AXTEL SAB DE CV (Form: 20-F/A, Filing Date: 01/22/2009)

SECURITIES AND EXCHANGE COMMISSION

FORM 20-F/A Annual and transition report of foreign private issuers pursuant to sections 13 or 15(d) [amend]

Filing Date: 2009-01-22 | Period of Report: 2009-01-12 SEC Accession No. 0000950162-09-000032

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FILER AXTEL SAB DE CV Mailing Address Business Address BLVD GUSTAVO DIAZ ORDAZ BLVD GUSTAVO DIAZ ORDAZ CIK:1282636| IRS No.: 000000000 3.33 NO. L-1 3.33 NO. L-1 Type: 20-F/A | Act: 34 | File No.: 333-114196 | Film No.: 09537788 COL. UNIDAD SAN PEDRO COL. UNIDAD SAN PEDRO SIC: 4813 Telephone communications (no radiotelephone) SAN PEDRO GARZA GARCIA, SAN PEDRO GARZA GARCIA, N.L. O5 66215 N.L. O5 66215 011 52 81 8114-0000

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 20-F/A (Amendment No. 1) (Mark One) o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR x 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 ______.

Commission file number: 333-114196

Axtel, S.A.B. de C.V. (Exact name of Registrant as specified in its charter)

Axtel

(Translation of Registrant’s Name into English)

United Mexican States (Jurisdiction of incorporation or organization)

Blvd. Gustavo Díaz Ordaz 3.33 No. L-1

Col. Unidad San Pedro

San Pedro Garza García, N.L.

México, CP 66215 (Address of principal executive offices) ______

Securities registered or to be registered pursuant to

Section 12(b) of the Act:

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Title of each class Name of each exchange on which registered None. Not applicable

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None (Title of Class)

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: 96,636,627 Series A and 8,672,716,596 Series B

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes: _____ No: [X]

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes: _____ No: [X]

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: _____ No: [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer _____ Accelerated filer _____ Non- accelerated filer [X]

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17: Item 18: [X]

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: _____ No: [X]

This Amendment No. 1 to Form 20−F (the "Form 20−F/A") amends our annual report for the fiscal year ended December 31, 2007, originally filed with the Securities and Exchange Commission ("SEC") on April 30, 2008 (the "Form 20−F"). The Form 20−F/A responds to SEC comments provided to us and therefore expands the disclosure in the following items: Item 4.B.2- additional disclosure regarding aggregate revenues by category of activity and geographic market for each of the last three · financial years, · Item 6.E- additional disclosure of the share ownership held by directors and senior management, Item 7.A- additional disclosure of the number of shares and percentage of outstanding shares owned by each shareholder that is the · beneficial owner of five percent or more of each class of our shares and Item 10.B- identification and discussion of material differences, if any, between the rights, preferences and restrictions associated with · our Series A and Series B common stock.

This Form 20-F/A includes the CEO and CFO certifications required under Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith as Exhibits 13.1 and 13.2 and corrects the exhibit table under Item 19 to incorporate by reference and/or to file herewith certain exhibits which had not been incorporated by reference or filed with the Form 20-F.

Additionally, this Form 20-F/A corrects Note 25(l) to our consolidated financial statements to reflect the fact that all the subsidiaries of Axtel currently guarantee Axtel’s 11% senior notes due 2013 and 7 5/8% senior notes due 2017. Note 25(1) in the Form 20-F incorrectly stated that Axtel’s 11% senior notes due 2013 were guaranteed by only three subsidiaries of Axtel.

This Form 20−F/A continues to speak as of the date of the Form 20−F and no attempt has been made in this Form 20−F/A to modify or update disclosures in the original Form 20−F except as noted above. This Form 20−F/A does not reflect events occurring after the filing of the Form 20−F or modify or update any related disclosures and information not affected by the amendment is unchanged and reflects the disclosure made at the time of the filing of the Form 20−F with the SEC except as noted above. In particular, any forward−looking statements included in this Form 20−F/A represent management's view as of the filing date of the Form 20−F. Accordingly, this Form 20−F/A should be read in conjunction with any documents incorporated by reference therein and our filings made with the SEC to the filing of the Form 20−F, including any amendments to those filings.

Cautionary statement on forward-looking statements 3

PART I.

Item 1. Identity of Directors, Senior Management and Advisers 4

Item 2. Offer Statistics and Expected Timetable 4

Item 3. Key Information 4

Item 4. Information on the Company 17

Item 5. Operating and Financial Review and Prospects 42

Item 6. Directors, Senior Management and Employees 57

Item 7. Major Shareholders and Related Party Transactions 63

Item 8. Financial Information 67

Item 9. The Offer and Listing 67

Item 10. Additional Information 67

Item 11. Quantitative and Qualitative Disclosures About Market Risk 77

Item 12. Description of Securities Other than Equity Securities (N/A) 80

PART II.

Item 13. Defaults, Dividend Arrearages and Delinquencies (N/A) 80

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds (N/A) 80

Item 15. Controls and Procedures 80

Items 16A. Audit committee financial expert 81

Items 16B. Code of Ethics 81

Items 16C. Principal Accountant Fees and Services 81

Items 16D. Exemptions from the Listing Standards for Audit Committees 82

Items 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 82

PART III.

Item 17. Financial Statements 82

Item 18. Financial Statements 82

Item 19. Exhibits 82

Financial Statements

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document In this annual report, references to “$,” “US$” or “Dollars” are to United States Dollars and references to “Ps.” or “Pesos” are to Mexican Pesos. This annual report contains translations of certain Peso amounts into Dollars at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Peso amounts actually represent such Dollar amounts or could be converted into Dollars at the rates indicated or at any other rate.

Unless otherwise indicated, this annual report contains discussions and financial information that was prepared in accordance with Mexican financial reporting standards, which we refer to as ‘‘Mexican GAAP.’’ These principles differ in significant respects from U.S. generally accepted accounting principles, which we refer to as ‘‘US GAAP,’’ including, but not limited to, the treatment of the capitalization of pre-operating expenses, the capitalization of interest, severance, and deferred income taxes and employees’ profit sharing and in the presentation of cash flow information.

Forward Looking Statements

This report on Form 20-F/A contains certain forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our views with respect to our financial performance and future events. All forward-looking statements contained herein are inherently uncertain. Actual results could differ materially from those projected in the forward-looking statements as a result of factors discussed herein. Many of these statements may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential,” among others. Readers are cautioned not to place reliance on these forward-looking statements. The following factors, as well as other factors described in this report, could cause actual results to differ materially from such forward-looking statements:

· competition in local services, long distance, data, internet, voice over internet protocol, or VoIP, services and video;

· ability to attract subscribers;

changes and developments in technology, including our ability to upgrade our networks to remain competitive and our ability · to anticipate and react to frequent and significant technological changes;

· our ability to successfully conclude the integration of Avantel into Axtel;

· our ability to manage, implement and monitor billing and operational support systems;

· an increase in churn, or subscriber cancellations;

· the control of us retained by certain of our stockholders;

· changes in capital availability or cost, including interest rate or foreign currency exchange rate fluctuations;

· our ability to service our debt;

· limitations on our access to sources of financing on competitive terms;

· our need for substantial capital;

· the effects of governmental regulation of the Mexican telecommunications industry;

· fluctuations in labor costs;

· foreign currency exchange fluctuations relative to the US dollar or the Mexican peso;

the general political, economic and competitive conditions in markets and countries where we have operations, including · competitive pricing pressures, inflation or deflation and changes in tax rates;

· significant economic or political developments in Mexico and the United States;

· the global telecommunications downturn;

· the timing and occurrence of events which are beyond our control; and

· other factors described in this Form 20-F/A.

Any forward-looking statements in this Form 20-F/A are based on certain assumptions and analysis made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the current circumstances. Forward-looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. You are therefore cautioned not to place undue reliance on such forward-looking statements. While we continually review trends and uncertainties affecting our results of operations and financial condition, we do not intend to update any particular forward-looking statements contained in this document.

Part I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3. KEY INFORMATION

A. Selected Financial Data

The following table provides our selected historical consolidated financial data. The selected historical consolidated financial data for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 have been derived from our audited consolidated financial statements included elsewhere in this Form 20-F/A or in Forms 20-F filed in previous years.

