The Mexican telecommunications industry has been undergoing significant change since 1990 due to market liberalization as well as the introduction of new technologies and the construction of additional infrastructure, which together have resulted in increased competition and demand for telecommunications services.

According to the Economic Commission for Latin America and the Caribbean, Mexico has the second largest population in Latin America. The Mexican National Population Council estimates Mexico’s total population at 105.8 million in 2007. The country’s population has experienced a compound annual growth rate of 0.88% for the period between 2005 and 2007, and according to Pyramid, Mexico’s population is expected to grow at a compound annual growth rate of 1.15% between 2006 and 2011.

Mexico has the second largest economy in Latin America with a gross domestic product of U.S.$818.3 billion in 2006, according to Pyramid. After the 1994 devaluation and a subsequent decline in the real gross domestic product in 1995, Mexico’s real gross domestic product grew for five straight years, rising by 5.2% in 1996, 6.8% in 1997, 5.0% in 1998, 3.9% in 1999 and 6.6% in 2000. In 2001, the real gross domestic product decreased by 0.2%, however, growth resumed a year after, increasing by 0.8% in 2002, 1.4% in 2003, 4.2% in 2004, 2.8% in 2005 and 4.8% in 2006, according to Banco de México. The Mexican government continues to implement free market economic policies with disciplined monetary and fiscal policies.

According to Business Monitor International Ltd, Mexico had fixed voice line penetration of 18.3% in 2005 compared to 21.5% in Argentina, 21.3% in Brazil and 21.2% in Chile during the same time period.

For the residential market the Company has the following 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 the Company’s local telephony customers who require long-distance 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.

The Company offers also I-line, Internet Max, SpeediMax, AsistelMax, and Internet Protocol Television for this market.

For the small- and medium-sized businesses the Company’s product portfolio includes:

- 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;

- 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;

- TroncalMax Analógica. This service provides business customers with connectivity to their analog PBX or key systems;

- SpeediMax. This is the Company’s 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;

- 1-800 Numbers. This service is available to the customers interested in receiving toll-free calls into their call centers or businesses.

The Company offers also Dedicated Internet Acces, Digital Private Lines, Hosted Private Branch Exchang, I-Line, E-Security, SOSMax, Audio Conference for this market.

Operating costs and expenses increased 44.4% to Ps.967.1 million for the six months ended June 30, 2007 from Ps.669.6 million for the six months ended June 30, 2006.

Integral cost of financing was Ps.66.4 million in the six months ended on June 30, 2007, a 9.9% decrease compared to Ps.73.7 million for the six months ended June 30, 2006.