de C.V. and
other foreign markets in the form of American Depositary Shares (ADS) or other securities or
instruments representing the CPOs or the shares of the Company, in accordance with applicable
laws, including, without limitation, the US Securities Act of 1933, and upon registration of
the corresponding securities with the US Securities and Exchange Commission, so that the
necessary funds may be raised in order to continue the development and growth of the Company
and pay its debts. The CPOs are equivalent to three shares and the ADS are equivalent to seven
CPOs.
 2.
    
    The conversion and/or reclassification of all the shares under the Series A, B, and N,
into new common and registered Series A shares with no par value, representing both the
fixed and the variable portion of the capital stock, as applicable.
 3.
    
    Amend the Companys overall bylaws, including the creation of a number of intermediate
management bodies, and other changes required under the Mexican Stock Market Law to convert
the Company to a publicly traded company (sociedad anónima bursátil or S. A. B.).
 4.
    
    Cancel 45,768,803 of the Companys treasury shares.
 5.
    
    Increase the variable capital stock by issuing up to 260,000,000 common and registered Series
A shares with no par value, representing the variable portion of the capital stock of the
Company and 45,768,803 registered Series A shares, with no par value, representing the
variable portion of the capital stock, to be kept at the treasury.
 Ps. Ps.
  F-36




---



##### 



NOTE 16  STOCK OPTION PLAN
  a)
    
    Executive plan  under the aforesaid plan, there were 575,000 available options as a
grant for officers performance for the years of 1998, 1999 and 2000. As of December 31, 2005,
526,214 options of this plan granted, of which 304,502 remained to be exercised, and 256,094
were fully exercisable.
 b.
    
    New stock option plan for executives  As of December 31, 2005, the Board of
Directors and shareholders of the Company authorized an aggregate of 17,998,500 options to
remunerate officers for the services they rendered during the years 2002, 2003 and 2004.
Also, part of these options served as extraordinary remunerations granted to certain key
officers in case of a change in the control of the Company. As of December 31, 2005,
13,529,500 options had been granted, of which 2,705,900 were fully exercisable.
 c.
    
    Members of the Board of Directors and members of various committees  For each
meeting of the Board or of the different committees of the Company where directors and members
of the different committees attend, they receive an option to purchase 2,500 shares at an
exercise price of $0.01 per share. The chairman of the Board or of the different committees
is entitled to receive options to subscribe 5,000 shares at the same above mentioned exercise
price. Options granted in each meeting may be exercised immediately and expire three years
after, beginning on the date when granted, except when the same Board or the shareholders
meeting provides another mechanism. As of December 31, 2005, 955,000 options had been granted
in this plan, of which 637,500 were fully exercisable.
 d.
    
    Signing bonuses and other bonuses for officers or directors  From time to time the
Company has granted signing bonuses, special bonuses and other bonuses by way of stock
options. There was a reserve of 246,215 N1 Series, Class II treasury shares, available so
that the management or the Board of Directors may grant options on these shares as part of the
signing bonuses negotiated and signed to contract new key officers with the Company.
 F-37




---



##### 



2007
    
    
    2006
    
    
    2005Weighed
    
    
    
    
    
    
    Weighed
    
    
    
    
    
    
    WeighedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding at beginning of year
    
    
    36,651
    
    
    $
    0.38
    
    
    
    18,099
    
    
    $
    0.65
    
    
    
    4,465
    
    
    $
    1.14Granted
    
    
    5,151
    
    
    
    0.25
    
    
    
    36,076
    
    
    
    0.24
    
    
    
    13,712
    
    
    
    0.49Exercised
    
    
    (339
    )
    
    
    0.31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    (4,186
    )
    
    
    0.27
    
    
    
    (17,524
    )
    
    
    0.65
    
    
    
    (78
    )
    
    
    0.01Outstanding at the end of the year
    
    
    37,277
    
    
    
    0.37
    
    
    
    36,651
    
    
    
    0.38
    
    
    
    18,099
    
    
    
    0.65Options exercisable at the end
of the year
    
    
    21,208
    
    
    
    0.41
    
    
    
    7,112
    
    
    
    0.99
    
    
    
    7,226
    
    
    
    0.71Weighted average price of
options granted during the year
(denominated in U.S. dollars)
    
    
    
    
    
    $
    0.25
    
    
    
    
    
    
    $
    0.24
    
    
    
    
    
    
    $
    0.00
    Modified plan
    
    Previous2007
    
    2006
    
    PlanRequisite service period
    

    3 years
    
    
    3 years
    
    
    5 years
    (*)Fair value on modification date
    
    $
    0.149
    
    
    $
    0.09
    
    
    $
    0.00Exercise price
    
    $
    0.31
    
    
    $
    0.31
    
    
    $
    0.50Unrecognized compensation cost in
July 2006 (in dollars: $0 x 23,837,331
options)
    
    
    
    
    
    
    0
    
    
    
    n/a
 
 (*)
    
    At the modification date most options had been already vested. F-38




---



##### 



Fair value of modified option at July 2007
    
    $
    0.149Fair value of modified option at July 2006
    
    
    0.090Fair value of original option at July 2006
    
    
    0.000Incremental value of modified option at July 2007
    
    $
    0.149Incremental value of modified option at July 2006
    
    $
    0.090Incremental value of modified option at July 2007
    
    $
    0.149Incremental value of modified option at July 2006
    
    
    0.090Unrecognized compensation cost for original option
    
    
    0.000Total compensation cost to be recognized in 2007
    
    $
    0.149Total compensation cost to be recognized in 2006
    
    $
    0.090
 Ps. Ps. Ps.
 Options for key executives exercisable upon a change of control
 Ps.
 F-39




---



##### 



New
    
    Plan for the
    
    Options for Boardemployee stock
    
    Chairman
    
    members and optionsoption plan
    
    of the Board
    
    for executives
    
    TotalGranted
    
    
    26,202,748
    
    
    
    5,716,580
    
    
    
    9,070,407
    
    
    
    40,989,735Expected forfeitures
    
    
    (2,654,178
    )
    
    
    
    
    
    
    
    
    
    
    (2,654,178
    )Outstanding options
to be authorized
    
    
    1,826,304
    
    
    
    
    
    
    
    617,500
    
    
    
    2,443,804Options vested for the year
    
    
    339,035
    
    
    
    
    
    
    
    532,500
    
    
    
    871,535
 2007
    
    2006Authorized options
    
    
    45,901,206
    
    
    
    44,915,241Options to be granted
    
    
    43,875,765
    
    
    
    42,468,936Available options
    
    
    2,025,441
    
    
    
    2,446,305
  Black-Scholes assumptions at 2007
 Vesting Period
    
    Volatility
    
    Exercise Price
    
    Risk Free Rate
    
    Fair value3.25 years
    
    
    30
    %
    
    $
    0.31
    
    
    
    4.89
    %
    
    $
    0.149
 Black-Scholes assumptions at 2006
 Vesting Period
    
    Volatility
    
    Exercise Price
    
    Risk Free Rate
    
    Fair value3.5 years
    
    
    30
    %
    
    $
    0.31
    
    
    
    5.00
    %
    
    $
    0.090
 Options (warrants) for services rendered to the Company
  3 4
 F-40




---



##### 



NOTE 17  FINANCIAL INFORMATION BY SEGMENTS AND BY GEOGRAPHICAL LOCATION
  Segment
    
    2007
    
    
    2006
    
    
    2005Residential
    
    Ps.
    897,855
    
    
    Ps.
    685,492
    
    
    Ps.
    595,074Business
    
    
    648,165
    
    
    
    495,433
    
    
    
    400,472Public Telephony
    
    
    386,404
    
    
    
    253,136
    
    
    
    64,178Wholesale
    
    
    376,092
    
    
    
    262,304
    
    
    
    149,622Others
    
    
    37,203
    
    
    
    45,327
    
    
    
    32,758Total revenues
    
    Ps.
    2,345,719
    
    
    Ps.
    1,741,692
    
    
    Ps.
    1,242,104Operating costs and expenses
    
    
    (2,073,081
    )
    
    
    (1,584,950
    )
    
    
    (1,223,964
    )Operating income
    
    Ps.
    272,638
    
    
    Ps.
    156,742
    
    
    Ps.
    18,140
   Metropolitan
    
    
    Central-Services
    
    Area
    
    
    South
    
    
    North
    
    
    TotalYear ended on December 31, 2007:Local
    
    Ps.
    1,398,683
    
    
    Ps.
    517,154
    
    
    
    
    
    
    Ps.
    1,915,837Long distance
    
    
    171,308
    
    
    
    175,234
    
    
    Ps.
    10,375
    
    
    
    356,917Rent of dedicated links
    
    
    180
    
    
    
    119
    
    
    
    
    
    
    
    299Sale of equipment to customers
    
    
    10,698
    
    
    
    3,646
    
    
    
    
    
    
    
    14,344Capacity leasing
    
    
    58,322
    
    
    
    
    
    
    
    
    
    
    
    58,322Total revenue
    
    Ps.
    1,639,191
    
    
    Ps.
    696,153
    
    
    Ps.
    10,375
    
    
    Ps.
    2,345,719Assets
    
    Ps.
    8,728,860
    
    
    Ps.
    814,161
    
    
    Ps.
    553,864
    
    
    Ps.
    10,096,885Accumulated depreciation
    
    
    (2,082,785
    )
    
    
    
    
    
    
    
    
    
    
    (2,082,785
    )Total assets
    
    Ps.
    6,646,075
    
    
    Ps.
    814,161
    
    
    Ps.
    553,864
    
    
    Ps.
    8,014,100Acquisition of telephone
network systems and
equipment
    
    Ps.
    973,074
    
    
    Ps.
    476,519
    
    
    Ps.
    32,834
    
    
    Ps.
    1,482,427
 F-41




---



##### 



Metropolitan
    
    
    Central-Services
    
    Area
    
    
    South
    
    
    North
    
    
    TotalYear ended on December 31, 2006:Local
    
    Ps.
    934,524
    
    
    Ps.
    385,265
    
    
    
    
    
    
    Ps.
    1,319,789Long distance
    
    
    220,131
    
    
    
    121,633
    
    
    Ps.
    28,459
    
    
    
    370,223Rent of dedicated links
    
    
    342
    
    
    
    157
    
    
    
    
    
    
    
    499Sale of equipment to customers
    
    
    6,062
    
    
    
    8,360
    
    
    
    
    
    
    
    14,422Capacity leasing
    
    
    36,759
    
    
    
    
    
    
    
    
    
    
    
    36,759Total revenue
    
    Ps.
    1,197,818
    
    
    Ps.
    515,415
    
    
    Ps.
    28,459
    
    
    Ps.
    1,741,692Assets
    
    Ps.
    5,867,306
    
    
    Ps.
    325,527
    
    
    Ps.
    386,778
    
    
    Ps.
    6,579,611Accumulated depreciation
    
    
    (1,513,707
    )
    
    
    
    
    
    
    
    
    
    
    (1,513,707
    )Total assets
    
    Ps.
    4,353,599
    
    
    Ps.
    325,527
    
    
    Ps.
    386,778
    
    
    Ps.
    5,065,904Acquisition of telephone
network systems and
equipment
    
    Ps.
    666,782
    
    
    Ps.
    141,454
    
    
    Ps.
    710
    
    
    Ps.
    808,946Year ended on December 31, 2005:Local
    
    Ps.
    502,646
    
    
    Ps.
    327,670
    
    
    Ps.
    
    
    
    Ps.
    830,316Long distance
    
    
    205,893
    
    
    
    173,911
    
    
    
    
    
    
    
    379,804Rent of dedicated links
    
    
    358
    
    
    
    516
    
    
    
    
    
    
    
    874Sale of equipment to customers
    
    
    2,881
    
    
    
    3,210
    
    
    
    
    
    
    
    6,091Capacity leasing
    
    
    24,127
    
    
    
    
    
    
    
    
    
    
    
    24,127Other
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    892Total revenue
    
    Ps.
    736,797
    
    
    Ps.
    505,307
    
    
    Ps.
    