The information presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the consolidated financial statements and related notes thereto included elsewhere in this Form 20-F/A.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Year Ended December 31, 2003 2004 2005 2006 2007 (Constant Ps. in millions as of December 31, 2007, except ratios, shares and margins) Statement of Income Data: Telephone services and related revenues 3,434.2 4,306.4 5,362.4 6,675.7 12,190.6 Cost of revenues and operating expenses (3,301.9 ) (4,025.0 ) (4,716.1 ) (5,924.5 ) (10,796.8 ) Income from operations 132.2 281.4 646.3 751.2 1,393.8 Interest expense, net (234.0 ) (287.1 ) (349.9 ) (390.6 ) (790.6 ) Foreign exchange (loss) gain, net (375.8 ) (8.2 ) 112.1 23.7 1.0 Change in fair value of derivative instruments — — — (24.8 ) 19.9 Monetary position 109.2 72.2 58.7 11.5 268.8 Other income (expense), net(1) 2,016.7 23.4 7.7 (32.6 ) (20.1 ) Cash severance and other items (12.3 ) — — — — Income before income taxes 1,636.0 81.8 475.0 338.3 872.8 Income tax expense (580.4 ) (167.8 ) (167.9 ) (117.6 ) (383.2 ) Equity in results of associated company — — — 1.7 1.4 Net income (loss) from continuing operations 1,055.6 (86.0 ) 307.1 222.4 491.0 Net income (loss) 1,055.6 (86.0 ) 307.1 222.4 491.0 Shares outstanding 7,601,120,598 7,601,120,598 8,522,810,598 8,522,810,598 8,769,353,223 Net income (loss) from continuing operations per share (pesos) 0.1 (0.0 ) 0.0 0.0 0.1

Operating Data: Depreciation and amortization 1,012.3 1,116.6 1,220.3 1,560.1 2,690.7 Investment in property, systems and equipment (fixed assets) (end of period) 730.8 1,629.5 1,767.1 7,854.5 2,486.1 Net Resources: Operating activities 377.4 1,239.5 1,524.1 2,532.1 3,226.7 Investing activities (844.4 ) (1,708.4 ) (1,825.8 ) (8,800.6 ) (2,556.4 ) Financing activities 1,273.9 (104.3 ) 1,725.1 5,449.0 (318.6 ) Increases (decreases) in cash or cash equivalents 806.9 (573.2 ) 1,423.4 (819.5 ) 351.7 Ratio of earnings to fixed charges under Mexican GAAP(2) 5.7 x 1.2 x 1.9 x 1.5 x 1.8 x Ratio of earnings to fixed charges under US GAAP(2) 10.4 x 1.2 x 1.9 x 1.6 x 1.7 x

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Total access lines in service (in thousands) (end of period) Business 132.4 177.6 228.0 295.6 311.8 Residential 216.7 275.9 377.9 497.0 620.5 Total 349.1 453.5 605.9 792.5 932.3

As of

December 31, 2003 2004 2005 2006 2007 (Constant Ps. in millions as of December 31, 2007) Balance Sheet Data: Cash and cash equivalents 1,191.5 618.3 2,041.7 1,222.1 1,573.9 Capital stock 7,926.0 7,926.0 8,677.8 8,677.8 8,870.1 Total assets 9,562.5 9,633.7 11,696.2 19,894.0 19,830.7 Total debt 2,551.8 2,447.5 3,061.3 8,473.9 7,757.0 Total liabilities 3,231.6 3,389.2 4,055.1 12,009.7 11,080.3 Total shareholders’ equity 6,330.9 6,244.5 7,641.1 7,884.3 8,750.3 Net Assets 6,170.6 6,753.0 7,634.5 13,603.8 13,449.4 Dividends — — — — —

Data in Accordance with US GAAP(3):

Year Ended December 31, 2003 2004 2005 2006 2007 (Constant Ps. in millions as of December 31, 2007) Financial Data: Income from operations 201.1 285.0 646.0 682.9 1,207.1 Income from continuing operations 3,222.7 81.7 537.5 212.6 1,120.5 Net income 3,222.7 81.7 537.5 212.6 1,120.5 Net income from operations per share 0.4 0.0 0.1 0.0 0.1 Capital stock 6,419.5 6,419.5 7,171.3 7,171.3 7,363.6 Shares outstanding 7,601,120,598 7,601,120,598 8,522,810,598 8,522,810,598 8,769,353,223 Total assets 9,059.8 9,296.9 11,760.5 20,407.3 20,495.2 Total debt 2,551.8 2,447.5 3,061.3 8,473.9 7,757.0 Total shareholders’ equity 5,709.9 5,791.3 7,418.3 7,752.6 9,256.7 ______Other income for the year ended December 31, 2003 includes a net gain of Ps. 2,186.1 (US$187.9 million) due to our repurchase of (1) certain debt. For purposes of determining the ratio of earnings to fixed charges, earnings are defined as our income from operations before income (2) taxes, plus fixed charges. Fixed charges consist of interest expense on all

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document indebtedness, amortization of debt issuance costs and 33% of lease payments, which represents the amounts considered to be the interest factor. (3) Reconciled in accordance with Note 24 of our consolidated financial statements.

Exchange Rates

As of April 25, 2008, the noon buying rate in the spot market for the purchase of US dollars (in nominal pesos per US dollar) was Ps. 10.47(1). The following table sets forth, for the periods indicated, the period end, average, high and low noon buying rates, in each case for the purchase of US dollars, all expressed in nominal pesos per US dollar.

Noon buying rate(1) Prior Years Period End Average High Low

Year ended December 31, 2003 11.24 10.79 11.41 10.11 Year ended December 31, 2004 11.15 11.20 11.33 11.11 Year ended December 31, 2005 10.63 10.89 11.41 10.41 Year Ended December 31, 2006 10.80 10.91 11.46 10.43 Year Ended December 31, 2007 10.92 10.93 11.27 10.67 ______(1) Source: Federal Reserve Bank of New York

The following table sets forth, for the periods indicated, the high and low noon buying rates, in each case for the purchase of US dollars, all expressed in nominal pesos per US dollar.

Noon buying rate(1) Month/Year High Low October 2007 11.00 10.67 November 2007 10.91 10.70 December 2007 11.15 10.93 January 2008 10.97 10.82 February 2008 10.82 10.67 March 2008 10.85 10.63 ______(1) Source: Federal Reserve Bank of New York

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Relating to Our Company

Our integration of Avantel is not completed yet and the combined business may fail to meet our expectations.

Our integration of the Axtel and Avantel businesses started in December 2006 and is not expected to be completed before year-end 2008. The integration process has required significant resources and management

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document attention and although no major delays or unforeseeable events have occurred thus far, we might face delays or currently unforeseen difficulties or impediments in the remaining integration process. Such delays or impediments could require significant expenditures to overcome and could postpone our ability to recognize cost savings from the integration, each of which would harm our profitability and cash flow. In addition, these challenges could divert management's attention from the operation and growth of our business, which could harm our revenues and profitability and cause us to grow more slowly than we currently anticipate It is also possible that problems with the integration of the two businesses or a failure to anticipate certain issues arising in connection with the acquisition will prevent the combined business from meeting our current expectations. Our relative lack of experience in consummating acquisitions and integrating acquired businesses could increase these risks for us.

Our acquisition of Avantel in December 2006 could make it difficult for you to evaluate our historical performance and future prospects.

Because Axtel’s acquisition of Avantel was consummated in December 2006, the historical financial information included in this Form 20-F/A covers only the 2007 period during which the two businesses were operated under common ownership. Accordingly, the historical financial information included in this Form 20-F/A may not reflect what our results of operations and financial condition would have been a combined entity during the years before 2007. Our limited operating history as a combined entity and the challenge inherent in concluding the integration of the previously independent businesses make evaluating our business and future financial prospects difficult. You should consider our potential for future business success and operating profitability in light of the risks, uncertainties, expenses and difficulties typically encountered by recently combined companies.

Our network growth strategy may fail to generate the revenues we anticipate.

From our inception through December 31, 2007, we have invested approximately Ps. 21,968.6 million in network and infrastructure. We anticipate making significant additional expenditures to maintain and upgrade our network, expand our network and business and to complete the integration of Avantel’s network and business. These expenditures, together with operating expenses, may adversely impact our cash flow and profitability, particularly if the expenditures do not lead to additional revenue. We also anticipate that continued growth will require us to attract and retain qualified personnel necessary to efficiently manage such growth. If we are unable to meet the challenges that our growth presents, our results of operations and financial condition could be adversely affected.

Our increased leverage resulting from the acquisition of Avantel could significantly affect our growth and operating results.

We financed the acquisition of Avantel with approximately US$516.0 million in debt. Although we reduced our level of debt during 2007, our total debt stood at US$713.9 million as of December 31, 2007, a significantly larger amount compared to the pre-Avantel acquisition levels. The resulting increase in debt service costs could reduce the amount of cash which would otherwise be available to invest in expansion of our business or to meet other obligations. Likewise, our higher level of leverage could reduce our access to new financing sources on favorable terms, and accordingly, significantly limit our growth and adversely affect our operating results.

We have a history of substantial losses and expect to incur future losses.

We have incurred a cumulative net loss of Ps. 949.6 million from inception to December 31, 2007. We anticipate that we could continue to incur net losses in the future.

We depend on certain vendors for the deployment of our network.

Our ability to achieve our strategic objectives and our overall performance and prospects depends on and will depend on, in large part, the successful, timely and cost-effective acquisition and performance of telecommunications equipment including wireless access products, as well as WiMAX-based technology equipment currently being deployed. If any of our vendors, including Motorola de México S.A. and Motorola Inc., which provides the “802.16e WiMAX technology” for a significant portion of our 2008 network access infrastructure

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document investments, are unable or fail to continue supplying products, or if WiMAX is not able to comply with the expected capabilities, our network expansion and growth could be slowed and our operating results could be adversely affected.

We depend on key personnel; if they were to leave us, we might have an insufficient number of qualified employees.

We believe that our ability to implement our business strategy and our future success depends on the continuous employment of our senior management team, in particular our president and chief executive officer, Tomás Milmo Santos. Our senior management team has extensive experience in the industry and is vital in maintaining some of our major customer relationships, which might be difficult to replace. The loss of the technical knowledge, management and industry expertise of these key employees could make it difficult for us to execute our business plan effectively and could result in delays in new products being developed, loss of customers and diversion of resources while we seek replacements.

If we do not successfully maintain, upgrade and efficiently operate accounting, billing, customer service and management information systems and successfully integrate Avantel’s administrative operations, we may not be able to maintain and improve our operating efficiencies.

