1 AXTEL SAB DE CV Blvd. Díaz Ordaz Km. 3.33 L-1 Col. Unidad San

AXTEL S.A.B. DE C.V. Blvd. Díaz Ordaz Km. 3.33 L-1 Col. Unidad San Pedro, San Pedro Garza García, N.L. C.P. 66215 +52(81) 8114-0000 www.axtel.com.mx Ticker: “AXTELCPO” Annual Report presented in accordance to the general provisions that apply to the Issuers of securities and to other participants of the securities market for the year ended on December 31 of 2011 Characteristics of the Securities: The securities that are traded in the Mexican Stock Exchange (Bolsa Mexicana de Valores) (“BMV”) are “Ordinary Participation Certificates” (“CPO’s”), which are non-amortizable securities, issued under the CPO’s Trust (which term is defined below), each of which represents 7 Series B, Class I Shares of the capital stock of Axtel, S.A.B. de C.V. (“Axtel” or the “Company”). As of the date of this Report, there are 1,238,959,485 CPOs that represent 8,672’716,395 Series B Class I Shares. The capital stock of Axtel is represented by 8,769’353,223 shares of the fixed portion of the capital stock, of which, 96,636,627 are Series A, Class I and 8,672,716,596 are Series B, Class I. As of today, the capital stock of Axtel does not have shares that have been issued or subscribed representing the variable portion of its capital stock. Axtel’s CPOs and the shares that represent its capital stock, are both registered at the National Registry of Securities (“RNV”), and Axtel’s CPOs are traded in the Mexican Stock Exchange. Registration of Axtel’s CPOs and shares at the RNV have informative effects only, and does not imply a certification regarding the quality of the registered securities nor of Axtel's solvency. For any questions with regards to this Annual Report, please contact Mr. Adrian de los Santos at the phone number (81) 8114-1260 or via e-mail to [email protected]. This Annual Report is available at Axtel's web page at www.axtel.com.mx and at the BMV’s web page at www.bmv.com.mx. San Pedro Garza García, N.L. as of April 30, 2012. 1 Page 1) GENERAL INFORMATION 1.1 Glossary of Terms and Conditions 4 1.2 Executive Summary 7 1.3 Risk Factors 8 1.3.1. Risk related to the Company 8 1.3.2. Risks related to the Telecommunications Industry in Mexico 18 1.3.3. Risks related to Mexico 19 1.3.4. Risks related to the CPOs 21 1.3.5. Other Risk Factors 23 1.4 Other Securities 23 1.5 Significant Changes to the Duties of the Registered Shares in the Record Book 23 1.6 Use of Proceeds 24 1.7 Public Domain Documents 24 2) THE COMPANY 2.1 History and Development of The Company 24 2.2 Business Overview 25 2.2.1. General 25 2.2.2. Competitive Strengths 26 2.2.3. Business Strategy 28 2.3 Business Activity 30 2.4 Channels of Distribution. 30 2.5 Patents, Licenses, Trademarks and Other Contracts 33 2.5.1. Company’s Concessions 33 2.5.2. Main Trademarks 34 2.5.3.Interconnection 35 2.6 Main Customers 36 2.6.1.Markets 37 2.7 Applicable Legislation and Tax Law 39 2.7.1.Current Regulatory Environment of the Telecommunications Industry 39 2.7.2.Limitation on capital stock investments by foreign shareholders- Foreign 42 Investment Law 2.7.3. Tax situation; Income Tax (ISR), asset tax (IMPAC), Flat Tax (IETU) 43 and Employee Profit Share (PTU). 2.8 Human Resources 43 2.9 Environmental Performance and Social Responsibility 43 2.10 Market Information- Mexican Telecommunications Industry 45 2.11 Corporate Structure 46 2.12 Description of Main Assets – Network of The Company 46 2.12.1. Facilities. 46 2.12.2.Telecommunications Network 47 2.12.3.Network deployment strategy 47 2.12.4.Access Connectivity 48 2.12.5.Local Network 48 2.12.6.Long Distance Network 49 2.12.7. Switching. 50 2.12.8.Network Administration 50 2.12.9.Information Technology Systems 50 2.13.Judicial, Administrative and other Legal Proceedings 50 2.14. Capital Stock 54 2.15. Dividends 58 3) FINANCIAL INFORMATION 59 3.1 Selected Financial Information 59 3.2 Financial Information per Line of Business 62 2 3.3 Relevant Finance Agreements 64 3.4 Management´s Discussion and Analysis of Financial Condition and Operation 65 results of the Company 3.4.1. Results of Operations 65 3.4.2. Financial Position, Liquidity and Capital Resources 71 3.4.3. Control and Procedures 83 3.5 Estimates, Provisions, And Critical Accounting Policies. 