    
    
    Ps.
    1,242,104
 NOTE 18  COMPREHENSIVE FINANCING RESULTS
  2007
    
    
    2006
    
    
    2005Comprehensive financing results:Interest and commissions paid  Net
    
    Ps.
    (285,858
    )
    
    Ps.
    (178,153
    )
    
    Ps.
    (109,758
    )Interest gain  Net
    
    
    55,793
    
    
    
    8,591
    
    
    
    4,494Exchange gain  Net
    
    
    25,247
    
    
    
    6,756
    
    
    
    21,564Gain on monetary position
    
    
    42,586
    
    
    
    33,753
    
    
    
    23,849Ps.
    (162,232
    )
    
    Ps.
    (129,053
    )
    
    Ps.
    (59,851
    )Capitalized in telecommunications
equipment and network (Note 6)
    
    Ps.
    35,591
    
    
    Ps.
    21,871
    
    
    Ps.
    407Total recorded in income for the period
    
    Ps.
    (126,641
    )
    
    Ps.
    (107,182
    )
    
    Ps.
    (59,444
    )
 F-42




---



##### 



NOTE 19  INCOME TAX (IT), ASSET TAX (AT) AND FLAT RATE BUSINESS TAX (IETU)
  Ps. Ps. Ps. Ps. Ps. Ps.
    2007
    
    
    2006
    
    
    2005Current income tax
    
    Ps.
    50,700
    
    
    Ps.
    
    
    
    Ps.
    686Deferred income tax
    
    
    46,282
    
    
    
    60,050
    
    
    
    28,039Total provision
    
    Ps.
    96,982
    
    
    Ps.
    60,050
    
    
    Ps.
    28,725
  F-43




---



##### 



December 31,2007
    
    
    2006Profit before tax provisions
    
    Ps.
    133,178
    
    
    Ps.
    30,783Income tax rate
    
    
    28
    %
    
    
    29
    %Income tax provision
    
    
    37,290
    
    
    
    8,927Plus (less) tax effects of the following permanent items:Non-deductible expenses
    
    
    14,017
    
    
    
    1,301Annual adjustment for inflation
    
    
    11,464
    
    
    
    14,803Effects of inflation on income statement
    
    
    (9,384
    )
    
    
    9,218Cancellation of allowance on asset tax for prior years(1)
    
    
    
    
    
    
    31,679Other permanent items
    
    
    4,323
    
    
    
    (5,878
    )Income tax at statutory rate
    
    
    57,710
    
    
    
    60,050Effective income tax rate
    
    
    43
    %
    
    
    195
    %Provision for AT currently payable
    
    
    39,272
    
    
    
    Income tax provision
    
    Ps.
    96,982
    
    
    Ps.
    60,050
 
 (1)
    
    Through December 31, 2005, the Company considered it had possibilities of recovering
asset tax paid in prior years, based on the results of legal proceedings initiated and on the fact
that the prior Asset Tax Law allowed for deduction of liabilities in computing net assets. However,
during the last quarter of 2006, the conditions of the legal process changed radically and together
with the changes to the Asset Tax Law, effective as from January 1, 2007, which now precludes the
inclusion of liabilities in determining the asset tax base, the Company concluded that there were
not enough grounds to obtain a favorable resolution, and decided, on a conservative basis, to
record a valuation allowance in the total amount of said tax. Asset tax is incurred at the rate of
1.25% over the net amount of certain assets only when this tax exceeds income tax payable. F-44




---



##### 



2007
    
    
    2006Current:Allowance for doubtful accounts
    
    Ps.
    21,775
    
    
    Ps.
    25,965Prepaid expenses
    
    
    (17,269
    )
    
    
    (16,814
    )Provisions
    
    
    11,732
    
    
    
    66,495Total current
    
    
    16,238
    
    
    
    75,646Non current:Telephone network, equipment and leasehold improvements,
frequency rights, intangible assets and preoperating
expenses  Net
    
    
    (291,599
    )
    
    
    (241,547
    )AT paid in prior years
    
    
    35,873
    
    
    
    35,873Tax loss carryforwards
    
    
    246,867
    
    
    
    195,488Total non current
    
    
    (8,859
    )
    
    
    (10,186
    )Net deferred tax asset before valuation allowance
    
    
    7,379
    
    
    
    65,460Valuation allowance for tax losses and AT
    
    
    (105,121
    )
    
    
    (154,156
    )Deferred income tax liability
    
    Ps.
    (          97,742
    )
    
    Ps.
    (           88,696
    )Deferred income tax provision analysis:Net change in deferred income tax liability
    
    Ps.
    (9,046
    )
    
    Ps.
    (           60,050
    )Tax effect of deductible expenses related to the
issuance of shares recorded net in the premium on
share issuance
    
    
    (37,236
    )
    
    
    Deferred income tax provision
    
    Ps.
    (         46,282
    )
    
    Ps.
    (           60,050
    )
 F-45




---



##### 



Year of
    
    
    
    
    
    Year ofloss
    
    Amount
    
    
    expiration1999
    
    Ps.
    16,467
    
    
    
    20092000
    
    
    73,832
    
    
    
    20102001
    
    
    54,151
    
    
    
    20112002
    
    
    254,521
    
    
    
    20122003
    
    
    31,555
    
    
    
    20132004
    
    
    72,304
    
    
    
    20142005
    
    
    101,718
    
    
    
    20152006
    
    
    29,410
    
    
    
    20162007
    
    
    247,719
    
    
    
    2017Ps.
    881,677
 NOTE 20  COMMITMENTS AND CONTINGENCIES:
  a.
    
    Operating lease agreements:
   2008
    
    Ps.
    47,6752009
    
    
    45,5382010
    
    
    42,8252011
    
    
    31,9172012 and thereafter:
    
    
    30,688Ps.
    198,643
   F-46




---



##### 



2008
    
    Ps.
    25,0422009
    
    
    22,7652010
    
    
    22,4012011
    
    
    21,3892012 and thereafter:
    
    
    20,549Ps.
    112,146
    2008
    
    Ps.
    8,4632009
    
    
    4,617Total
    
    Ps.
    13,080
       F-47




---



##### 



F-48




---



##### 



NOTE 21  SIGNIFICANT DIFFERENCES BETWEEN MEXICAN AND THE UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
  F-49




---



##### 



Years Ended December 31,2007
    
    
    2006
    
    
    2005Net income (loss) under Mexican GAAP
    
    Ps.
    36,196
    
    
    Ps.
    (29,267
    )
    
    Ps.
    (76,912
    )Adjustments:Amortization of pre-operating expenses (a)
    
    
    20,438
    
    
    
    32,030
    
    
    
    39,193Capitalization of interest (b)
    
    
    (716
    )
    
    
    49,945
    
    
    
    (1,211
    )Amortization of capitalized interest (b)
    
    
    (11,896
    )
    
    
    (27,136
    )
    
    
    2,801Installation revenues and related costs (c)
    
    
    (6,758
    )
    
    
    858
    
    
    
    3,245Installation costs not charged to customers (d)
    
    
    (60,640
    )
    
    
    (213,247
    )
    
    
    (69,413
    )Debt
restructuring (e)
    
    
    
    
    
    
    197,006
    
    
    
    52,488Capitalized internal compensation cost (f)
    
    
    143
    
    
    
    143
    
    
    
    143Spin-off and sale of subsidiary (g)
    
    
    
    
    
    
    
    
    
    
    235,282Retirement obligations (h)
    
    
    (682
    )
    
    
    (908
    )
    
    
    Reversal of SAB 108 (k)
    
    
    
    
    
    
    3,035
    
    
    
    Recognition of deferred taxes (1)
    
    
    184,914
    
    
    
    
    
    
    
    Total US GAAP adjustments
    
    
    124,803
    
    
    
    41,726
    
    
    
    262,528Net income under U.S. GAAP
    
    Ps.
    160,999
    
    
    Ps.
    12,459
    
    
    Ps.
    185,616Basic and diluted earnings per share:Numerator:Net  income under U.S. GAAP
    
    Ps.
    160,999
    
    
    Ps.
    12,459
    
    
    Ps.
    185,616less:
preferred stock dividend
    
    
    
    
    
    
    (539,738
    )
    
    
    less: amount
allocated to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    (176,336
    )Net (loss) Income under U.S. GAAP available for
common shareholders, used for basic computation
    
    
    160,999
    
    
    
    (527,279
    )
    
    
    9,280Add: amount
allocated to convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    176,336Net (loss) Income under U.S. GAAP available for common
shareholders, used for dilutive computation
    
    
    160,999
    
    
    
    (527,279
    )
    
    
    185,616Denominator:Weighted average of common shares used in basic computation
    
    
    560,176
    
    
    
    247,853
    
    
    
    13,860Add: dilutive impact of stock options and warrants
    
    
    45,968
    
    
    
    24,700
    
    
    
    Add: dilutive impact of convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    263,364Weighted average of common shares used in dilutive computation
    
    
    606,144
    
    
    
    247,853
    
    
    
    277,224Earnings per share, basic
    
    
    0.29
    
    
    
    (2.13
    )
    
    
    0.67Earnings per share, diluted
    
    
    0.27
    
    
    
    (2.13
    )
    
    
    0.67
  
 (1)
    
    According to FAS 128. F-50




---



##### 



As of December 31,2007
    
    
    2006Shareholders equity under Mexican GAAP
    
    Ps.
    5,030,839
    
    
    Ps.
    2,276,914Accumulated adjustments:Preoperating expenses (a)
    
    
    (391,951
    )
    
    
    (391,951
    )Amortization of preoperating expenses (a)
    
    
    314,049
    
    
    
    293,611Capitalization of interest (b)
    
    
    121,178
    
    
    
    121,894Depreciation of capitalized interest (b)
    
    
    (52,347
    )
    
    
    (40,451
    )Installation revenues and related costs (c)
    
    
    (73,981
    )
    
    
    (67,225
    )Installation costs not charged to customers (d)
    
    
    (583,696
    )
    
    
    (523,056
    )Capitalized internal compensation cost (f)
    
    
    (2,143
    )
    
    
    (2,285
    )Retirement obligations(h)
    
    
    (1,590
    )
    
    
    (908
    )SAB 108 initial effects (i)
    
    
    7,034
    
    
    
    7,034SAB 108 effects for the year (k)
    
    
    3,035
    
    
    
    3,035Recognition of deferred taxes (1)
    
    
    184,914Total U.S. GAAP adjustments
    
    Ps.
    (475,498
    )
    
    Ps.
    (600,302
    )Shareholders equity under U.S. GAAP
    
    Ps.
    4,555,341
    
    
    Ps.
    1,676,612
  Year EndedDecember 31,2007
    
    
    2006Balance at the beginning of the year
    
    Ps.
    1,676,612
    
    
    Ps.
    1,276,861Net income (loss) under U.S. GAAP
    
    
    160,999
    
    
    
    12,459Increase in capital stock
    
    
    2,045,646
    
    
    
    364,276Increase in premium on issuance of shares
    
    
    634,960
    
    
    
    SAB 108 initial effects (i)
    
    
    
    
    
    
    7,034Stock option plan
    
    
    37,124
    
    
    
    15,982Balance at the end of the year
    
    Ps.
    4,555,341
    
    
    Ps.
    1,676,612
 I. Explanation of reconciling items
   F-51




---



##### 



F-52




---



##### 



13 3/4% 3 4 3 4
  (a)
    
    The exchange with the primary holder is accounted for as a combination of types as the
primary holder received both New Senior Notes and stock in exchange for the Old Senior Notes
exchanged. A gain was recorded, as the adjusted carrying value of the Old Senior Notes
exchanged was greater than the total future cash payments of the New Senior Notes at the
time of the exchange. To calculate the gain on the restructuring, the carrying value of the
Old Senior Notes was reduced by the fair value of the equity interest granted as well as all
legal and other costs in relation to the restructuring, to determine the adjusted carrying
value, which was compared to the gross future cash payments under the terms of the New
Senior Notes to determine the gain.(b)
    
    The other holders exchanged Old Senior Notes for New Senior Notes, which is accounted for
as a modification of terms under FAS 15 due to the extension of the maturity date and the
increase in total interest payments. Since the carrying amount of the Old Senior Notes on
October 8, 2004 did not exceed the total future cash payments of the New Senior Notes, no
gain on the exchange with the other holders was recognized.
   F-53




---



##### 



2007Labor obligation at retirement asset as of December
31, 2006
    
    Ps.
    15,068Labor obligation at retirement asset as of December
31, 2007
    
    
    17,650Amortization of past service cost
    
    
    2,582Amortization of variances in assumptions
    
    
    (992
    )Cost reduction under US GAAP
    
    Ps.
    1,590
 F-54




---



##### 



2006Labor obligation at retirement asset as of
December 31, 2005
    
    Ps.
    15,976Labor obligation at retirement asset as of
December 31, 2006
    
    
    15,068Amortization of past service cost
    
    
    908Amortization of variances in assumptions
    
    
    Cost reduction under US GAAP
    
    Ps.
    908
      F-55




---



##### 



Period in which the
    
    
    Period in which the
    
    
    Period in which theMisstatement
    
    
    Misstatement
    
    
    MisstatementOriginated (1)
    
    
    Originated (1)
    
    
    Originated (1)
    
    
    Adjustment recordedYear Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    as ofDecember 31, 2003
    
    
    December 31, 2004
    
    
    December 31, 2005
    
    
    January 1, 2006Labor liabilities (2)
    
    Ps.
    (15,977
    )
    
    Ps.
    