Sophisticated information and processing systems are vital to our operations and growth and our ability to monitor costs, render monthly invoices for services, process customer orders, provide customer service and achieve operating efficiencies. We have installed the accounting, information and processing systems that we deem necessary to provide services efficiently. However, there can be no assurance that we will be able to successfully operate and upgrade such systems or complete the migration of Avantel’s operations onto such systems or that these systems will continue to perform as expected. Any failure in our information and processing systems could impair our ability to collect payment from customers and respond satisfactorily to customer needs.

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

Our operations are dependent upon our ability to protect our network infrastructure against damage from fire, earthquakes, hurricanes, floods, power loss, breaches of security, software defects and similar events and to construct networks that are not vulnerable to the effects of such events. The occurrence of a natural disaster or other unanticipated problems at our facilities or at the sites of our switches could cause interruptions in the services we provide. The failure of a switch would result in the interruption of service to the customers served by that switch until necessary repairs were effected or replacement equipment was installed. Repairing or replacing damaged equipment may be costly. Any damage or failure that causes interruptions in our operations could have a material adverse effect on our business, financial condition and results of operations.

We depend on certain important customers for a significant portion of our revenues.

Our three largest customers generated approximately 19% of total revenues in 2007. Accordingly, our ability to maintain a satisfactory relationship with these customers has a direct impact on our revenues and profitability. If these customers breach some or all the conditions established in their respective commercial agreements, or such agreements are not renewed upon their respective expiration dates, our business, financial condition, revenues and results of operations could be adversely affected.

We depend on Telmex for interconnection and we may be forced to pay higher interconnection fees in the future, which could have a material adverse effect on our business and results of operations.

Telmex exerts significant influence on all aspects of the telecommunications markets in Mexico, including interconnection agreements. We use Telmex’s network to terminate the vast majority of our customers’ calls. The interconnection agreement between Axtel and Telmex was renewed in March 2008. However, it remained expired during renegotiations for 2006 and 2007 and we can provide no assurance that it will be extended before its expiration date on December 31, 2008. If Telmex breaches some or all the conditions established in the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document interconnection agreement, or if we are not able to renew this agreement under acceptable terms upon its expiration, we might be forced to offer services that will no longer be profitable and competitive. In addition, if the Secretaria de Comunicaciones y Transporte (‘‘SCT’’) or the Mexican telecommunications regulatory authority (Comisión Federal de Telecomunicaciones, or ‘‘COFETEL’’) ceased to regulate Telmex’s pricing, the resulting competitive climate could have a material adverse effect on our business, financial condition and results of operations.

We rely on Telmex to maintain our leased last-mile links.

We maintain a number of dedicated links and last-mile-access infrastructure under lease agreements with Telmex. If Telmex breaches the agreed contractual conditions, or an agreement is not renewed upon its expiration, and Telmex discontinues the provision of services before we are able to link these customers to our own network, there could be a material adverse effect on our operations and an adverse effect on our business, financial condition and results of operations.

We are currently dependent on intellectual property licensed from Verizon Communications (formerly MCI), which is necessary for our long-distance platform and for managing our long distance billing.

We are currently dependent on services provided by and on intellectual property licensed to us by Verizon Communications to manage the national and international long distance billing system that we acquired from Avantel. Our license agreement with Verizon Communications for this system expires in May 2008. We may not be able to migrate Avantel’s billing system onto our own platform before the license agreement expires. If we are not able to migrate that system, or to renew the agreement at all, we could experience operational and administrative disruptions which could adversely affect our business and results of operations.

One of our main access technology suppliers has filed for creditor protection under Canada´s CCAA (Companies’ Creditors Arrangement Act).

We buy from SRTelecom new equipment and spare parts for our Symmetry access technology solution. Currently, this vendor has filed for creditor protection under Canada´s CCAA, a similar status to U.S. Chapter 11. If the financial conditions of this vendor deteriorate, we could be adversely affected due to the lack of spare parts for the equipment already deployed jeopardizing the future of this technology. Damaged equipment would have to be replaced with another access solution in order to continue delivering services.

A system failure could cause delays or interruptions of service, which could cause us to lose customers.

To be successful, we will need to continue to provide our customers reliable service over our network. Some of the risks to our network and infrastructure include:

· physical damage to access lines;

· power surges or outages;

· software defects; and

· disruptions beyond our control.

Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and incur additional expenses.

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

Pursuant to the Mexican Federal Telecommunications Law (Ley Federal de Telecomunicaciones) enacted in 1995, the public telecommunications networks are considered public domain. Under such law, holders of concessions to install, operate and develop public telecommunications networks are subject to the provisions of the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Mexican Federal Telecommunications Law and any other provision contained in the concession title. The Mexican Federal Telecommunications Law provides, among other things, for the following:

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 SCT;

Neither the concession nor the rights thereunder or the related assets may be assigned, pledged, mortgaged or sold to any · government or country; and

The Mexican government (through the SCT) may expropriate or 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.

Mexican law sets forth the process for indemnification for direct damages arising out of the expropriation or temporary seizure of the assets related to the concessions, except in the event of war. However, in the event of expropriation, we cannot assure you that the indemnification will equal the market value of the concessions and related assets or that we will receive such indemnification in a timely manner. Mexican law does not prohibit a grant of a security interest by the concessionaire to its creditors (except for security granted to a foreign government or country) in the concessions and the assets, provided that all procedural laws are complied with; however, if such security interest is enforced, the assignee must comply with the Mexican Federal Telecommunications Law’s provisions related to concessionaires, including, among others, the requirement to receive the authorization by the SCT to be a holder of the concession.

The regulatory authorities could require us to offer services in certain geographical areas where we do not currently provide services, which could have a negative effect on our operating margins and results of operations.

The SCT has granted us the necessary permits to provide services in the whole Mexican territory. Some of our concessions require us to offer services in certain geographical areas where we do not currently provide services. With respect to those geographical areas in which we were required to provide such services by December 2007, we have complied with such coverage requirements. With respect to those geographical areas in which we are required to provide such services by December 2008, we expect to comply with any regulatory authorities requirements . However, if needed we may request the necessary extensions from the SCT in order to comply with the coverage requirements, which extensions we have been able to obtain from the SCT in the past. We may also be required to provide services in geographical areas where we may experience a low operating margin with respect to such services. If we do not obtain the necessary extensions when required, or if we are required to provide services in areas where we do not currently provide services or in geographical areas where we may experience a low operating margin with respect to such services, our results of operations and financial condition may be adversely affected.

We operate in a highly competitive environment, which may negatively affect our operating margins.

The telecommunications industry in Mexico is becoming more competitive. Over the past seven years, we have not increased prices for local and long distance services to our customers. Additionally, in 2006 the government enacted a new legislation and convergence policy, which established the guidelines for the provision of voice, data and video services by telecommunications companies, including bundled services. The new legal framework will facilitate the entrance of new participants into the Mexican telecommunications and data market, such as cable companies, broadcasting companies, and the state-monopoly Federal Electricity Commission (Comisión Federal de Electricidad, or ‘‘CFE’’). Although it does not currently affect our operations directly, broadcasters such as Grupo Televisa, S.A. and TV Azteca S.A. de C.V. and cellphone service providers such as América Móvil S.A. de C.V. might be allowed to retain excess bandwidth in their networks, and if granted the corresponding concessions or amendments thereto, they will have the capability to provide services similar to those that we currently provide or intend to provide in the near future, including digital channels, internet service and IP telephony. We expect the Mexican telecommunications market to continue to experience rate pressure, primarily as a result of:

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document · 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 and rate pressure;

· major participation of traditional fixed-line competitors;

· the entrance of cable television operators into certain of our markets; and

· the entrance of new competitors, such as broadcasting companies (Televisa or TV Azteca), or CFE.

As the telecommunications industry in Mexico becomes more competitive, we will face significant competition from other operators, primarily on the basis of features, pricing and customer service. Some of these competitors include Telmex, Alestra, S.A. de C.V. (‘‘Alestra’’) and Maxcom Telecomunicaciones, S.A.B. de C.V. (‘‘Maxcom’’), as well as established local cable television operators who may expand their services into certain of our markets, such as local and long distance voice and data service. As resellers of telephony services become licensed, they will also offer competition in many of our targeted markets.

Telmex, as the former state-owned telecommunications monopoly and dominant provider of local and other telecommunications services in Mexico, has significantly greater financial and other resources than those available to us. In addition, Telmex’s nationwide network and concessions, as well as its established and long-standing customer base, give it a substantial competitive advantage over us.

We might see a more aggressive competitive response from other telecommunication services providers.

With the acquisition of Avantel we have significantly increased our participation in Mexico’s telecommunications sector, especially in the business market. As a result, our larger presence might produce a more aggressive response from competitors, including Telmex. This response could include aggressive price cutting or targeting of significant customers, among others, and could have a material adverse effect on our business, financial condition and results of operations.

We depend on revenues from certain highly competitive markets.

High-volume business customers are among the most attractive niches in the telecommunications market. This niche is being pursued by a number of carriers that offer competitive telecommunications services solutions in order to gain these accounts. Losing some of these customers could lead to a significant loss of revenue and lower operating income.

We depend on revenues from long distance services.

Prices for long distance services have been declining as new products such as voice over internet protocol, or VoIP, continue to gain acceptance. If we are unable to replace revenues lost from long distance with revenues from other services, such as local, data or integrated services, we could have a material adverse effect on our business, financial condition and results of operations.