84 4) MANAGEMENT 88 4.1 External Auditors 88 4.2 Transactions With Related Parties and Conflict of Interests 88 4.3 Senior Management and Shareholders 90 4.4 Company Bylaws and Other Agreements 97 5) STOCK MARKET 103 5.1 Shareholders Structure 103 5.2 Stock Performance in the Stock Market 105 5.3 Market Maker 105 6) AUTHORIZED REPRESENTATIVES 107 - External Auditor Certificate 108 7) ANNEX ANNEX A – Audited Financial Statements as of December 31, 2011, 2010 and January 1st 109 2010. ANNEX B – Annual Report of the Activities of the Audit and Corporate Practices 110 Committee 3 1) GENERAL INFORMATION 1.1) Glossary of Terms and Definitions The following glossary includes the definitions of the main terms and abbreviations used in this Annual Report: “Shares” Ordinary shares, nominative, without par value, representative of the capital stock of the Company. “Series A shares” Ordinary shares of the Series A, Class I, nominative, without par value, representing the fixed portion of the Company’s capital stock. “Series B shares” Ordinary shares of the Series B, Class I, nominative, without par value, representing the fixed portion of the Company’s capital stock. “America Móvil” América Móvil, S.A.B. de C.V. including subsidiary and affiliate companies. “Accival” Acciones y Valores Banamex, S.A. de C.V., Casa de Bolsa, Integrante del Grupo Financiero Banamex. “ADS” o “ADSs” American Depositary Shares, each one representing 7 CPOs, and each CPO representing 7 Series B Shares Class I. “Alestra” Alestra, S. de R.L. de C.V. “Avantel Concesionaria” Avantel, S. de R.L. de C.V. “Avantel Infraestructura” Avantel Infraestructura, S. de R.L. de C.V. “Avantel” Both, Avantel Concesionaria y Avantel Infraestructura. “Axtel” or the “Company” Means Axtel, S.A.B. de C.V., together with its subsidiaries, except when the context needs that the term Axtel refers only to Axtel, S.A.B. de C.V. “Banamex” Banco Nacional de México, S.A. integrante de Grupo Financiero Banamex. “BMV” Bolsa Mexicana de Valores, S.A.B. de C.V. (Mexican Stock Exchange). “Cablemás” Cablemás, S.A. de C.V. “Cablevisión” Empresas Cablevisión, S.A.B. de C.V. “Central Switchboard” Equipment that frees voice data and does the pertinent connections, allowing the calls to be realized. “Circular Letter ” Means the general provisions that apply to the Issuers of securities and to other participants of the securities market, issued by the CNBV and published in the Official Federal Gazette on Wednesday March 19, 2003, as updated pursuant to the resolutions issued on the Official Gazette on Tuesday October 7, 2003, Monday September 6, 2004, Friday September 22, 2006, Friday September 19, 2008, Tuesday January 27, 2009, Wednesday July 22, 2009,Tuesday December 29, 2009, Friday December 10, 2010, Monday December 20, 2010, Wednesday March 16, 2011, Wednesday July, 27, 2011, Wednesday August 31, 2011, Wednesday December 28, 2011 and Thursday February 16, 2012. “CNBV” Comisión Nacional Bancaria y de Valores. (Mexican Banking and Securities Commission). “Cofeco” Comisión Federal de Competencia. (Federal Antitrust Commission). 4 “Cofetel” Comisión Federal de Telecomunicaciones (Federal Telecommunications Commission). “CFE” Comisión Federal de Electricidad (Federal Electricity Commission). “DMS Switch” or “ DMS equipment” Nortel Neworks’ Central Switchboard model DMS100. “CPOs” Ordinary Participation Certificates, which are non-amortizable securities, issued under the CPOs Trust, each of which represents, 7 Series B Shares of Axtel’s capital stock. “dollars”, EUA$, “U.S.$” or Dollars Current currency of the United States of America. “Financial Statements” The Financial Statements. “Audited Financial Statements” The audited financial statements of the Company for the fiscal years ended on December 31, 2011 and 2010 and January 1st of 2010 (reformulated). “United States” The United States of America. “CPOs Trust” It means the Irrevocable Trust Agreement No. 80471 named AXTEL CPO's, dated November 30, 2005, entered between the Company, as settlor, and Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo, Fiduciary Division, as trustee, the purpose of which is, among others, to establish a mechanism that allows the allocation of the B Series Shares into the trust for the issuance of CPOs that are eligible for trading in the BMV. “Trustee” or “NAFIN” Nacional Financiera, Sociedad Nacional de Crédito, Institución de Banca de Desarrollo, Fiduciary Division, as trustee of the CPOs Trust. “FTTH” Fiber to the Home. Optical Fiber to home or business. “GHz” Gigahertz (Thousands of millions of cycles per second) Frequency relative to a time unit. “Indeval” S.D. Indeval, S.A. de C.V., Institución para el Depósito de Valores. “INEGI” Instituto Nacional de Estadística Geografía e Informática (National Institute of Statistics, Geography and Informatics of Mexico). “IP” Internet Protocol. “Iusacell” or “Grupo Iusacell” The following companies, together or individually: Iusacell PCS, S.A. de C.V., Iusacell PCS de México, S.A. de C.V., Portatel del Sureste, S.A. de C.V., Comunicaciones Celulares de Occidente, S.A. de C.V., Sistemas Telefónicos Portátiles Celulares, S.A.

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