    
    
    Ps.
    (647
    )
    
    Ps.
    (16,624
    )Capitalized interest (3)
    
    
    (4,576
    )
    
    
    (1,310
    )
    
    
    613
    
    
    
    (5,273
    )Increasing-debt rate (4)
    
    
    
    
    
    
    (3,682
    )
    
    
    (8,321
    )
    
    
    (12,003
    )Stock-option plan (5)
    
    
    
    
    
    
    (603
    )
    
    
    (2,890
    )
    
    
    (3,493
    )Embedded
derivatives (6)
    
    
    
    
    
    
    
    
    
    
    7,292
    
    
    
    7,292Debt restructuring (7)
    
    
    
    
    
    
    137,597
    
    
    
    6
    
    
    
    137,603Installation costs not
charged (7)
    
    
    
    
    
    
    (111,511
    )
    
    
    1,593
    
    
    
    (109,918
    )Installation revenues
and costs (8)
    
    
    
    
    
    
    
    
    
    
    11,593
    
    
    
    11,593Other (9)
    
    
    11,346
    
    
    
    (9,534
    )
    
    
    (3,955
    )
    
    
    (2,143
    )Deferred income
taxes (10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impact on
net income(11)
    
    Ps.
    (9,207
    )
    
    Ps.
    10,957
    
    
    Ps.
    5,284Retained earnings(12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ps.
    7,034
 
 (1)
    
    We previously quantified these errors under the roll-over method and concluded that they
were immaterial, individually and in the aggregate. F-56




---



##### 



(2)
    
    We were not recognizing this difference for severance indemnity as required by U.S.
generally accepted accounting principles (see reconciling item h.). As a result of this
error, our severance indemnity expense was understated by Ps.16.0 million in 2003 and by Ps.0.6
million in 2005, no expense recognition is applicable for 2004. We recorded a Ps.16.6 million
increase in our liability for severance indemnity as of January 1, 2006 with a corresponding
reduction in retained earnings to correct these misstatements.(3)
    
    We incorrectly amortized capitalized interest expenses in 2005 and prior years. As a
result of this error, our expenses were understated in 2003 by Ps.4.6 million, in 2004 by Ps.1.3
and overstated by Ps.0.6 million in 2005. We recorded a Ps.5.3 million decrease in our
capitalized interest as of January 1, 2006 with a corresponding reduction in retained
earnings to correct these misstatements.(4)
    
    We were not adjusting our expenses for increasing-debt rate as required by U.S. generally
accepted accounting principles to the interest method. As a result of this error, our
interest expense was understated by Ps.3.7 million in 2004 and by Ps.8.3 million in 2005. We
recorded a Ps.12.0 million increase in our liability for interest payable as of January 1,
2006 with a corresponding reduction in retained earnings to correct these misstatements (see
item k. below for reversal in 2006).(5)
    
    We were not recognizing compensation cost expense as required by U.S. generally accepted
accounting principles. As a result of this error, our compensation expense was understated
by Ps.0.6 million in 2004 and by Ps.2.9 million in 2005. We recorded a Ps.3.5 million increase in
our additional-paid in capital for stock-option plans as of January 1, 2006 with a
corresponding reduction in retained earnings to correct these misstatements.(6)
    
    We were not recognizing the effect in income generated by embedded derivatives as
required by U.S. generally accepted accounting principles. As a result of this error in
both GAAPs in 2005, our income was understated by Ps.7.3 million. We recorded a Ps.7.3 million
increase in our assets as of January 1, 2006 with a corresponding increase in retained
earnings to correct these misstatements. This balance does not represent a difference
between GAAPs, however for Mexican GAAP purposes this effect was immaterial for being
adjusted (see item k. below for reversal in 2006).(7)
    
    We were incorrectly presenting the accumulated amortization related to debt restructuring
and installation costs not charged to customers. As a result of both reclassification
errors, our income was understated by Ps.26.1 million in 2004 and by Ps.1.6 million in 2005
(amounts presented net). We recorded a Ps.27.7 million increase in our assets as of January
1, 2006 with a corresponding increment in retained earnings to correct these misstatements.(8)
    
    We were incorrectly recognizing the effect in income generated by the amortization
installation revenues and costs. As a result of this error, our income was understated by
Ps.11.6 million in 2005. We recorded a Ps.11.6 million increase in our assets as of
January 1, 2006 with a corresponding increment in retained earnings to correct these
misstatements. F-57




---



##### 



(9)
    
    We incorrectly recorded minor entries representing preoperating expenses, leasehold
improvements and revenue recognition. As a result of these errors, our expense was
overstated by Ps.11.3 million in 2003 and understated by Ps.9.5 million in 2004 and Ps.4.0 million
in 2005. We recorded a Ps.2.2 million increase in the Companys liabilities for these
concepts as of January 1, 2006 with a corresponding reduction in retained earnings to
correct these misstatements.(10)
    
    No deferred taxes were calculated in the application of the SAB 108 as those balances
would represent a deferred tax asset for the net balance to be adjusted on January 1, 2006,
that is not deemed recoverable and should be fully reserved for accounting purposes.(11)
    
    Represents the net over-statement of net income for the indicated periods resulting from
these misstatements(12)
    
    Represents the net reduction to retained earnings recorded as of January 1, 2006 to
record the initial application of SAB 108.   December 31, 2006Preoperating expenses
    
    Ps.
    (1,676
    )Increasing debt rate (1)
    
    
    12,003Embedded derivatives (2)
    
    
    (7,292
    )Ps.
    3,035
 
 (1)
    
    These notes were called in advance during 2006 and thus, outstanding payable balances under
U.S. GAAP were therefore eliminated.(2)
    
    In 2006, the Company started recognizing embedded derivatives in local books, therefore
reconciling item should be reversed accordingly.   F-58




---



##### 



Disclosures
   
    
    borrow money;
 
    
    pay dividends on our capital stock;
 
    
    purchase stock or repay subordinated indebtedness;
 
    
    sell assets; and
 
    
    consolidate or merge into other companies.
    F-59




---



##### 



F-60




---



##### 



SFAS 109Applied to
    
    
    SFAS 109Mexican
    
    
    Applied toGAAP
    
    
    U.S. GAAPBalances
    
    
    Balances
    
    
    TotalDecember 31, 2007Deferred assets:Bad debt allowance
    
    Ps.
    21,775
    
    
    
    
    
    
    Ps.
    21,775Tax loss carry forwards
    
    
    246,867
    
    
    
    
    
    
    
    246,867Accruals
    
    
    11,732
    
    
    
    
    
    
    
    11,732Installation revenues
    
    
    
    
    
    
    20,715
    
    
    
    20,715Installation costs not charged to customers
    
    
    
    
    
    
    163,435
    
    
    
    163,435Deferred tax assets
    
    
    280,374
    
    
    
    184,150
    
    
    
    464,524Deferred liabilities:Prepaid expenses
    
    
    (17,269
    )
    
    
    
    
    
    
    (17,269
    )Telephone network equipment and leasehold improvements,
frequency rights, intangible assets and preoperating
expenses
    
    
    (291,599
    )
    
    
    764
    
    
    
    (290,835
    )Deferred tax liabilities
    
    
    (308,868
    )
    
    
    764
    
    
    
    (308,104
    )Net deferred income tax asset before valuation allowance
    
    
    (28,494
    )
    
    
    184,914
    
    
    
    156,420Valuation allowance
    
    
    (69,248
    )
    
    
    
    
    
    
    (69,248
    )Ps.
    (97,742
    )
    
    Ps.
    184,914
    
    
    Ps.
    87,172
 SFAS 109
    
    
    SFAS 109Applied to
    
    
    Applied toMexican
    
    
    U.S.GAAP
    
    
    GAAPBalances
    
    
    Balances
    
    
    TotalDecember 31, 2006Deferred assets:Bad debt allowance
    
    Ps.
    25,965
    
    
    
    
    
    
    Ps.
    25,965Asset tax payments
    
    
    35,873
    
    
    
    
    
    
    
    35,873Tax loss carryforwards
    
    
    195,488
    
    
    
    
    
    
    
    195,488Accruals
    
    
    66,495
    
    
    
    
    
    
    
    66,495Installation revenues
    
    
    
    
    
    
    18,823
    
    
    
    18,823Installation costs not charged to customers
    
    
    
    
    
    
    146,456
    
    
    
    146,456Deferred tax assets
    
    
    323,821
    
    
    
    165,279
    
    
    
    489,100Deferred liabilities:Prepaid expenses
    
    
    (16,814
    )
    
    
    
    
    
    
    (16,814
    )Telephone network equipment and leasehold improvements,
frequency rights, intangible assets and preoperating
expenses
    
    
    (241,547
    )
    
    
    5,625
    
    
    
    (235,922
    )Deferred tax liabilities
    
    
    (258,361
    )
    
    
    5,625
    
    
    
    (252,736
    )Net deferred income tax asset before valuation allowance
    
    
    65,460
    
    
    
    170,904
    
    
    
    236,326Valuation allowance
    
    
    (154,156
    )
    
    
    (170,904
    )
    
    
    (325,060
    )Ps.
    (88,696
    )
    
    Ps.
    
    
    
    Ps.
    ( 88,696
    )
 F-61




---



##### 



SFAS 109
    
    
    SFAS 109Applied to
    
    
    Applied toMexican
    
    
    U.S.GAAP
    
    
    GAAPBalances
    
    
    Balances
    
    
    TotalDecember 31, 2005Deferred assets:Bad debt allowance
    
    Ps.
    26,068
    
    
    
    
    
    
    Ps.
    26,068Asset tax payments
    
    
    35,873
    
    
    
    
    
    
    
    35,873Tax loss carryforwards
    
    
    103,568
    
    
    
    
    
    
    
    103,568Accruals
    
    
    76,016
    
    
    
    
    
    
    
    76,016Installation revenues
    
    
    
    
    
    
    19,064
    
    
    
    19,064Installation costs not charged to customers
    
    
    
    
    
    
    86,746
    
    
    
    86,746Deferred tax assets
    
    
    241,525
    
    
    
    105,809
    
    
    
    347,334Deferred liabilities:Prepaid expenses
    
    
    (32,287
    )
    
    
    
    
    
    
    (32,287
    )Telephone network equipment and leasehold improvements,
frequency rights, intangible assets and preoperating
expenses
    
    
    (233,690
    )
    
    
    20,767
    
    
    
    (212,923
    )Deferred tax liabilities
    
    
    (265,977
    )
    
    
    20,767
    
    
    
    (245,210
    )Net deferred income tax asset before valuation allowance
    
    
    (24,452
    )
    
    
    126,577
    
    
    
    102,125Valuation allowance
    
    
    (4,194
    )
    
    
    (126,577
    )
    
    
    (130,771
    )Ps.
    ( 28,646
    )
    
    Ps.
    