We may need additional financing.

We may require additional financing in the future to fund our operations. We cannot assure you that we will have sufficient resources and that, if needed, any financing will be available in the future or on terms acceptable to us. In addition, our ability to incur additional indebtedness will be restricted by the terms of agreements currently in place or into which we may enter in the future.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The technology we use may be made obsolete by the technology used by our competitors.

Our fixed wireless system, as well as our fiber optic network, point-to-multipoint and point-to-point infrastructure, may not be as efficient as technologies used in the future by our competition. We have relied heavily on the continued performance of wireless technology. Technological changes or advances in alternative technologies may adversely affect our competitive position and require us to reduce our prices, substantially increase capital expenditures and/or write down obsolete technology.

If our current churn rate increases, our business could be negatively impacted.

The cost of acquiring a new customer is much higher than the cost of maintaining an existing customer. Accordingly, customer deactivations, or churn, could have a material negative impact on our operating income, even if we are able to obtain one new customer for each lost customer. Our average monthly churn rate has been stable during the last 24 months at approximately 1.3%, which is higher than that of our main competitor. Our churn rate mainly results from customer deactivations due to non-payment of bills. If we experience an increase in our churn rate, our ability to achieve revenue growth could be materially impaired. In addition, a decline in general economic conditions could lead to an increase in churn, particularly among our residential customers.

We are obligated to comply with certain restrictions under our existing indebtedness, which may affect our future activities.

Under (i) the indenture governing our 11% senior notes due 2013, (ii) our term loan facility, and (iii) the indenture governing our 7 5/8% senior notes due 2017, we will be obligated to comply with certain covenants, which may restrict our ability to pay dividends, carry out acquisitions, incur indebtedness or engage in other transactions, including certain financings.

Risks Relating to the Mexican Telecommunications Industry

We operate in a highly regulated industry.

As a provider of public services, we are subject to extensive regulation. Although the basic regulatory framework governing telecommunications has been in existence since 1995, it may undergo changes from time to time, including changes that may materially and adversely affect our business, operations, financial condition and prospects.

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

The Mexican government regulates the telecommunications industry. Our concessions are not exclusive and the Mexican government has granted and may discretionary grant additional concessions covering the same geographic regions. We cannot assure you that additional concessions to provide services similar to those we provide will not be granted and that the value of our concessions and competition levels will not be adversely affected as a result.

Fraud could increase our expenses.

The fraudulent use of telecommunications networks could impose a significant cost upon service providers, who must bear the cost of services provided to fraudulent users. We may suffer a loss of revenue as a result of fraudulent use and incur an additional cash cost due to our obligation to reimburse carriers for the cost of services provided to fraudulent users. Although technology has been developed to combat this fraudulent use and we have installed it in our network, this technology does not eliminate fraud entirely. In addition, because we rely on other long distance carriers to terminate our calls on their networks, some of which do not have anti-fraud technology in their networks, we may be particularly exposed to this risk in our long distance service.

Macroeconomic developments in Mexico affect our business.

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

Beginning in December 1994 and continuing through 1995, Mexico experienced an economic crisis characterized by a sharp devaluation of the peso, high inflation, foreign currency exchange rate instability, high domestic interest rates, a strong contraction in consumer demand for many products and services, reduced availability of credit, high unemployment and diminished international investor confidence in Mexico. Mexico’s gross domestic product, which grew at a real annual rate of 4.4% during 1994, declined by 6.2% in real terms during 1995.

In response to these developments, beginning in February 1995, the Mexican government implemented a variety of economic programs designed to promote economic recovery, stabilize foreign currency exchange rates and reduce inflation. Economic conditions in Mexico improved moderately in 1996 and 1997. However, a combination of factors led to a slowdown in Mexico’s economic growth in 1998. Notably, the decline in the international price of oil resulted in a reduction of federal revenues, approximately one-third of which are derived from petroleum taxes and duties. In addition, the economic crises in Asia and Russia, as well as the financial turmoil in Brazil and elsewhere, produced greater volatility in the international financial markets, which further slowed Mexico’s economic growth. In 1998, the inflation rate in Mexico was 18.6%, interest rates on 28-day Certificados de la Tesorería de la Federación (‘‘CETES’’) averaged 24.6% and the peso lost 22.7% of its value (in nominal terms) relative to the US dollar.

During 1999, conditions improved with inflation in Mexico at 12.3%, interest rates on 28-day CETES averaging 21.3% and the peso appreciating 4.0% in value (in nominal terms) relative to the US dollar. Throughout 2000, the improvement shown in 1999 continued. In 2000 the inflation rate was 9.0%, interest rates on 28-day CETES averaged 15.3% and the peso devalued 1.2% in value (in nominal terms) relative to the US dollar. The Mexican government estimated that Mexico’s real gross domestic product grew by 5.0% in 1998, 3.8% in 1999 and 6.6% in 2000.

Beginning in January 2001, however, and increasing in the fourth quarter of 2001, amid concerns of a global economic slowdown and a recession in the United States, Mexico began to experience an economic slow-down marked by a decline in gross domestic product. In 2001, Mexico’s gross domestic product shrank by 0.2% in real terms while the inflation rate was 4.4%, interest rates on 28-day CETES averaged 11.3% and the peso appreciated 4.6% in value (in nominal terms) relative to the US dollar. During 2002, as the United States and global economic slowdown continued, the Mexican real gross domestic product growth rate was 0.6%, the inflation rate was 5.7%, interest rates on 28-day CETES averaged 7.1% and the peso devalued 13.8% (in nominal terms) relative to the US dollar. During the years ended December 31, 2003, 2004 and 2005, the inflation rate was 4.0%, 5.2% and 3.3%, respectively, interest rates on 28-day CETES averaged 6.2%, 6.8% and 9.2%, respectively, and the peso devalued 7.6% and appreciated 0.8% and 4.6%, respectively (in nominal terms), relative to the US dollar.. In 2006 and 2007, the inflation rate was 4.1% and 3.8% respectively, interest rates on 28-day CETES averaged 7.0% and 7.2% respectively, and the peso appreciated 4.6% and depreciated 1.1% (in nominal terms) respectively, relative to the US dollar. The gross domestic product for 2003, 2004, 2005, 2006 and 2007 was 1.3%, 4.4%, 3.0%, 4.8% and 3.3%, respectively.

In the past, inflation has led to high interest rates and devaluation of the peso. Inflation itself, as well as governmental efforts to reduce inflation, has had significant negative effects on the Mexican economy in general and on Mexican companies, including us. Inflation in Mexico decreases the real purchasing power of the population of Mexico, and the Mexican government’s efforts to control inflation by tightening the monetary supply have historically resulted in higher financing costs, as real interest rates have increased. Such policies have had and could have an adverse effect on us.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document A global economic slowdown or other future economic developments in or affecting Mexico could impair our business, results of operations, financial condition, prospects and ability to obtain financing.

Political events in Mexico could affect Mexican economic policy and our results of operations.

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy could have a significant impact on Mexican private sector entities in general, as well as on market conditions.

In the Mexican national elections held on July 2, 2006, Felipe Calderón of the Partido Acción Nacional, or ‘‘PAN,’’ won the presidency. He succeeded Vicente Fox, of the same party. During the July elections, members of the Mexican Congress were also elected. The PAN obtained the largest number of seats in both houses of the Mexican Congress, but not enough to secure an absolute majority. The second- largest political party in the Mexican Congress is now the left-wing Partido de la Revolución Democrática, or ‘‘PRD.’’ The Partido Revolucionario Institucional, or ‘‘PRI,’’ who had the presidency for over 70 years, became the third force in Congress after July elections. The presidential election campaigns were extremely competitive, with significant confrontations, mainly between the PAN and PRD. President Calderón was elected with a less-than-1% margin of victory over PRD’s candidate, Andres Manuel López Obrador. The hard-fought campaigns together with the close results generated street blockades, protests, and even the attempt by the PRD to obstruct President Calderón’s inauguration ceremony on December 1, 2006. During the first year of President Calderon there has been significant confrontation from the PRD group in the Congress leaving the federal government with the PRI as the only alternative to negotiate important reforms. We expect this intense political struggle to continue or even intensify in the Mexican Congress, which could lead to a further slowdown in the progress of political and economic reforms in Mexico. This gridlock could have an adverse effect on us, including our business, financial condition, prospects and results of operations.

Felipe Calderón’s presidency may also bring significant changes in laws, public policies and/or regulations that could adversely affect Mexico’s political and economic situations, which could adversely affect our business. Mexico will next hold elections to elect members of the Mexican congress in July 2009.

Social and political instability in Mexico or other adverse social or political developments in or affecting Mexico could adversely affect us and our ability to obtain financing. It is possible that political uncertainty may adversely affect financial markets.

High interest rates in Mexico could increase our financing and operating costs.

Mexico historically has had high real and nominal interest rates. The interest rates on 28-day Mexican government treasury securities, CETES, averaged 21.3%, 15.3% and 11.3% for 1999, 2000 and 2001, respectively. Although average rates for 2002, 2003, 2004, 2005, 2006 and 2007 were 7.1%, 6.2%, 6.8%, 9.2%, 7.0% and 7.2% respectively, we cannot assure you that interest rates will remain at their current rates. Thus, if we are forced to incur Mexican peso-denominated debt in the future, it may be at interest rates higher than the current rates.

We may lose money because of peso devaluation.

While our revenues are almost entirely denominated in pesos, the substantial majority of our obligations, and 77.8% of our debt as of December 31, 2007 is denominated in US dollars. The value of the Mexican peso has been subject to significant fluctuations with respect to the US dollar in the past and may be subject to significant fluctuations in the future. During the year ended December 2004 and 2005, the peso was appreciated 0.8% and 4.6%, respectively (in nominal terms) relative to the US dollar. In 2006 and 2007, the peso depreciated 1.6% and 1.1% (in nominal terms) respectively, relative to the US dollar. Further declines in the value of the peso relative to the US dollar could adversely affect our ability to meet our US dollar-denominated obligations.

Our financial statements do not give you the same information as financial statements prepared under United States accounting principles.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We prepare our financial statements in accordance with Mexican GAAP. These principles differ in significant respects from US GAAP, including, but not limited to, the treatment of the capitalization of pre-operating expenses, the amortization of frequency rights, the capitalization of interest and deferred income taxes and employees’ profit sharing, and in the presentation of cash flow information. In particular, all Mexican companies must incorporate the effects of inflation directly in their accounting records and in published financial statements. For these and other reasons, the presentation of Mexican financial statements and reported earnings may differ from that of companies in other countries. See Note 25 of our consolidated financial statements.

Risks Relating to the Financial Obligations of the Company

Our indebtedness could adversely affect our financial condition and impair our ability to fulfill our obligations under the notes.

Our ability to meet our debt service requirements will depend on our future performance, which is subject to a number of factors, many of which are outside our control. We cannot assure you that we will generate sufficient cash flow from operating activities to meet our debt service and working capital requirements.

As of December 31, 2007, we had approximately Ps. 7,757.0 million of debt and accrued interest and our ratio of net debt to Adjusted EBITDA for the twelve months ended December 31, 2007 was 1.5x.

Our level of indebtedness may have important negative effects on our future operations, including:

impairing our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other · general corporate purposes;

requiring us to dedicate a substantial portion of our cash flow to the payment of principal and interest on our indebtedness, · which reduces the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, · including our borrowings under our credit facilities;

increasing the possibility of an event of default under the financial and operating covenants contained in the agreements · governing our and our subsidiary guarantors’ outstanding indebtedness; and

limiting our ability to adjust to rapidly changing market conditions, reducing our ability to withstand competitive pressures · and making us more vulnerable to a downturn in general economic conditions or our business than our competitors with less debt.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to refinance all or a portion of our existing debt, or to obtain additional financing. We cannot assure you that any such refinancing would be possible or that any additional financing could be obtained. Our inability to obtain such refinancing or financing may have a material adverse effect on us.

We and our subsidiary guarantors may incur substantially more debt, which could further exacerbate the risks associated with our indebtedness.

We may be able to incur substantial additional debt in the future. Although the agreements governing our and our subsidiary guarantors’ outstanding indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictions do not prevent us or our subsidiary guarantors from incurring obligations that do not constitute ‘‘indebtedness’’ as defined in the relevant

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document documents. Adding new debt to our current indebtedness levels would increase our leverage. The related risks that we now face could intensify.

The instruments governing our indebtedness contain cross-default provisions that may cause all of the debt issued under such instruments to become immediately due and payable as a result of a default under an unrelated debt instrument.

Instruments governing our indebtedness contain certain affirmative and negative covenants and require us and our subsidiaries to meet certain financial ratios and tests. Our failure to comply with the obligations contained in these instruments governing our indebtedness could result in an event of default under the applicable instrument, which could then result in the related debt and the debt issued under other instruments becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which may not be available to us on favorable terms, on a timely basis or at all. Alternatively, such default could require us to sell our assets and otherwise curtail operations in order to pay our creditors.

Restrictive covenants in our debt agreements may restrict the manner in which we can operate our business.

The agreements governing our and our subsidiary guarantors’ outstanding indebtedness limit, among other things, our ability and the ability of our restricted subsidiaries to:

· borrow money or issue guarantees;

· pay dividends, redeem capital stock or make other restricted payments;

· create liens to secure indebtedness;

· make certain investments;

· sell certain assets;

· pledge assets;

· participate in joint-venture agreements;

· enter into transactions with our affiliates; and

· merge with another entity or sell substantially all of our assets.

If we fail to comply with these covenants, we would be in default under our credit facility and the indentures, and the principal and accrued interest on our outstanding indebtedness may become due and payable. In addition, our future indebtedness agreements may contain additional affirmative and negative covenants which could be more restrictive than those contained in the instruments governing our existing indebtedness.

We may not be able to make payments in US dollars.

In the past, the Mexican economy has experienced balance of payments deficits and shortages in foreign exchange reserves. While the Mexican government does not currently restrict the ability of Mexican or foreign persons or entities to convert pesos to foreign currencies, including US dollars, it has done so in the past and could do so again in the future. We cannot assure you that the Mexican government will not implement a restrictive exchange control policy in the future. Any such restrictive exchange control policy could prevent or restrict our access to US dollars to meet our US dollar obligations and could also have a material adverse effect on our business,

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document financial condition and results of operations. We cannot predict the impact of any such measures on the Mexican economy.

Payment of judgments entered against us in Mexico will be in pesos, which may expose you to exchange rate risks.

If proceedings to enforce our obligations under the notes are brought in Mexico, Mexican law permits us to pay a resulting judgment in pesos. Under the Ley Monetaria de México (the ‘‘Mexican Monetary Law’’), an obligation payable in Mexico in a currency other than pesos may be satisfied in pesos at the exchange rate in effect on the date the payment is made. This rate is currently determined and published by the Banco de Mexico every business day.

Under Mexico’s Ley de Concursos Mercantiles (the ‘‘Mexican Bankruptcy Law’’), upon our declaration of insolvency or bankruptcy, or in the event that actions and claims are initiated in the courts of Mexico, our obligations under the notes:

would be converted into pesos at the exchange rate published by the Banco de México prevailing at the time of such (i) declaration and would subsequently be converted into Unidades de Inversion, which is a unit pegged to the consumer price index determined by Banco de México, and payment would occur at the time claims of our other creditors are satisfied;

(ii) would be subject to any provisional remedy (‘‘providencia precautoria’’) which may be issued in such proceedings;

(iii) would be dependent upon the outcome of the insolvency or bankruptcy proceedings;

would not be adjusted to take into account depreciation of the peso against the dollar occurring after such declaration of (iv) insolvency or bankruptcy; and

(v) would be subject to certain statutory preferences including tax, social security and labor claims and secured creditors.

Under the Mexican Bankruptcy Law, it is possible that in the event we are declared bankrupt, any amount by which the stated principal amount of the notes exceeds their accreted value may be regarded as not mature and, therefore, claims of holders of the notes may only be allowed to the extent of the accreted value of the notes. It is believed that there are no Mexican precedents in bankruptcy addressing this point and there exists significant uncertainty as to how a Mexican court would measure the claims to holders of the notes, particularly given the recent enactment of the Mexican Bankruptcy Law in May 2000.

Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Axtel, S.A.B. de C.V. was founded in 1994. We are a variable capital corporation (sociedades anónimas de capital variable) organized under the laws of Mexico. In June 1996, we were awarded by the Mexican government a concession to install and operate a public telecommunications network for the offering of local and long distance telephony services in Mexico. In 1998 and 1999, we won several spectrum auctions, including for 60 MHz at 10.5 GHz for point-to-multipoint access, for 112 MHz at 15 GHz for point-to-point backhaul access, for 100 MHz at 23 GHz for point-to-point last mile access and for 50 MHz at 3.4 GHz for fixed wireless access, which together allow us to service the entire territory of Mexico. In June 1999, we launched commercial operations in the city of Monterrey.

We are the largest fixed-line integrated telecommunications company in Mexico after Telmex, providing local and long distance telephony, broadband Internet, data services, web hosting, information security services,

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document virtual private networks, and a wide range of integrated telecommunications services in twenty seven of the largest metropolitan areas in Mexico (Mexico City, Monterrey, Guadalajara, Puebla, Toluca, Leon, Queretaro, San Luis Potosi, Aguascalientes, Saltillo, Ciudad Juarez, Tijuana, Torreón (Laguna Region), Veracruz, Chihuahua, Celaya, Irapuato, Ciudad Victoria, Reynosa, Tampico, Cuernavaca, Mérida, Morelia, Pachuca, Hermosillo, San Juan del Rio and Xalapa.) at the end of 2007, which represent more than 44% of the total population of Mexico, according to the National Institute of Geography, Statistics and Information Technology of Mexico (“INEGI”). We estimate that our total lines represent approximately 10.3% of the lines in service of our total addressable market in the 27 cities we serviced at the end of 2007.

On October 25, 2006, we agreed with Banamex, and Telecomunicaciones Holding Mx, S. de R.L. de C.V. (‘‘Tel Holding’’), former controlling shareholders of Avantel, to purchase substantially all of the assets of Avantel Infraestructura, S. de R.L. de C.V. (‘‘Avantel Infraestructura’’) for US$485.0 million. We also agreed to purchase the equity interests of Avantel Infraestructura and Avantel, S. de R.L. de C.V. (‘‘Avantel Concesionaria,’’ both companies together being referred to as ‘‘Avantel’’) and each of Avantel’s subsidiaries for US$31.0 million. Following receipt of all required approvals from Axtel’s shareholders and government regulators, we completed the acquisition on December 4, 2006. To finance the acquisition of Avantel, we used the proceeds from a dollar-denominated Ps. 3,383.4 million (US$311.0 million) bridge loan facility, a peso and dollar Ps. 2,241.7 million term loan facility and cash on hand. We also paid value added tax, property transfer tax and other taxes related to the purchase of substantially all the assets of Avantel Infraestructura. On March 06, 2007, Mexico’s Servicio de Administración Tributaria refunded Axtel Ps. 773.9 million corresponding to value added tax on the assets purchased from Avantel Infraestructura.