    
    
    Ps.
    ( 28,646
    )
    F-62




---



##### 



Year Ended December 31,2007
    
    
    2006
    
    
    2005Operating activities:Net (loss) income under U.S. GAAP
    
    Ps.
    160,999
    
    
    Ps.
    12,459
    
    
    Ps.
    185,616Adjustments to reconcile net income (loss) to net cash flow provided by
operating activities:Depreciation and amortization
    
    
    328,269
    
    
    
    167,721
    
    
    
    261,931Fixed asset write-offs
    
    
    
    
    
    
    
    
    
    
    12,393Capitalization of liabilities
    
    
    
    
    
    
    
    
    
    
    235,392Spin off effect
    
    
    
    
    
    
    
    
    
    
    (110
    )Hedging valuation
    
    
    (24,036
    )
    
    
    (5,217
    )
    
    
    20,338Allowance for doubtful accounts
    
    
    5,318
    
    
    
    36,556
    
    
    
    30,905Monetary gain
    
    
    (15,533
    )
    
    
    (21,503
    )
    
    
    (23,849
    )Allowance for inventory of obsolescence
    
    
    
    
    
    
    
    
    
    
    330Deferred income tax
    
    
    (138,632
    )
    
    
    60,051
    
    
    
    28,040Employee benefits
    
    
    6,434
    
    
    
    4,642
    
    
    
    Stock option plan
    
    
    37,124
    
    
    
    15,982
    
    
    
    Loss (gain) on sale of fixed assets
    
    
    6,166
    
    
    
    1,369
    
    
    
    Other
    
    
    67,255
    
    
    
    (1,000
    )
    
    
    Foreign currency exchange (gain) loss
    
    
    (47,957
    )
    
    
    (90,781
    )
    
    
    (19,586
    )385,407
    
    
    
    180,279
    
    
    
    731,400Changes in operating assets and liabilities:Accounts receivable
    
    
    (319,003
    )
    
    
    (321,562
    )
    
    
    (106,969
    )Inventory
    
    
    2,540
    
    
    
    (19,160
    )
    
    
    (4,341
    )Prepaid expenses
    
    
    2,091
    
    
    
    14,271
    
    
    
    (13,946
    )Other assets and liabilities
    
    
    93,404
    
    
    
    25,267
    
    
    
    155,390Cash flow provided by (used in) operating activities
    
    
    164,439
    
    
    
    (120,905
    )
    
    
    761,534Financing activities:Restricted cash
    
    
    23,462
    
    
    
    (15,179
    )
    
    
    12,063Capital increase  Net of equity issuance cost
    
    
    2,643,369
    
    
    
    357,348
    
    
    
    Bank financing and debt payments
    
    
    131,432
    
    
    
    (460,666
    )
    
    
    (115,268
    )Senior notes issued  Net of debt issuance cost
    
    
    118,214
    
    
    
    1,650,241
    
    
    
    Cash flow provided by financing activities
    
    
    2,916,477
    
    
    
    1,531,744
    
    
    
    103,205Investing activities:Acquisition of fixed assets
    
    
    (1,126,022
    )
    
    
    (772,773
    )
    
    
    (410,903
    )Proceeds on sale of fixed assets
    
    
    (6,371
    )
    
    
    4,428
    
    
    
    Purchase of Telereunion, net of cash acquired
    
    
    
    
    
    
    (101,173
    )
    
    
    Purchase of Sierra, net of cash acquired
    
    
    (33,576
    )
    
    
    
    
    
    
    Acquisition of intangible assets
    
    
    (79,112
    )
    
    
    (35370
    )
    
    
    (59,547
    )Cash flow used in investing activities
    
    
    (1,245,081
    )
    
    
    (904,888
    )
    
    
    (470,450
    )Cash and cash equivalents:Effect of inflation and exchange rate changes on cash and cash equivalents
    
    
    (35,591
    )
    
    
    (7,878
    )
    
    
    (13,800
    )Net increase in cash and cash equivalents
    
    
    1,800,244
    
    
    
    498,073
    
    
    
    174,079Cash and cash equivalents at beginning of the year
    
    
    739,291
    
    
    
    241,218
    
    
    
    67,139Cash and cash equivalents at end of the year
    
    
    2,539,535
    
    
    
    739,291
    
    
    
    241,218Interest paid
    
    Ps.
    271,973
    
    
    Ps.
    139,716
    
    
    Ps.
    75,569Taxes paid
    
    Ps.
    25,530
    
    
    Ps.
    1,396
    
    
    Ps.
    545Supplemental disclosures about non-cash activities
Optical fiber and links reclassification
    
    
    
    
    
    
    144,241
    
    
    
    (Decrease) increase on fixed assets acquired
Under capitalizable lease
    
    
    (50,791
    )
    
    
    15,620
    
    
    
    (1,569
    )
 F-63




---



##### 



F-64




---



##### 



F-65




---



##### 



NON-GUARANTOR SUBSIDIARIESMaxcom
    
    
    Maxcom
    
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    USA
    
    
    TV
    
    
    TECBTC
    
    
    Telereunión
    
    
    USA
    
    
    Telscape
    
    
    SCG
    
    
    Elimination
    
    
    ConsolidatedBalance sheet as of December
31, 2007:Cash and cash equivalents and
Current restricted cash
    
    Ps.
    2,526,044
    
    
    
    1,398
    
    
    
    2,842
    
    
    
    435
    
    
    
    2,799
    
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    1,485
    
    
    
    4,267
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    2,539,535Accounts receivable  net
    
    
    742,528
    
    
    
    6,338
    
    
    
    53,419
    
    
    
    11,748
    
    
    
    170,804
    
    
    
    110
    
    
    
    51
    
    
    
    1,552
    
    
    
    16,406
    
    
    
    14,550
    
    
    
    2,081
    
    
    
    19
    
    
    
    (249,093
    )
    
    
    770,513Inventory  net
    
    
    33,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,249Prepaid expenses
    
    
    49,471
    
    
    
    339
    
    
    
    1,966
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,830
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,630Investment in subsidiaries
    
    
    299,637
    
    
    
    
    
    
    
    4,969
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (304,606
    )
    
    
    Frequency rights  net
    
    
    80,930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,930Telephone network system and
Equipment net
    
    
    3,944,727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202,410
    
    
    
    9,478
    
    
    
    20,985
    
    
    
    11,346
    
    
    
    
    
    
    
    4,188,946Preoperating expenses  net
    
    
    77,634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,902Intangible assets  net
    
    
    208,802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,802Obligations
    
    
    
    
    
    
    1,890
    
    
    
    15,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,650Deposits
    
    
    1,038
    
    
    
    257
    
    
    
    7
    
    
    
    
    
    
    
    4,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,943Derivative financial instruments
    
    
    13,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,475Other assets
    
    
    9,270
    
    
    
    
    
    
    
    5,272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    14,525Total assets
    
    Ps.
    7,986,805
    
    
    Ps.
    10,222
    
    
    Ps.
    84,235
    
    
    Ps.
    12,192
    
    
    Ps.
    177,879
    
    
    Ps.
    110
    
    
    Ps.
    319
    
    
    Ps.
    1,791
    
    
    Ps.
    231,481
    
    
    Ps.
    28,325
    
    
    Ps.
    23,066
    
    
    Ps.
    11,391
    
    
    Ps.
    553,716
    )
    
    Ps.
    8,014,100Total liabilities
    
    Ps.
    2,955,966
    
    
    Ps.
    10,178
    
    
    Ps.
    84,130
    
    
    Ps.
    7,402
    
    
    Ps.
    1,958
    
    
    Ps.
    7
    
    
    Ps.
    278
    
    
    Ps.
    1,612
    
    
    Ps.
    151,374
    
    
    Ps.
    18,415
    
    
    Ps.
    400
    
    
    Ps.
    112
    
    
    Ps.
    (248,571
    )
    
    Ps.
    2,983,261Shareholders Equity:Capital Stock and Additional
Paid- In Capital
    
    
    6,298,307
    
    
    
    96
    
    
    
    66
    
    
    
    55
    
    
    
    171,496
    
    
    
    127
    
    
    
    56
    
    
    
    53
    
    
    
    702,304
    
    
    
    13,044
    
    
    
    97,875
    
    
    
    11,308
    
    
    
    (996,480
    )
    
    
    6,298,307Accumulated deficit
    
    
    (1,267,468
    )
    
    
    (52
    )
    
    
    39
    
    
    
    4,735
    
    
    
    4,425
    
    
    
    (24
    )
    
    
    (15
    )
    
    
    126
    
    
    
    (622,197
    )
    
    
    (3,134
    )
    
    
    (75,209
    )
    
    
    (29
    )
    
    
    691,335
    
    
    
    (1,267,468
    )Total shareholders equity
    
    
    5,030,839
    
    
    
    44
    
    
    
    105
    
    
    
    4,790
    
    
    
    175,921
    
    
    
    103
    
    
    
    41
    
    
    
    179
    
    
    
    80,107
    
    
    
    9,910
    
    
    
    22,666
    
    
    
    11,279
    
    
    
    (305,145
    )
    
    
    5,030,839Total liabilities and
shareholders  equity
    
    Ps.
    7,986,805
    
    
    Ps.
    10,222
    
    
    Ps.
    84,235
    
    
    Ps.
    12,192
    
    
    Ps.
    177,879
    
    
    Ps.
    110
    
    
    Ps.
    319
    
    
    Ps.
    1,791
    
    
    Ps.
    231,481
    
    
    Ps.
    28,325
    
    
    Ps.
    23,066
    
    
    Ps.
    11,391
    
    
    Ps.
    (553,716
    )
    
    Ps.
    8,014,100Total shareholders equity
under Mexican GAAP
    
    Ps.
    5,030,839
    
    
    Ps.
    44
    
    
    Ps.
    105
    
    
    Ps.
    4,790
    
    
    Ps.
    175,921
    
    
    Ps.
    103
    
    
    Ps.
    41
    
    
    Ps.
    179
    
    
    Ps.
    80,107
    
    
    Ps.
    9,910
    
    
    Ps.
    22,666
    
    
    Ps.
    11,279
    
    
    Ps.
    (305,145
    )
    
    Ps.
    5,030,839
 F-66




---



##### 



NON-GUARANTOR SUBSIDIARIESMaxcom
    
    Maxcom
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    CTE
    
    MSA
    
    OOP
    
    MSF
    
    USA
    
    TV
    
    TECBTC
    
    Telereunión
    
    USA
    
    Telscape
    
    SCG
    
    Elimination
    
    ConsolidatedPreoperating expenses
    
    
    (391,951
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391,951
    )Amortization of preoperating expenses
    
    
    314,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314,049Capitalization of interest
    
    
    121,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,178Amortization of capitalized interest
    
    
    (52,347
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,347
    )Installation revenues
    
    
    (73,981
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,981
    )Installation costs
    
    
    (583,696
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (583,696
    )Capitalized internal compensation cost
    
    
    (2,143
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,143
    )Retirement obligation
    
    
    (1,590
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,590
    )SAB 108 initial effect
    
    
    7,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,034SAB effects for the year
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,035Recognition of deferred taxes
    
    
    184,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,914Total shareholders equity under US. GAAP
    
    
    4,555,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,555,341
 NON-GUARANTOR SUBSIDIARIESMaxcom
    
    
    Maxcom
    
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    USA
    
    
    TV
    
    
    TECBTC
    
    
    Telereunión
    
    
    USA
    
    
    Telscape
    
    
    SCG
    
    
    Elimination
    
    
    ConsolidatedStatements of Operations for
the year ended December 31,
2007:Revenues
    
    Ps.
    2,339,795
    
    
    Ps.
    56,594
    
    
    Ps.
    409,537
    
    
    Ps.
    78,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ps.
    3,521
    
    
    Ps.
    42,294
    
    
    Ps.
    6,675
    
    
    
    
    
    
    
    
    
    
    Ps.
    (590,772
    )
    
    Ps.
    2,345,719Operating cost and expenses
    
    
    (2,052,063
    )
    
    
    (54,565
    )
    
    
    (415,628
    )
    
    
    (73,266
    )
    
    
    (17
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    (3,339
    )
    
    
    (55,897
    )
    
    
    (8,523
    )
    
    
    
    
    
    
    
    
    
    
    590,234
    
    
    
    (2,073,081
    )Integral (cost) income of
financing
    
    
    (112,592
    )
    
    
    (46
    )
    
    
    1,026
    
    
    
    (253
    )
    
    
    391
    
    
    
    (4
    )
    
    
    (2
    )
    
    
    (22
    )
    
    
    (13,541
    )
    
    
    (1,520
    )
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    (126,641
    )Other income (expenses)
    
    
    (138,944
    )
    
    
    (890
    )
    
    
    2,553
    
    
    
    (1,360
    )
    
    
    11,889
    
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    17,701
    
    
    
    322
    
    
    
    (400
    )
    
    
    
    
    
    
    (620
    )
    
    
    (109,801
    )Net (loss) income
    
    Ps.
    36,196
    
    
    Ps.
    1,093
    
    
    Ps.
    (2,512
    )
    
    Ps.
    3,196
    
    
    Ps.
    12,263
    
    
    Ps.
    (11
    )
    
    Ps.
    (12
    )
    
    Ps.
    108
    
    
    Ps.
    (9,443
    )
    
    Ps.
    (3,046
    )
    
    Ps.
    (478
    )
    
    Ps.
    