In relation to our acquisition of Avantel, we also entered into a Series B Shares subscription agreement with Tel Holding, an indirect subsidiary of Citigroup, Inc., for an amount equivalent to up to 10% of Axtel’s common stock. On December 22, 2006 pursuant to the Subscription Agreement, we received a notice from Tel Holding confirming that it acquired 533,976,744 Series B Shares (represented by 76,282,392 CPOs) from the Mexican Stock Exchange (Bolsa Mexicana de Valores, or ‘‘BMV’’) and confirming its intention to subscribe and pay for 246,453,963 new Series B Shares (represented by 35,207,709 CPOs). On January 4, 2007, Tel Holding subscribed and paid for 246,453,963 new Series B Shares through the CPOs Trust. From January 4, 2007 through January 20, 2007, during the subscription period, other shareholders subscribed and paid 88,662 new Series B Shares through the CPOs Trust as well. New Series B Shares were subscribed and paid at Ps. 1.52 pesos each, generating Ps. 374.7 million in proceeds for Axtel.

Avantel is a Mexican corporation which provides telecommunications services to business, government and residential customers in Mexico. Avantel was incorporated as a 55.5%-44.5% joint-venture between Banamex and MCI in 1994 primarily oriented to provide national and international long-distance services. The sharp decline in national and international long-distance tariffs in Mexico (over 60% from 1997 to 2005) led Avantel to redesign its business strategy to focus on providing data and bundled value-added voice services to business customers. Avantel brought to Axtel valuable spectrum in various frequencies, approximately 390 kilometers of metropolitan fiber optic rings, 7,700 kilometers of long-distance fiber optic network, a robust IP backbone and connectivity in 200 cities in Mexico, among others.

The integration of Avantel enhanced our portfolio of products and services and also allows us to expand in existing cities and into new geographies more efficiently due to the complementary condition of Axtel’s hybrid wireline and fixed-wireless local access network with Avantel’s long-haul fiber optic network and strong data capabilities. We expect that most of our growth will come from continued customer acquisitions and build out of our network within our current markets as we continue to expand our coverage and capacity in the major metropolitan areas that we currently serve. We also expect to expand into selected markets we do not yet serve through organic growth and, possibly, strategic acquisitions or commercial agreements. For a description of our principal capital expenditures, see Item 5 “Liquidity and Capital Resources.”

Our corporate offices are located at Blvd. Gustavo Díaz Ordaz km. 3.33 No. L-1, Col. Unidad San Pedro, San Pedro Garza García, N.L., México, CP 66215 (Telephone +52 (81) 8114-0000).

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Our agent for service in the United States is CT Corporation System, located at CT 111 Eighth Avenue, 13th Floor, New York, New York 10011.

B. Business Overview a) Our Company

We are the second-largest, and one of the fastest growing, fixed-line, integrated telecommunications company in Mexico, measured in revenues and EBITDA. We offer a wide array of services, including local and long distance telephony, broadband Internet, data and built- to-suit communications solutions in 27 cities and long distance telephone in 200 cities to more than 850,000 business and residential customers. In 2007, we generated revenues and operating income of Ps. 12,190.6 million (US$1,121.9 million) and Ps. 1,393.8 million (US$128.3million), respectively.

We provide services using a hybrid wireline and fixed wireless local access network (including 1,366.0 kilometers of metro fiber optic rings) along with 7,700 kilometers of long-haul fiber-optic network. Our last-mile access, designed to optimize capital expenditures through the deployment of network access equipment based on specific customer requirements, includes 37 digital switches, 431 fixed wireless access sites, 190 point-to-multipoint sites (of which 169 are within fixed wireless access sites) and 1,555 point-to-point wireless sites. Our nationwide long-haul network includes 7,700 kilometers of fiber optic network with links to terminate long-distance traffic in over 200 cities. As of December 31, 2007 we have invested in the aggregate approximately Ps. 21,968.6 million in network and infrastructure.

Our strategy is to continue to penetrate our existing markets by offering a comprehensive portfolio of high quality, facilities-based voice, data, internet, integrated solutions and value-added communications services and to cost-effectively enter into selective new markets with high growth and revenue opportunity. Our approach is to bundle multiple voice, data and Internet services into integrated telecommunications solutions for businesses and high-usage residential customers. We also intend to continue servicing foreign carriers with international traffic termination, as well as providing custom-made integrated telecommunications services to large corporate customers. For the twelve months ended December 31, 2007, approximately 78% of our revenues were generated from business customers and 22% of our revenues were generated from residential customers.

Axtel was founded in 1994 and in June 1996 was awarded by the Mexican government a concession to install and operate a public telecommunications network for the offering of local and long distance telephony services in Mexico. On December 4, 2006, Axtel acquired Avantel, adding an IP-based nationwide telecommunications network. After the acquisition, we hold the following spectrum assets: two concessions at 929 MHz for radio-messaging services, 56 MHz at 7 GHz for nationwide long-haul point to point transport, 120 MHz at 10.5 GHz in three regions and 60 MHz in the other six regions for point to multi-point access; 168 MHz at 15 GHz, 368 MHz at 23 GHz for nationwide point to point transport and 112 MHz at 37 to 38.6 GHz in five regions.

We provide local, long distance, data, internet, integrated solutions and value-added communications services in 27 of the largest metropolitan areas in the country, including Mexico City, Monterrey, Guadalajara, Puebla, Toluca, León, Querétaro, San Luis Potosí, Saltillo, Aguascalientes, Ciudad Juárez, Tijuana, Torreón (Laguna Region), Veracruz, Chihuahua, Celaya, Irapuato, Cd. Victoria, Reynosa, Tampico, Cuernavaca, Merida, Morelia, Pachuca, Hermosillo, San Juan del Rio and Xalapa. These 27 cities represent more than 44 of the total population of Mexico according to INEGI. We estimate that our total lines represent approximately 10.3% of the lines in service of our total addressable market in the 27 cities in which we provide local services. Additionally, our long-haul network provides long-distance services in over 200 cities across the country. We expect our growth will come from both continued customer acquisitions and the build out of our network within our current markets and in selected new cities as we continue to expand our coverage and capacity in the major metropolitan areas of Mexico.

In December 2007, we entered into an agreement with Motorola de México S.A. de C.V. and Motorola Inc. to integrate WiMAX technology into AXTEL’s Network. Additionally, we signed an agreement with the Méxican

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Federal Electricity Commission (CFE) to have access to their extensive fiber optic network and increase our capacity of provisioning private line and data services in the country.

In the last couple of weeks of 2007, we were able to extend our business agreement with Nextel de México to continue providing Nextel de México with local services, spectrum, long distance calling and 01-800 numbers, and other services, in a significant number of Mexican cities until August 31, 2011. b) Competitive Strengths

Leading Market Position. By being one of the first competitive providers to approach customers with bundled local, long distance voice and data services in a significant number of cities across the country, we believe that we are able to meet pent-up demand for an alternative service provider, as well as establishing brand awareness and customer relationships prior to market entry by emerging competitors. We have benefited from our ‘‘first-competitor-to-market’’ advantage by capturing what we estimate to be approximately a 10.3% share of our total addressable market in the 27 cities where we offer local services. In Monterrey and Guadalajara, the first two markets where Axtel launched operations in 1999, we estimate that we have achieved an approximately 16% and 14%, respectively, share of our coverage market in each of these cities.

Comprehensive Voice and Data Service Portfolio. We provide our customers an integrated bundle of services that includes local and long distance voice services, as well as internet, data and other value-added services. We believe our comprehensive service portfolio enables us to build strong, long-term relationships with customers and increase our return on our investment in network infrastructure. Furthermore, our digital access, transport and innovative last-mile technologies enable us to meet the growing demand for data services.

Scalable Digital Network. Our hybrid fixed wireless and wireline local access network structure allows us to enter new markets quickly and cost-effectively. By utilizing the fixed wireless access technology model, we are able to quickly cover a substantial geographic area with reduced initial capital expenditures. We defer most incremental capital expenditures for last-mile connectivity until the customer subscribes to our service. As of December 31, 2007, our network consisted of 37 digital switches, 431 fixed wireless access sites, 190 point- to-multipoint sites (of which 169 are within fixed wireless access sites), 1,555 point-to-point radio links and 1,366 kilometers of metropolitan fiber optic rings. As of December 31, 2007, we have invested in the aggregate approximately Ps. 21,968.6 million in network and infrastructure to build an extensive local and national telecommunications network.

Flexible and Innovative Technology – Our capability to add new last-mile technologies allow us to continuously satisfy the changing requirements of existing and new customers. The deployment of 802.16e WiMAX, a new IP-based voice and data wireless technology designed to deliver voice and data solutions, under fixed, portable, nomadic and mobile environments, increases our capabilities to provide high-quality voice and data access solutions.