    
    
    Ps.
    (1,158
    )
    
    Ps.
    36,196Net (loss) income for the
year under Mexican GAAP
    
    Ps.
    36,196
    
    
    Ps.
    1,093
    
    
    Ps.
    (2,512
    )
    
    Ps.
    3,196
    
    
    Ps.
    12,263
    
    
    Ps.
    (11
    )
    
    Ps.
    (12
    )
    
    Ps.
    108
    
    
    Ps.
    (9,443
    )
    
    Ps.
    (3,046
    )
    
    Ps.
    (478
    )
    
    Ps.
    
    
    
    Ps.
    (1,158
    )
    
    Ps.
    36,196Preoperating expensesAmortization of preoperating
expenses
    
    
    20,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,438Capitalization of interest
    
    
    (716
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (716
    )Amortization of capitalized
Interest
    
    
    (11,896
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,896
    )Installation revenues
    
    
    (6,758
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,758
    )Installation costs
    
    
    (60,640
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60,640
    )Debt restructuringCapitalized internal
compensation cost
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Retirement obligations
    
    
    (682
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (682
    )Reversal of SAB 108Net loss (income)Recognition at deferred taxes
    
    
    184,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,914Net loss (income)For the year Under U.S. GAAP
    
    Ps.
    160,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ps.
    160,999
 F-67




---



##### 



NON-GUARANTORSUBSIDIARIESMaxcom
    
    
    Maxcom
    
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    USA
    
    
    TV
    
    
    TECBTC
    
    
    Telereunión
    
    
    USA
    
    
    Telscape
    
    
    SCG
    
    
    Elimination
    
    
    ConsolidatedStatement of Cash Flows under U.S.
GAAP for the Year Ended December 31,
2007:Net (loss) income the year under U.S.
GAAP
    
    Ps.
    160,999
    
    
    Ps.
    1,093
    
    
    Ps.
    (2,512
    )
    
    Ps.
    3,196
    
    
    Ps.
    12,263
    
    
    Ps.
    (11
    )
    
    Ps.
    (12
    )
    
    Ps.
    108
    
    
    Ps.
    (9,443
    )
    
    Ps.
    (3,046
    )
    
    Ps.
    (478
    )
    
    
    
    
    
    Ps.
    (1,158
    )
    
    Ps.
    160,999Depreciation and amortization
    
    
    314,601
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,668
    
    
    
    328,269Other adjustments to reconcile net
income to cash provided by operating
activities
    
    
    (93,909
    )
    
    
    414
    
    
    
    (5,200
    )
    
    
    
    
    
    
    (11,958
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,499
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,291
    
    
    
    (103,861
    )Net change in working capital
    
    
    (246,075
    )
    
    
    (1,046
    )
    
    
    12,734
    
    
    
    (2,793
    )
    
    
    (954
    )
    
    
    11
    
    
    
    280
    
    
    
    121
    
    
    
    4,273
    
    
    
    4,527
    
    
    
    478
    
    
    Ps.
    93
    
    
    
    7,383
    
    
    
    (220,968
    )Resources (used in) provided by
Operating activities
    
    
    135,616
    
    
    
    461
    
    
    
    5,022
    
    
    
    403
    
    
    
    (649
    )
    
    
    
    
    
    
    268
    
    
    
    229
    
    
    
    (9,669
    )
    
    
    1,481
    
    
    
    
    
    
    
    93
    
    
    
    31,184
    
    
    
    164,439Resources used in financing activities
    
    
    2,913,462
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (927
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,939
    
    
    
    2,916,477Resources (used in) provided by
investing activities
    
    
    (1,215,275
    )
    
    
    
    
    
    
    (3,303
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (268
    )
    
    
    
    
    
    
    7,180
    
    
    
    1,370
    
    
    
    
    
    
    
    (67
    )
    
    
    (34,718
    )
    
    
    (1,245,081
    )Effect of inflation on cash and cash
equivalents
    
    
    (35,186
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )
    
    
    (35,591
    )Cash and cash equivalents:Net increase (decrease) in cash and
cash equivalents
    
    
    1,798,617
    
    
    
    464
    
    
    
    1,719
    
    
    
    403
    
    
    
    (649
    )
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    (3,416
    )
    
    
    2,851
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    1,800,244Beginning balances
    
    
    727,427
    
    
    
    934
    
    
    
    1,123
    
    
    
    32
    
    
    
    3,448
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    4,901
    
    
    
    1,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739,291Ending balances
    
    Ps.
    2,526,044
    
    
    Ps.
    1,398
    
    
    Ps.
    2,842
    
    
    Ps.
    435
    
    
    Ps.
    2,799
    
    
    Ps.
    
    
    
    Ps.
    
    
    
    Ps.
    239
    
    
    Ps.
    1,485
    
    
    Ps.
    4,267
    
    
    Ps.
    
    
    
    Ps.
    26
    
    
    Ps.
    
    
    
    Ps.
    2,539,535
 F-68




---



##### 



NON-GUARANTOR SUBSIDIARIESMaxcom
    
    
    Maxcom
    
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    USA
    
    
    TV
    
    
    TET
    
    
    Telereunión
    
    
    USA
    
    
    Telscape
    
    
    Elimination
    
    
    ConsolidatedBalance sheet as of
December 31, 2006:Cash and cash equivalents
and Current restricted
cash
    
    Ps.
    750,889
    
    
    
    934
    
    
    
    1,123
    
    
    
    32
    
    
    
    3,448
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    4,901
    
    
    
    1,416
    
    
    
    
    
    
    
    
    
    
    
    762,753Accounts receivable  net
    
    
    439,423
    
    
    
    30,098
    
    
    
    220,461
    
    
    
    45,443
    
    
    
    167,741
    
    
    
    114
    
    
    
    52
    
    
    
    673
    
    
    
    57,386
    
    
    
    12,833
    
    
    
    2,159
    
    
    
    (491,126
    )
    
    
    485,257Inventory  net
    
    
    35,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,790Prepaid expenses
    
    
    64,412
    
    
    
    264
    
    
    
    988
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    65,740Investment in subsidiaries
    
    
    306,567
    
    
    
    
    
    
    
    1,666
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (308,233
    )
    
    
    Frequency rights  net
    
    
    88,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,374Telephone network system
and Equipment net
    
    
    3,060,002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209,590
    
    
    
    10,861
    
    
    
    20,984
    
    
    
    
    
    
    
    3,301,437Preoperating expenses  net
    
    
    98,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,340Intangible assets  net
    
    
    190,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190,249Obligations
    
    
    
    
    
    
    1,600
    
    
    
    13,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,068Deposits
    
    
    369
    
    
    
    391
    
    
    
    7
    
    
    
    
    
    
    
    4,449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    742
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    5,973Deferred tax
    
    
    
    
    
    
    
    
    
    
    2,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,393Other assets
    
    
    14,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    14,530Total assets
    
    Ps.
    5,048,963
    
    
    Ps.
    33,287
    
    
    Ps.
    240,106
    
    
    Ps.
    45,485
    
    
    Ps.
    175,638
    
    
    Ps.
    114
    
    
    Ps.
    52
    
    
    Ps.
    683
    
    
    Ps.
    272,670
    
    
    Ps.
    25,122
    
    
    Ps.
    23,143
    
    
    Ps.
    (799,359
    )
    
    Ps.
    5,065,904Total liabilities
    
    Ps.
    2,772,049
    
    
    Ps.
    34,338
    
    
    Ps.
    237,491
    
    
    Ps.
    43,890
    
    
    Ps.
    11,979
    
    
    Ps.
    
    
    
    Ps.
    
    
    
    Ps.
    611
    
    
    Ps.
    182,194
    
    
    Ps.
    12,170
    
    
    Ps.
    
    
    
    Ps.
    (505,732
    )
    
    Ps.
    2,788,990Shareholders Equity:Capital Stock and
Additional Paid- In
Capital
    
    
    3,580,578
    
    
    
    93
    
    
    
    66
    
    
    
    55
    
    
    
    171,497
    
    
    
    127
    
    
    
    55
    
    
    
    54
    
    
    
    703,231
    
    
    
    13,045
    
    
    
    97,873
    
    
    
    (986,096
    )
    
    
    3,580,578Accumulated deficit
    
    
    (1,303,664
    )
    
    
    (1,144
    )
    
    
    2,549
    
    
    
    1,540
    
    
    
    (7,838
    )
    
    
    (13
    )
    
    
    (3
    )
    
    
    18
    
    
    
    (612,755
    )
    
    
    (93
    )
    
    
    (74,730
    )
    
    
    692,469
    
    
    
    (1,303,664
    )Total shareholders equity
    
    
    2,276,914
    
    
    
    (1,051
    )
    
    
    2,615
    
    
    
    1,595
    
    
    
    163,659
    
    
    
    114
    
    
    
    52
    
    
    
    72
    
    
    
    90,476
    
    
    
    12,952
    
    
    
    23,143
    
    
    
    (293,627
    )
    
    
    2,276,914Total liabilities and
Shareholders  equity
    
    Ps.
    5,048,963
    
    
    Ps.
    33,287
    
    
    Ps.
    240,106
    
    
    Ps.
    45,485
    
    
    Ps.
    175,638
    
    
    Ps.
    114
    
    
    Ps.
    52
    
    
    Ps.
    683
    
    
    Ps.
    272,670
    
    
    Ps.
    25,122
    
    
    Ps.
    23,143
    
    
    Ps.
    (799,359
    )
    
    Ps.
    5,065,904Total shareholders equity
under Mexican GAAP
    
    Ps.
    2,276,914
    
    
    Ps.
    (1,051
    )
    
    Ps.
    2,615
    
    
    Ps.
    1,595
    
    
    Ps.
    163,659
    
    
    Ps.
    114
    
    
    Ps.
    52
    
    
    Ps.
    72
    
    
    Ps.
    90,476
    
    
    Ps.
    12,952
    
    
    Ps.
    23,143
    
    
    Ps.
    (293,627
    )
    
    Ps.
    2,276,914
 F-69




---



##### 



NON-GUARANTOR SUBSIDIARIESMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    Maxcom
    
    
    Maxcom
    
    
    TET
    
    
    Telereunión
    
    
    Sierra
    
    
    Telscape
    
    
    Elimination
    
    
    ConsolidatedUSA
    
    
    TV
    
    
    
    
    
    
    
    
    
    
    USAPreoperating expenses
    
    
    (391,951
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391,951
    )Amortization of preoperating expenses
    
    
    293,611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293,611Capitalization of interest
    
    
    121,894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,894Amortization of capitalized interest
    
    
    (40,451
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,451
    )Installation revenues
    
    
    (67,225
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,225
    )Installation costs
    
    
    (523,056
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (523,056
    )Capitalized internal compensation cost
    
    
    (2,285
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,285
    )Retirement obligation
    
    
    (908
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )SAB 108 initial effect
    
    
    7,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,034SAB effects for the year
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,035Total shareholders equity under US. GAAP
    
    
    1,676,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,676,612
 NON-GUARANTOR SUBSIDIARIESMaxcom
    
    
    Maxcom
    
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    USA
    
    
    TV
    
    
    TET
    
    
    Telereunión
    
    
    USA
    
    
    Telscape
    
    
    Elimination
    
    
    ConsolidatedStatements of Operations
for the year ended
December 31, 2006:Revenues
    
    Ps.
    1,716,316
    
    
    Ps.
    45,170
    
    
    Ps.
    338,295
    
    
    Ps.
    63,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ps.
    907
    
    
    Ps.
    88,308
    
    
    Ps.
    14,171
    
    
    
    
    
    
    Ps.
    (524,589
    )
    

    Ps.
    1,741,692Operating cost and expenses
    
    
    (1,585,904
    )
    
    
    (43,871
    )
    
    
    (334,952
    )
    
    
    (61,413
    )
    
    
    4,455
    
    
    
    
    
    
    
    
    
    
    
    (886
    )
    
    
    (71,801
    )
    
    
    (15,167
    )
    
    
    
    
    
    
    524,589
    
    
    
    (1,584,950
    )Integral (cost) income of
financing
    
    
    (122,543
    )
    
    
    10
    
    
    
    (100
    )
    
    
    (114
    )
    
    
    4,360
    
    
    
    (4
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    10,488
    
    
    
    798
    
    
    
    (72
    )
    
    
    
    
    
    
    (107,182
    )Other income (expenses)
    
    
    (37,136
    )
    
    
    (308
    )
    
    
    1,811
    
    
    
    (51
    )
    
    
    (13,742
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    29
    
    
    
    
    
    
    
    (29,431
    )
    
    
    (78,827
    )Net (loss) income
    

    Ps.
    (29,267
    )
    
    Ps.
    1,001
    
    
    Ps.
    5,054
    
    
    Ps.
    1,536
    
    
    Ps.
    (4,927
    )
    
    Ps.
     (4
    )
    
    Ps.
     (2
    )
    
    Ps.
    18
    
    
    Ps.
    26,996
    
    
    Ps.
    (169
    )
    
    Ps.
    (72
    )
    
    Ps.
    (29,431
    )
    
    Ps.
    (29,267
    )Net (loss) income for the
year under Mexican GAAP
    
    Ps.
    (29,267
    )
    
    Ps.
    1,001
    
    
    Ps.
    5,054
    
    
    Ps.
    1,536
    
    
    Ps.
    (4,927
    )
    
    Ps.
    (4
    )
    
    Ps.
    (2
    )
    
    Ps.
    18
    
    
    Ps.
    26,996
    
    
    Ps.
    (169
    )
    
    Ps.
    (72
    )
    
    Ps.
    (29,431
    )
    

    Ps.
    (29,267
    )Preoperating expensesAmortization of
preoperating expenses
    
    
    32,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,030Capitalization of interest
    
    
    49,945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,945Amortization of capitalized
Interest
    
    
    (27,136
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,136
    )Installation revenues
    
    
    858
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    858Installation costs
    
    
    (213,247
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213,247
    )Debt restructuring
    
    
    197,006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,006Capitalized internal
compensation cost
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Retirement obligations
    
    
    (908
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )Reversal of SAB 108
    
    
    3,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,035Net loss (income)
for the year Under U.S. GAAP
    
    Ps.
    12,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ps.
    12,459
 F-70




---



##### 



NON-GUARANTORSUBSIDIARIESMaxcom
    
    
    Maxcom
    
    
    
    
    
    
    
    
    
    
    SierraMaxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    USA
    
    
    TV
    
    
    TET
    
    
    Telereunión
    
    
    USA
    
    
    Telscape
    
    
    Elimination
    
    
    ConsolidatedStatement of Cash Flows under U.S. GAAP for the
Year Ended December 31, 2006:Net (loss) income the year under U.S. GAAP
    
    Ps.
    12,459
    
    
    Ps.
    1,001
    
    
    Ps.
    5,054
    
    
    Ps.
    1,536
    
    
    Ps.
    ( 4,927
    )
    
    Ps.
    ( 4
    )
    
    Ps.
    ( 2
    )
    
    Ps.
    18
    
    
    Ps.
    26,996
    
    
    Ps.
    ( 169
    )
    
    Ps.
    ( 72
    )
    
    Ps.
    ( 29,431
    )
    
    Ps.
    12,459Depreciation and amortization
    
    
    159,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,437
    
    
    
    167,721Other adjustments to reconcile net income to cash
provided by operating activities
    
    
    (47,558
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,657
    
    
    
    99Net change in working capital
    
    
    (87,032
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (214,152
    )
    
    
    (301,184
    )Resources (used in) provided by Operating activities
    
    
    37,153
    
    
    
    1,001
    
    
    
    5,054
    
    
    
    1,536
    
    
    
    (4,927
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    18
    
    
    
    26,996
    
    
    
    (169
    )
    
    
    (72
    )
    
    
    (187,489
    )
    
    
    (120,905
    )Resources used in financing activities
    
    
    1,326,567
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,177
    
    
    
    1,531,744Resources (used in) provided by investing activities
    
    
    (861,744
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,144
    )
    
    
    (904,888
    )Effect of inflation on cash and cash equivalents
    
    
    (7,560
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318
    )
    
    
    (7,878
    )Cash and cash equivalents:Net increase (decrease) in cash and cash equivalents
    
    
    494,416
    
    
    
    1,001
    
    
    
    5,054
    
    
    
    1,536
    
    
    
    (4,927
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    18
    
    
    
    26,996
    
    
    
    (169
    )
    
    
    (72
    )
    
    
    (25,774
    )
    
    
    498,073Beginning balances
    
    
    233,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,207
    
    
    
    241,218Ending balances
    
    Ps.
    727,427
    
    
    Ps.
    1,001
    
    
    Ps.
    5,054
    
    
    Ps.
    1,536
    
    
    Ps.
    ( 4,927
    )
    
    Ps.
    ( 4
    )
    
    Ps.
    ( 2
    )
    
    Ps.
    18
    
    
    Ps.
    26,996
    
    
    Ps.
    ( 169
    )
    
    Ps.
    ( 72
    )
    
    Ps.
    ( 17,567
    )
    
    Ps.
    739,291
 F-71




---



##### 



Maxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    Elimination
    
    
    ConsolidatedStatements of Operations for the
year ended December 31, 2005:Revenues
    
    Ps.
    1,241,995
    
    
    Ps.
    41,196
    
    
    Ps.
    292,536
    
    
    
    
    
    
    
    
    
    
    Ps.
    (333,621
    )
    
    Ps.
    1,242,106Operating cost and expenses
    
    
    (1,223,626
    )
    
    
    (41,106
    )
    
    
    (292,646
    )
    
    Ps.
    25
    
    
    Ps.
    (230
    )
    
    
    333,621
    
    
    
    (1,223,962
    )Integral (cost) income of financing
    
    
    (56,399
    )
    
    
    (3
    )
    
    
    19
    
    
    
    (42
    )
    
    
    (3,017
    )
    
    
    
    
    
    
    (59,442
    )Other income (expenses)
    
    
    (38,882
    )
    
    
    (251
    )
    
    
    1,967
    
    
    
    21
    
    
    
    336
    
    
    
    1,195
    
    
    
    (35,614
    )Net (loss) income
    
    Ps.
    (76,912
    )
    
    Ps.
    (164
    )
    
    Ps.
    1,876
    
    
    Ps.
    4
    
    
    Ps.
    (2,911
    )
    
    Ps.
    1,195
    
    
    Ps.
    (76,912
    )Net (loss) income for the year
under Mexican GAAP
    
    Ps.
    (76,912
    )
    
    Ps.
    (164
    )
    
    Ps.
    1,876
    
    
    Ps.
    4
    
    
    Ps.
    (2,911
    )
    
    Ps.
    1,195
    
    
    Ps.
    (76,912
    )Preoperating expensesAmortization of preoperating
expenses
    
    
    39,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,193Capitalization of interest
    
    
    (1,211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,211
    )Amortization of capitalized Interest
    
    
    2,801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,801Installation revenues
    
    
    3,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,245Installation costs
    
    
    (69,413
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,413
    )Debt restructuring
    
    
    52,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,488Capitalized internal compensation
cost
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Spin-off and sale of subsidiary
    
    
    235,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235,282Net loss (income)
for the year Under U.S. GAAP
    
    Ps.
    185,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ps.
    185,616
 F-72




---



##### 



Maxcom
    
    
    CTE
    
    
    MSA
    
    
    OOP
    
    
    MSF
    
    
    Elimination
    
    
    ConsolidatedStatement of Cash Flows under
U.S. GAAP for the Year Ended
December 31, 2005:Net (loss) income the year under U.S.
GAAP
    
    Ps.
    185,616
    
    
    Ps.
    (164
    )
    
    Ps.
    1,876
    
    
    Ps.
    4
    
    
    Ps.
    (2,911
    )
    
    Ps.
    1,195
    
    
    Ps.
    185,616Depreciation and amortization
    
    
    261,931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261,931Other adjustments to reconcile net
income to cash provided by operating
activities
    
    
    283,852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283,852Net change in working capital
    
    
    22,906
    
    
    
    601
    
    
    
    (2,078
    )
    
    
    84
    
    
    
    9,814
    
    
    
    (1,195
    )
    
    
    30,132Resources (used in) provided by
Operating activities
    
    
    754,305
    
    
    
    437
    
    
    
    (202
    )
    
    
    88
    
    
    
    6,903
    
    
    
    
    
    
    
    761,531Resources used in financing activities
    
    
    (103,205
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103,205
    )Resources (used in) provided by
investing activities
    
    
    (470,451
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (470,451
    )Effect of inflation on cash and cash
equivalents
    
    
    (13,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,800
    )Cash and cash equivalents:Net increase (decrease) in cash and
cash equivalents
    
    
    166,849
    
    
    
    437
    
    
    
    (202
    )
    
    
    88
    
    
    
    6,903
    
    
    
    
    
    
    
    174,075Beginning balances
    
    
    66,161
    
    
    
    270
    
    
    
    711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,142Ending balances
    
    Ps.
    233,010
    
    
    Ps.
    707
    
    
    Ps.
    509
    
    
    Ps.
    88
    
    
    Ps.
    6,903
    
    
    Ps.
    
    
    
    Ps.
    241,217
 F-73




---



##### 



Balance at
    
    
    Charged toBeginning of
    
    
    Cost and
    
    
    
    
    
    
    Balance at EndPeriod
    
    
    Expenses
    
    
    Deductions
    
    
    of PeriodAllowance for doubtful accounts
    
    
    2007
    
    
    Ps.
    72.4
    
    
    Ps.
    53.8
    
    
    Ps.
    (48.4
    )
    
    Ps.
    77.82006
    
    
    Ps.
    74.3
    
    
    Ps.
    39.2
    
    
    Ps.
    (41.2
    )
    
    Ps.
    72.42005
    
    
    Ps.
    70.4
    
    
    Ps.
    26.4
    
    
    Ps.
    (22.5
    )
    
    Ps.
    74.3Allowance for obsolete and slow- moving supply inventories
    
    
    2007
    
    
    Ps.
    0.3
    
    
    Ps.
    
    
    
    Ps.
    (0.3
    )
    
    Ps.
    0.12006
    
    
    Ps.
    0.3
    
    
    Ps.
    