Scale—Second-Largest Fixed-Line Integrated Telecommunications Company in Mexico. We are the largest local, national and international long-distance and data services provider in Mexico, measured in lines in service, revenues and EBITDA, after the incumbent.

Compelling Financial Profile. We have favorable EBITDA generation (Ps. 4,084.5 million in 2007) and solid financial ratios with net debt to Adjusted EBITDA and Adjusted EBITDA to net interest expense of 1.5x and 5.2x, respectively, for the twelve months ended December 31, 2007.

Experienced Management Team and Internationally Renowned Equity Partners. Our senior management team has extensive entrepreneurial, financial, marketing and telecommunications expertise. The diverse experience

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of our senior management team has contributed significantly to our initial success and rapid growth. In addition, we have benefited from working with strong local partners and experienced multinational investors such as The Blackstone Group, Citigroup Inc. and AIG-GE’s Latin American Infrastructure Fund. Our local investors and directors include, among others, Tomás Milmo Santos, Thomas Milmo Zambrano, Alberto Santos de Hoyos, Lorenzo Zambrano Treviño and Banamex. These investors have extensive financial, operating and senior management experience in large Mexican corporations. c) Strategy

The key elements of our business strategy are:

Target Service Sectors with High Profitability Potential. We have divided our target market into the residential market and business market. In the residential market, we focus on high-usage residential customers. Within the business market, we address the needs of micro and small business as well as medium and large companies, multinationals, financial institutions and government entities. We have developed differentiated, targeted telecommunications services plans designed to capture business and retain high-usage customers in each market. We believe that by focusing on the business and high-usage residential customers within a coverage area we are able to increase the return per dollar invested in our network infrastructure. For the twelve-month period ended December 31, 2007, approximately 78% of our revenues were generated from business customers and 22% from residential customers.

Bundle Products in an Integrated Offering. We believe that the bundling of voice, data and internet services into communications solutions for our customers enables us to generate higher revenue per customer and more revenue per dollar invested in access infrastructure while also generating customer loyalty. We have focused and will continue to focus on increasing the penetration of bundled products to our customer base. By being a facilities-based telecommunications service provider, we believe we are well positioned to offer our customers the convenience of receiving voice, data and internet services from a single provider.

Service Fast Growing Business Data Market. For corporate customers, financial institutions and government entities, we offer integrated solutions based on the specific needs of the customers, including design, implementation, maintenance and monitoring of their networks. For medium-size clients, we bundle voice and data packages that specifically meet their requirements in a cost-efficient way.

Maintain Voice Revenues Stream. Although data market represents an attractive and expanding revenues opportunity compared to slow growing voice-related revenues, still over 70% of Mexican telecommunications industry revenues is voice related. Significant voice revenues stream provides the leverage to further penetrate fast-growing data market.

Exploit ‘‘First-Competitor-to-Market’’ Advantage. As Telmex’s primary and largest competitor in local fixed telephony services and one of the first facilities-based telecommunications service providers to enter new markets and offer integrated voice, data and internet services, we will continue to focus on selectively opening new markets where we believe we can capitalize on anticipated growth in that market and the market’s desire to have an alternative carrier.

Focus on Customer Service and Retention. Since launching operations, we have been focused on achieving customer satisfaction levels that are superior to the incumbent and our primary competitors. We believe that our service-driven customer care leads to superior customer satisfaction, which enhances profitability and cash flow by increasing customer retention and expanding sales opportunities.

Continue to Expand Technologically Advanced Network Infrastructure. We continuously evaluate opportunities for network expansion both within our existing cities and additional regions in order to enhance our coverage area. We believe that selectively expanding our network and coverage area will enhance our ability to acquire large business customers with multi-city operations, which we expect to result in higher revenues and margin improvements while minimizing capital expenditures. We may also expand our network or operations

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document through acquisitions or commercial agreements, as we believe there may be additional opportunities for consolidation in the Mexican telecommunications industry. We are not currently engaged in formal negotiations with any company regarding a potential acquisition or commercial agreement but may engage in conversation with third parties from time to time regarding strategic acquisitions or combinations. d) Products and Services

We offer a wide variety of telecommunications services, including, local, long distance, Internet, and data services, such as virtual private lines, dedicated private lines, frame relay and web-hosting. We also provide integrated telecommunications services such as network monitoring, call center outsourcing and LAN design, operation and maintenance services.

The Company’s revenues are derived from (a) customer’s use of our integrated network with central and local infrastructure and (b) commercial activities including provision of services and selling customer premises equipment. The Company generates revenues from customer’s utilization of our integrated network ubiquitously utilizing the same physical assets and operating under the same concessions. Significant resources are allocated to the network on a total enterprise basis, without consideration of specific geographic areas. Expenses incurred, are also incurred on a total enterprise basis. Therefore, the Company does not analyze its financial information on the basis of geographic market. To analyze revenues, the Company tracks the following five categories:

(i) Local services: We generate revenues by enabling our customers to originate and receive an unlimited number of calls within a defined local service area. Customers are charged a flat monthly fee for basic service, a per call fee for local calls (‘‘measured service’’), a per minute usage fee for calls completed on a cellular line (‘‘calling party pays,’’ or “CPP” calls) and a monthly fee for value added services.

(ii) Long distance services: We generate revenues by providing long distance services for our customers’ completed calls.

(iii) Data and private lines: We generate revenues by providing Internet, data and network services, such as virtual private networks and dedicated private lines.

(iv) International traffic: We generate revenues by terminating international traffic from foreign carriers.

(v) Other services: We generate revenues from other services such as activation fees, from the sale and/or lease of customer premises equipment for new customers and custom-made integrated telecommunications services to corporate customers.

The performance of each category, as described on pages 45 and 46 of this Form 20-F/A, is the following:

Revenues (1) % of Revenues Year ended December 31, Year Ended December 31, Revenue Source 2004 2005 2006 2007 2004 2005 2006 2007 Ps. Local calling services…. Ps. 3,002.5 Ps. 3,770.8 4,330.0 Ps. 5,336.6 69.7 % 70.3 % 64.9 % 43.8 % Long distance services… 425.9 487.9 583.6 1,532.2 9.9 % 9.1 % 8.7 % 12.6 % Data & Network………. 214.5 215.7 459.1 2,513.8 5.0 % 4.0 % 6.9 % 20.6 % International Traffic…... 410.2 509.3 552.8 1,210.2 9.5 % 9.5 % 8.3 % 9.9 % Other services…………. 253.4 378.7 750.2 1,597.8 5.9 % 7.1 % 11.2 % 13.1 % Ps. Total…………………… Ps. 4,306.4 Ps. 5,362.4 Ps. 6,675.7 12,190.6 100.0 % 100.0 % 100.0 % 100.0 % (1) Amounts in constant Ps. in millions as of December 31, 2007.

Voice Data · Business and Residential Line · Local and Domestic Private Lines

· Long Distance · High Speed Private Lines

· Digital Trunks · Co-location

· Voicemail · Virtual Private Networks (MPLS)

· Centrex Line Internet · Customer Premise Equipment · Dial Up Internet · Telephone Sets, Key Systems and PBX · Dedicated Internet · Call Waiting, Call Forwarding, Caller ID, · Web Hosting · Conference Call · Internet on Demand · Directory Assistance · Internet FWA · Operator Services · Co-location · Automatic Dialing Integrated Services: · Unique number · Data Centers · Prepaid Services · Network Monitoring · Collect Calls · Contact Centers · Virtual Line · Network Security Monitoring · Toll Free Services · LAN Maintenance

Bundles: · LAN Design and Operation

· Axtel in a Box

· Axtel NeXt

· Axtel x2

· Axtel Libre

We provide local, long distance, data, internet, integrated solutions and value-added communications services in 27 of the largest metropolitan areas in the country, including Mexico City, Monterrey, Guadalajara, Puebla, Toluca, León, Querétaro, San Luis Potosí, Saltillo, Aguascalientes, Ciudad Juárez, Tijuana, Torreón (Laguna Region), Veracruz, Chihuahua, Celaya, Irapuato, Ciudad Victoria, Reynosa, Tampico, Cuernavaca, Mérida, Morelia, Pachuca, Hermosillo, San Juan del Rio and Xalapa. These 27 cities represent more than 44% of the total population of Mexico according to INEGI. With our long-haul network we also provide long-distance services in 200 cities in Mexico. We estimate that the cities in which we operate locally represent the majority of the total Mexican telecommunications revenue opportunity.

Our city roll-out is determined taking into consideration the following criteria:

Size of telecommunications opportunity. According to COFETEL, for the year ended December 31, 2007, all net-additional lines in Mexico were concentrated in 12 of the 32 states: Chiapas, Chihuahua, Mexico City, Hidalgo, Michoacan, Nayarit, · Oaxaca, Puebla, San Luis Potosi, Tamaulipas, Tlaxcala and Yucatan. Eleven of the 27 cities we currently serve are in these states and eight of them are state capitals.

Regional economy. According to INEGI, in 2004, almost 85% of the total gross domestic product in Mexico was generated in · the 18 states in which we have a local presence.

Operational synergies. To become more efficient in launching cities, we decided to open clusters of cities to allow for quick · systems and operations integration and network build-out.

Within these cities, studies were conducted using geographical, statistical and self-generated market research data to determine where the most attractive opportunities were concentrated. Our network has been built upon this comprehensive data allowing for fast penetration and cost-efficiency.