    
    
    Ps.
    
    
    
    Ps.
    0.32005
    
    
    Ps.
    0.3
    
    
    Ps.
    
    
    
    Ps.
    
    
    
    Ps.
    0.3Allowance for obsolete and slow- moving network inventories
    
    
    2007
    
    
    Ps.
    10.0
    
    
    Ps.
    
    
    
    Ps.
    (0.7
    )
    
    Ps.
    9.32006
    
    
    Ps.
    10.2
    
    
    Ps.
    
    
    
    Ps.
    (0.1
    )
    
    Ps.
    10.02005
    
    
    Ps.
    10.0
    
    
    Ps.
    
    
    
    Ps.
    0.1
    
    
    Ps.
    10.2
 F-74




---



##### 








ITEM 19. EXHIBITS


1.1*
    
    Amended and Restated Bylaws (estatutos) of Maxcom Telecomunicaciones, S.A. de
C.V. (English translation).2.1
    
    Senior Note Indenture, dated December 20, 2006, among Maxcom
Telecomunicaciones, S.A. de C.V., Maxcom Servicios Administrativos, S.A. de
C.V., Outsourcing Operadora de Personal, S.A. de C.V., Técnicos Especializados
en Telecomunicaciones, S.A. de C.V., Corporativo en Telecomunicaciones, S.A. de
C.V., Maxcom SF, S.A. de C.V., Maxcom TV, S.A. de C.V., Maxcom USA, Inc. and
Deutsche Bank Trust Company Americas, filed as an exhibit to our annual report
on Form 20-F, filed with the SEC on June 26, 2007, is incorporated herein by
reference.2.2
    
    First Supplemental Indenture, dated September 5, 2007, among Maxcom, the
guarantors a party thereto and Deutsche Bank Trust Company Americas, as
trustee, filed as an exhibit to our registration statement on Form F-1/A (No.
333-145800), filed with the SEC on November 1, 2007, is incorporated herein by
reference.


2.3*
    
    Second Supplemental Indenture, dated January 25, 2008, among Sierra
Comunicaciones Globales, S.A. de C.V., the existing guarantors party thereto
and Deutsche Bank Trust Company Americas, as trustee.2.4
    
    Form of Deposit Agreement among Maxcom, the Depositary named therein and all
holders of American Depositary Shares issued thereunder, filed as an exhibit to
our registration statement on Form F-1/A (No. 333-144771), filed with the SEC
on October 2, 2007, is incorporated herein by reference.2.5
    
    Form of Registration Rights Agreement by and among Maxcom, Nexus-Maxcom
Holdings I, LLC, BASCFC-Maxcom Holding I, LLC, BAS Capital Funding Corporation,
BankAmerica Investment Corporation and the other stockholders party thereto,
filed as an exhibit to our registration statement on Form F-1/A (No.
333-144771), filed with the SEC on October 2, 2007, is incorporated herein by
reference.2.6
    
    Third Amended and Restated Securityholders Agreement, dated July 20, 2006,
among Maxcom Telecomunicaciones, S.A. de C.V. and certain of its shareholders,
filed as an exhibit to our annual report on Form 20-F, filed with the SEC on
June 26, 2007, is incorporated herein by reference.3.1
    
    CPO Trust Agreement effective April 25, 2002 among Maxcom., its shareholders
and Banco Nacional de México, S.A., Institución de Banca Múltiple, Grupo
Financiero Banamex Accival, as trustee, filed as an exhibit to our annual
report on Form 20-F, filed with the SEC on July 1, 2002, is incorporated herein
by reference.3.2
    
    CPO Trust Agreement, dated October 17, 2007, among Maxcom Telecomunicaciones,
S.A. de C.V., its shareholders and Nacional Financiera, S.N.C. (English
translation), filed as an exhibit to our registration statement on Form F-1/A
(No. 333-144771), filed with the SEC on October 17, 2007, is incorporated
herein by reference.3.3
    
    CPO Deed, dated October 17, 2007, among Nacional Financiera, S.N.C.,
Institución de Banca de Desarrollo, Monex Casa de Bolsa, S.A. de C.V., Grupo
Financiero Monex and Comisíon Nacional Bancaria y de Valores (English
translation), filed as an exhibit to our registration statement on Form F-1/A
(No. 333-144771), filed with the SEC on October 17, 2007, is incorporated
herein by reference.4.1
    
    Agreement for the use of infrastructure and installation of fiber optic cable
on the highways between Puebla and México, dated August 18, 1998, between
Amaritel, S.A. de C.V. (the predecessor of Maxcom Telecomunicaciones, S.A. de
C.V.) and Iusatel, S.A. de C.V., filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.2
    
    Interconnection Agreement for long-distance services, dated January 22, 1999,
between Amaritel and Teléfonos de México (Telmex) valid for an initial period
of two years between February 1, 1999 and January 1, 2001, and in effect
thereafter in accordance with article 42 of the Mexican Telecommunications law,
filed as an exhibit to our registration statement on Form F-4 (No. 333-11910),
filed with the SEC on May 5, 2000, is incorporated herein by reference.4.3
    
    Local Interconnection Service Agreement, dated November 24, 1998, between
Amaritel, S.A. de C.V. and Teléfonos de México, S.A. de C.V., filed as an
exhibit to our registration statement on Form F-4 (No. 333-11910), filed with
the SEC on May 5, 2000, is incorporated herein by reference.4.4
    
    Amendment to Local Interconnection Service Agreement, dated February 25, 1999,
between Amaritel, S.A. de C.V. and Teléfonos de México, S.A. de C.V.,
originally entered into on November 24, 1998, filed as an exhibit to our
registration statement on Form F-4 (No. 333-11910), filed with the SEC on May
5, 2000, is incorporated herein by reference.4.5
    
    Metropolitan Network Capacity Sale Agreement, dated April 28, 2000, between
Maxcom Telecomunicaciones, S.A. de C.V. and Metro Net, S.A. de C.V., as amended
on December 21, 2000, filed as an exhibit to our annual report on Form 20-F,
filed with the SEC on June 29, 2001, is incorporated herein by reference.
 130




---



##### 



4.6
    
    Telecommunications Service Agreement, dated November 15, 1999, between Maxcom
and Teléfonos de México, S.A. de C.V. , filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.7
    
    Telecommunications Service Agreement, dated March 9, 1999, between Maxcom and
Bestel S.A. de C.V., pursuant to which Bestel will provide long-distance and
private call services to Maxcom, filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.8
    
    Concession for the installation and operation of telecommunications services
granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and
Transport on December 20, 1996, filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.9
    
    Amendment to Concession for the installation and operation of
telecommunications services granted to Amaritel by the Secretary of
Telecommunications and Transport on December 20, 1996, dated September 8, 1999,
extending the coverage of such concession to include various additional
municipalities of the State of Mexico, filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.10
    
    Amendment to Concession for the installation and operation of
telecommunications services granted to Amaritel by the Secretary of
Telecommunications and Transport on December 20, 1996, dated December 7, 1999,
authorizing Maxcom to employ whatever technologies it deems appropriate in
providing telecommunications services to various municipalities, filed as an
exhibit to our registration statement on Form F-4 (No. 333-11910), filed with
the SEC on May 5, 2000, is incorporated herein by reference.4.11
    
    Amendment to Annex A and B of Concession for the installation and operation of
telecommunications services granted to Amaritel, S.A. de C.V. by the Secretary
of Telecommunications and Transport on December 20, 1996, dated September 27,
2001, extending the coverage of such concession to include all of Mexico, filed
as an exhibit to our registration statement on Form F-4 (No. 333-11910), filed
with the SEC on May 5, 2000, is incorporated herein by reference.4.12
    
    Concession for a public telecommunications network in telecommunications
regions 3, 5 and 8 granted to Amaritel, S.A. de C.V. by the Secretary of
Telecommunications and Transport on April 29, 1998, filed as an exhibit to our
registration statement on Form F-4 (No. 333-11910), filed with the SEC on May
5, 2000, is incorporated herein by reference.4.13
    
    Concession for the operation of point-to-multipoint microwave
telecommunications services in Region 5 granted to Amaritel, S.A. de C.V. by
the Secretary of Telecommunications and Transport on April 23, 1998, filed as
an exhibit to our registration statement on Form F-4 (No. 333-11910), filed
with the SEC on May 5, 2000, is incorporated herein by reference.4.14
    
    Concession for the operation of point-to-multipoint microwave
telecommunications services in Region 3 granted to Amaritel, S.A. de C.V. by
the Secretary of Telecommunications and Transport on April 23, 1998, filed as
an exhibit to our registration statement on Form F-4 (No. 333-11910), filed
with the SEC on May 5, 2000, is incorporated herein by reference.4.15
    
    Concession for the operation of point-to multipoint microwave
telecommunications services in Region 8 granted to Amaritel, S.A. de C.V. by
the Secretary of Telecommunications and Transport on April 29, 1998, filed as
an exhibit to our registration statement on Form F-4 (No. 333-11910), filed
with the SEC on May 5, 2000, is incorporated herein by reference.
 131




---



##### 



4.16
    
    Concessions for the nationwide operation of point-to-point microwave
telecommunications services using five frequency bands in the 56 MHz bandwidth,
each granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications
and Transport on June 4, 1998, filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.17
    
    Concessions for the nationwide operation of point-to-point microwave
telecommunications services using two frequency bands in the 100 MHz bandwidth,
each granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications
and Transport on June 4, 1998, filed as an exhibit to our registration
statement on Form F-4 (No. 333-11910), filed with the SEC on May 5, 2000, is
incorporated herein by reference.4.18
    
    Amendment to Concession for the operation of point-to-multipoint
telecommunications services in Regions 3, 5, 8 granted to Amaritel, S.A. de
C.V. by the Secretary of Telecommunications and Transport on April 1, 1998,
dated October 12, 1999, regarding the start date for the initiation of
services, filed as an exhibit to our registration statement on Form F-4 (No.
333-11910), filed with the SEC on May 5, 2000, is incorporated herein by
reference.4.19
    
    Amendment to Concession for the installation and operation of
telecommunications services granted to Amaritel, S.A. de C.V. by the Secretary
of Telecommunications and Transport on December 20, 1996, dated September 24,
1999 eliminating financial restrictions, filed as an exhibit to our
registration statement on Form F-4 (No. 333-11910), filed with the SEC on May
5, 2000, is incorporated herein by reference.4.20
    
    Warrant Agreement, dated as of March 17, 2000, between Maxcom
Telecomunicaciones, S.A. de C.V. and The Bank of New York, as warrant agent,
filed as an exhibit to our annual report on Form 20-F, filed with the SEC on
June 29, 2001, is incorporated herein by reference.4.21
    
    Dark Fiber Optic Purchase Agreement, dated as of August 13, 2002, between
Maxcom Telecomunicaciones, S.A. de C.V. and Bestel S.A. de C.V., filed as an
exhibit to our annual report on Form 20-F, filed with the SEC on June 30, 2003,
is incorporated herein by reference.4.22
    
    Transactional Lease Termination Agreement, dated as of May 20, 2003, among
Maxcom Telecomunicaciones, S.A. de C.V. and Jacobo Zaga Romano, Jacobo Zaga
Buzali, et.al., filed as an exhibit to our annual report on Form 20-F, filed
with the SEC on June 30, 2003, is incorporated herein by reference.4.23
    
    Capacity Sale Agreement, dated as of October 15, 2003, between Maxcom
Telecomunicaciones, S.A. de C.V. and Axtel, S.A. de C.V., filed as an exhibit
to our annual report on Form 20-F, filed with the SEC on June 24, 2004, is
incorporated herein by reference.4.24
    
    Credit Agreement, dated April 28, 2004, by and among Banco Santander Mexicano,
S.A., Institución de Banca Mútiple Grupo Financiero Santander Serfin, as
lenders, and Maxcom, as borrower, filed as an exhibit to our annual report on
Form 20-F, filed with the SEC on June 30, 2005, is incorporated herein by
reference.4.25
    
    Credit Agreement, dated April 13, 2005, by and among Ixe Banco, S.A.,
Institución de Banca Mútiple, Ixe Grupo Financiero., as lenders, and Maxcom, as
borrower, filed as an exhibit to our annual report on Form 20-F, filed with the
SEC on June 30, 2005, is incorporated herein by reference.4.26
    
    Amendment dated August 5, 2004 to Exhibit B of the Master Agreement to Supply
Local Interconnection Services, dated February 25, 1999, between Maxcom and
Telefonos de México, S.A. de C.V., filed as an exhibit to our annual report on
Form 20-F, filed with the SEC on June 30, 2005, is incorporated herein by
reference.4.27
    
    Credit Agreement, dated April 13, 2005, by and among Ixe Banco, S.A.,
Institución de Banca Múltiple, Ixe Grupo Financiero, as lenders, and Maxcom, as
borrower, filed as an exhibit to our annual report on Form 20-F, filed with the
SEC on June 30, 2006, is incorporated herein by reference.
 132




---



##### 



4.28
    
    Credit Agreement, dated October 25, 2005, by and among Ixe Banco, S.A.,
Institución de Banca Múltiple, Ixe Grupo Financiero, as lenders, Maxcom, as
borrower and Maxcom SF, S.A. de C.V. as joint and several obligor, and
amendment dated December 13, 2005, filed as an exhibit to our annual report on
Form 20-F, filed with the SEC on June 30, 2006, is incorporated herein by
reference.4.29
    
    Credit Agreement, dated October 21, 2005, by and among Banco Mercantil del
Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte, as
lenders and Maxcom, as borrower, filed as an exhibit to our annual report on
Form 20-F, filed with the SEC on June 30, 2006, is incorporated herein by
reference.4.30
    
    Irrevocable Trust Agreement, dated November 21, 2005, by and among Maxcom, as
settlor, Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo
Financiero Banorte and Ixe Banco, S.A., Institución de Banca Múltiple, Ixe
Grupo Financiero, as trust beneficiaries and HSBC México, S.A., Institución de
Banca Múltiple, Grupo Financiero HSBC, Trust Division, as trustees, filed as an
exhibit to our annual report on Form 20-F, filed with the SEC on June 30, 2006,
is incorporated herein by reference.4.31
    
    Minutes of Maxcom Shareholders Meeting dated August 31, 2005 approving the
spin-off, filed as an exhibit to our annual report on Form 20-F, filed with the
SEC on June 30, 2006, is incorporated herein by reference.4.32
    
    Stock Purchase Agreement, dated November 22, 2005, by and among Maxcom and
Maxcom SF, S.A. de C.V., as sellers and Tiendas Comercial Mexicana, S.A. de
C.V. and Controladora Comercial Mexicana, S.A. de C.V., as buyers, filed as an
exhibit to our annual report on Form 20-F, filed with the SEC on June 30, 2006,
is incorporated herein by reference.4.33
    
    Supply and Installation Agreement of Video Through DSL (IPTV) System dated
December 15, 2006 by and among Maxcom Telecomunicaciones, S.A. de C.V., Alcatel
Bell N.V. and Alcatel México, S.A. de C.V., filed as an exhibit to our annual
report on Form 20-F, filed with the SEC on June 26, 2007, is incorporated
herein by reference.4.34
    
    The First Executive Stock Option Plan, which includes a Trust Agreement, dated
May 31, 1999, among Maxcom Telecomunicaciones, S.A. de C.V. and Banco Nacional
de México (English translation) , filed as an exhibit to our registration
statement on Form F-1/A (No. 333-144771), filed with the SEC on September 12,
2007, is incorporated herein by reference.4.35
    
    Second Executive Stock Option Plan, dated July 17, 2006 (English translation),
filed as an exhibit to our registration statement on Form F-1/A (No.
333-144771), filed with the SEC on September 12, 2007, is incorporated herein
by reference.7.1*
    
    Computation of earnings per share.7.2*
    
    Computation of ratio of earnings to fixed charges.11.1
    
    Maxcoms Code of Ethics adopted March 2006, filed as an exhibit to our annual
report on Form 20-F, filed with the SEC on June 30, 2006, is incorporated
herein by reference.8.1*
    
    Subsidiaries of the Registrant.12.1*
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).12.2*
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).13.1*
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.13.2*
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
 
 *
    
    Filed herewith. 133




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##### 



GLOSSARY OF TELECOMMUNICATIONS TERMS
 ADSL
    
    (Asymmetrical Digital Subscriber Line) ADSL is a physical-layer
protocol that supports up to 8 Mbps bandwidth downstream and up to 1
Mbps upstream. The asymmetrical aspect of ADSL technology makes it
ideal for Internet browsing, video on demand, and remote LAN access.
Users of these applications typically download more information than
they send. ADSL also allows simultaneous voice communication by
transmitting data signals outside of the voice frequency range.Band
    
    A range of frequencies between two defined limits.Bandwidth
    
    The relative range of analog frequencies or digital signals that can be
passed through a transmission medium, such as glass fibers, without
distortion. The greater the bandwidth, the greater the information
carrying capacity. Bandwidth is measured in Hertz (analog) or Bits Per
Second (digital).Capacity
    
    Refers to the ability to transmit voice or data over telecommunications
networksCarrier
    
    A licensed provider of telecommunications transmission services by
fiber, wire or radio.Centrex service
    
    A business telephone service developed originally by Lucent
Technologies which offers private branch exchange type features
directly from the local telephone company central office, such as
voicemail, call pick-up group, abbreviated dialing and multi-line
hunting.Churn
    
    Refers to customer line attrition and is measured as the percentage of
disconnects from service relative to the total subscriber base over a
given period of time.COFETEL
    
    Comisión Federal de Telecomunicaciones, the Mexican Federal
Telecommunications Commission.Digital
    
    Describes a method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent
the binary digits 0 and 1. Digital transmission/switching technologies
employ a sequence of discrete, distinct pulses to represent
information, as opposed to the continuously variable analog signal.DSLAM
    
    Digital Subscriber Line Access Multiplexer. A technology to concentrate
traffic in ADSL implementations through time division multiplexing at
the central office.E1
    
    A digital telephony format that carries data at the rate of 2.048 Mbps
(DS-1 level). E-1 is the European and Latin American version of North
American T-1, though T-1 is 1.544 Mbps.Fiber optic technology
    
    Fiber optic systems use laser-generated light to transmit voice, data
and video in digital format through ultra-thin strands of glass. Fiber
optic systems are characterized by large circuit capacity, good sound
quality, resistance to external signal interference and direct
interface to digital switching equipment and digital microwave systems.
A pair of fiber optic strands using advanced transmission technologies
is capable of carrying multiple 2.5 or 10 Gbps communication streams.
Because optical signals disperse over distance, they must be
regenerated/amplified at sites located along the fiber optic cable.
Fiber optic systems using earlier generation fiber require frequent
intervals between regeneration/amplifier sites. Greater distances
between regeneration/amplifier sites afforded by the use of advanced
fiber generally translate into substantially lower installation and
operating costs and fewer potential points of failure.
 G-1




---



##### 



Fixed wireless local loop
    
    A wireless local telephony service using the 3.4-3.7 GHz frequency band.FTTH
    
    Fiber-to-the-home, reference to an all fiber-optic public telephone
network design, where broadband services are delivered to the customer
premises/network interface by fiber optic.Gbps
    
    Gigabits per second. A measurement of speed for digital signal
transmission expressed in billions of bits per second (Gbps).Gulf region
    
    115 cities and towns in eleven states in eastern Mexico, which includes
the cities of Puebla, Tampico, Veracruz, Reynosa, Cancún, Chetumal,
Mérida, Ciudad del Carmen, Campeche, Coatzacoalcos and Tuxtla
Gutiérrez, among others.Hertz
    
    The unit measuring the frequency with which an alternating
electromagnetic signal cycles through the zero-value state between
lowest and highest states. One hertz (abbreviated Hz) equals one cycle
per second. KHz (kilohertz) stands for thousands of hertz; MHz
(megahertz) stands for millions of hertz and GHz (gigahertz) stands for
billions of hertz.ISDN
    
    Integrated Services Digital Network. ISDN is an international standard
that provides end-to-end digital connectivity to support a wide range
of voice, data and video services.Kbps
    
    Kilobits per second, a measurement of speed for digital signal
transmission expressed in thousands of bits per second.Lambdas
    
    Lambdas are used as the symbol for wavelength in lightwave systems.
Fiber optic systems may use multiple wavelengths of light, with each
range of wavelengths appearing in a window, roughly corresponding to
a color in the visible light spectrum.LAN
    
    Local area network, a private data communications network linking a
variety of data devices, such as computer terminals, personal computer
terminals, personal computers and microcomputers, all housed in a
defined building, plant or geographic area.Microwave technology
    
    Although limited in capacity compared with fiber optic systems, digital
microwave systems offer an effective and reliable means of transmitting
lower volume and narrower bandwidths of voice, data and video signals
over short and intermediate distances. Microwaves are very high
frequency radio waves that can be reflected, focused and beamed in a
line-of-sight transmission path. As a result of their electro-physical
properties, microwaves can be used to transmit signals through the air,
with relatively little power. To create a communications circuit,
microwave signals are transmitted through a focusing antenna, received
by an antenna at the next station in the network, then amplified and
retransmitted. Because microwaves disperse as they travel through the
air, this transmission process must be repeated at repeater stations,
which consist of radio equipment, antennae and back-up power sources,
located on average every 30 kilometers along the transmission route.Mbps
    
    MegaBits per second. A measurement of speed for digital signal
transmission expressed in millions of bits per second (Mbps).Multi-line hunting
    
    A value-added service that allows for multiple calls to be received
with a single telephone number.PCS
    
    Personal Communications Services.
PCS has come to represent two things:first, a
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digital wireless communications service operating over the 1.9
GHz band; and second, more generically, a wireless communications
service utilizing a digital network that offers typical features such
as voice, video and data applications, short messaging, voicemail,
caller identification, call conferencing and call forwarding. Generic
PCS suppliers promote this service on the ability of its features to be
customized, or bundled, to the needs of the individual customers.Point- to-multipoint

microwave transmission
    
    A transmission using microwave technology by which a single signal goes
from one origination point to many destination points.Point-to-point microwave 
transmission
    
    A transmission using microwave technology by which a signal goes from
one point to another, usually connected by a dedicated transmission
line.POTS
    
    Plain Old Telephone Service. The basic service supplying standard
single line telephones, telephone lines and access to the public
switched network.Revenue Generated Unit
(RGU)
    
    Represents an individual service subscriber who generates recurrent
revenue for the Company.Switch
    
    A device that opens or closes circuits or selects the paths or circuits
to be used for transmission of information. Switching is the process of
interconnecting circuits to form a transmission path between users.Teledensity
    
    Teledensity is a measure of telephony service in a population. It is
calculated by dividing the total subscriber base (number of lines in
service) by the inhabitants and multiplying by 100. It is generally
used as a comparative measure of network development. All teledensity
figures are reported in subscribers per 100 inhabitants.Triple play services
    
    Triple play services consist combination of voice, data, and video
services offered as a bundled service for a price that is less than the
price of the individual services acquired individually.VoIP
    
    Voice over Internet Protocol services consist in the technology that
provides telephone companies with the ability to carry normal
telephony-style voice over an Internet Protocol-based Internet with
POTS-like functionality, reliability, and voice quality.VPN
    
    Virtual Private Network. A network design offering the appearance and
functionality of a dedicated private network.Web-hosting
    
    A service performed by Internet service providers (also known as
ISPs) and Internet access providers (also known as IAPs) consisting in
the hosting of outside companies web pages to be displayed on the
Internet.xDSL
    
    XDSL is a physical-layer protocol that supports bandwidth downstream
and upstream.
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SIGNATURES
  MAXCOM TELECOMUNICACIONES, S.A.B. DE C.V.By:
    
    /s/ Jose Antonio SolbesJosé Antonio SolbesChief Financial Officer