We believe that we have a 10.3% market share of our total addressable market in the 27 cities in which we offer local services. In Monterrey and Guadalajara, the first two markets where Axtel launched services, we estimate that we have achieved market shares, in each city, of approximately 16% and 14%. In particular, in the business market, we estimate that in Monterrey and Guadalajara we have achieved approximately a 17.4% and 17.8% market share, respectively. The table below provides our estimated market share as of December 31, 2007 for each of the cities where we offer local services, based on access lines.

Market Share Within Coverage Market

As of December 31, 2007

Date Launched City Res Business Total Monterrey Jun-99 16.1 % 17.4 % 16.5 % Guadalajara Dec-99 12.3 % 17.8 % 13.8 % México Mar-00 7.2 % 10.8 % 8.3 % Puebla Jan-01 8.4 % 13.4 % 9.6 % Toluca Jan-01 8.8 % 14.2 % 9.8 % León Jan-01 11.6 % 20.5 % 13.8 % Querétaro Jul-04 9.8 % 11.2 % 10.3 % San Luis Potosí Jul-04 16.8 % 21.1 % 17.8 % Aguascalientes Oct-04 12.8 % 7.7 % 10.9 %

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Date Launched City Res Business Total Saltillo Oct-04 10.9 % 13.0 % 11.4 % Ciudad Juarez Nov-04 8.1 % 7.0 % 7.8 % Tijuana Nov-04 20.4 % 6.5 % 15.7 % Torreon Feb-06 7.8 % 9.2 % 8.1 % Veracruz Feb-06 11.9 % 14.6 % 12.4 % Chihuahua Mar-06 8.6 % 6.6 % 8.0 % Celaya May-06 9.3 % 8.7 % 9.1 % Irapuato Aug-06 7.0 % 3.5 % 6.2 % Cuernavaca Mar-07 9.6 % 7.3 % 9.1 % Tampico Mar-07 13.9 % 6.9 % 11.9 % Morelia May-07 9.4 % 10.1 % 9.5 % Xalapa Jun-07 11.5 % 7.1 % 10.6 % Mérida Jun-07 6.1 % 3.0 % 5.2 % Hermosillo Ago-07 5.3 % 2.1 % 4.4 % Reynosa Oct-07 2.6 % 0.4 % 2.0 % Cd. Victoria Oct-07 4.0 % 0.8 % 3.3 % Pachuca Oct-07 1.8 % 0.9 % 1.6 % SJ del Río Oct-07 3.4 % 0.9 % 2.8 % TOTAL 9.6 % 11.8 % 10.3 %

Source: Market share percentages are company estimates based on number of lines in service divided by the average teledensity per square kilometer of coverage for each one of our radiobases.

Banamex, and its Mexican affiliates, Verizon Communications (formerly MCI) and Nextel de México represent 19% of our total revenues as of December 31, 2007. We signed a five-year contract with Banamex on November 30, 2006, renewable for another five years, to provide products and services for all their telecommunications needs in existing and new operations. Verizon Communications provides us a significant volume of international traffic to terminate in Mexico, representing 2% of our total revenues for 2007. We have maintained this relationship with Verizon Communications since 1995. Nextel de México provides telecommunications services to its customers through access to our network. We first entered into a services agreement with Nextel de México in April 2001, and this agreement has been extended seven times. Pursuant to this business relationship, we extended the agreement until August 31, 2011 to continue providing Nextel de México with local services, spectrum, long distance calling and 01-800 numbers, and other services, in a significant number of Mexican cities. Under this extension, we are guaranteed certain minimum levels of traffic every year until the expiration of the agreement.

Our telecommunications business is susceptible to seasonality, where our volume related revenues are impacted due to lower consumption levels in vacation and holiday periods. We estimate that about 40% to 50% of our revenues are volume related. f) Marketing and Sales

Our marketing strategy is to position ourselves as the first and best alternative provider of local, long distance, internet, data and value- added integrated telecommunications services in Mexico. We undertake direct mail marketing (both special delivery and bill inserts) as well as telemarketing in order to generate geographically targeted brand awareness and to up-sell new services to existing customers. We also build brand awareness through the use of outdoor advertising and billboards, printed media including newspapers and magazines, advertisements on the radio and television and sponsorships of local news programs and co-sponsorship of programs with important companies in Mexico. Our brand strategy is to convey a modern, attractive image using simple, visual communication and portraying a human profile.

For corporate customers, financial institutions and federal government entities, we launched “AXTEL Corporativos”, a marketing initiative to strengthen our position as a unified communications supplier with a broad

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document range of administered solutions that allow large customers to increase the efficiency of their communications by converging different services. This group is responsible for all sales activities, contract negotiations and proactive account management.

We complement this marketing campaign with focused sales efforts directed to our target market using a variety of sales channels. Our primary sales methods are: direct sales; door to door sales; telemarketing; sales booths in strategically determined areas, including department stores, where potential customers carry out their shopping activities; MAPs (‘‘Módulos de Atención y Pago’’) which are Axtel-branded sales and service offices located at strategic locations within our targeted cities; and, sales distributors who are certified to carry out sales activities on our behalf and target specific niches.

Sales efficiency is measured by subscriber acquisition cost. Telemarketing has proven to be a highly efficient sales channel due to the quality of our detailed database systems, which screen potential customers based on geographic location, network availability and expressed interest. By effectively pre-selecting customers based on network availability, we are able to maximize telemarketing sales efficiency and decrease the cost of acquisition. The accuracy of our databases also results in highly efficient installations.

Customer churn occurs primarily from our disconnecting customers for non-payment of bills. Churn also occurs when a customer chooses to switch to a competing service or to terminate service altogether. Churn results in the loss of future revenue from customers whose service is disconnected and limits our ability to recoup costs incurred in acquiring customers such as switching costs, commissions and installation costs. Our average monthly churn rate for year 2007 was 1.3% vs. 1.4% recorded in the twelve months ended in December 31, 2006. g) Pricing

In the residential market, in order to attract new subscribers, we actively promote attractive packages or bundles, which generate recurring monthly payments, like Axtel Libre, which offers unlimited local calling to mass market customers, or Axtel in a Box, a set of commercial packages we offer including local calling, minutes of long-distance and cellular and Internet access, under a single service at attractive prices for customers. Once a customer has chosen our services, we focus on customer satisfaction and offer the customer benefits, rather than lower pricing, in order to maximize our retention rate. For instance, under Axtel x 2 we install and activate second lines for a small charge and allow customers free service trials for value-added services. In the business market, we attract users by offering a wide variety of advanced telecommunications services, like VPNs, dedicated private lines, co-location and network monitoring, in addition to voice services, which differentiate us from most of our competitors. For voice products, we offer volume discounts on local calls and provide additional services and discounts to customers who sign long-term contracts. To date, this strategy has allowed us to capture significant market share without eroding the value of the market through excessive price competition.

We maintain our prices at market levels. We offer pricing plans that are simple in order to assure customers of the integrity of the billing process. Our pricing structure rewards consumption by increasing discounts in relation to the amount billed. Our ability to introduce new products such as Axtel in a Box, or Axtel Libre, allows us to position ourselves as a value-added provider rather than competing on price only. h) Our Network

We provide services using a complementary nationwide long-haul fiber-optic network with a hybrid wireline and fixed wireless local access network designed to optimize capital expenditures through the deployment of network access equipment based on specific customer requirements. Our last-mile access options include fixed wireless access, Symmetry, WiMAX, point-to-point and point-to-multipoint wireless technologies, as well as metropolitan fiber rings. We switch our traffic using DMS equipment that interconnects with Telmex’s equipment and that of other local and long distance carriers in each city where we provide local service.

Our wireless network uses customer access equipment, microwave radios, DMS switching and other equipment supplied by various vendors, including Motorola, Airspan, SR Telecom, Nortel Networks and Siemens, among

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document others. Our internet platform uses Cisco’s routing platform with Compaq servers and Microsoft software applications. Our metropolitan fiber networks use Lucent Technology Allwave fiber and Nortel Networks DNX SDH equipment. The combination of these network components enables us to deliver world-class network reliability and service to our customers.

Through our current use of fixed wireless access technology, including Symmetry technology and WiMAX, we are able to provide our customers quality voice service and up to 4 Mbps data speeds.. Currently, we provide voice and data packages to mass market customers with Internet speed access from 256 kbps up to 4 mbps. We consider fixed wireless access technology to be ideal for our residential and micro and small business customers. Internet fixed wireless access technology, provides our customers with always-on data connections by using an internet protocol interface and dynamic timeslot assignments, which improves the data rates experienced by customers and also increases our network efficiency.

Basic voice and data services are delivered over all of our access technologies. Advanced data services and internet access with data rates ranging from 64 Kbps to 2,048 Kbps require deployment of additional equipment to support the customer’s requirements. In general, the capabilities of the access technologies increase directly with the cost of the solution. Our hybrid access capability enables us to:

· provide a full range of voice, data and internet services;

· rapidly meet demand;

· penetrate specific target markets; and

· scale the infrastructure deployed to market demand and individual customer requirements.

This network infrastructure allows us to satisfy the requirements of diverse components of the market while maintaining a low-cost position relative to our competition.

Build-out strategy

Our local network has generally been built on a modular basis. Once a region of opportunity has been identified and the decision to expand has been made, we build our network in tandem with our sales efforts within the region. This approach provides greater flexibility and minimizes the time lag between the incurrence of capital expenditures and the generation of service revenues. This model differs significantly from a traditional wireline network covering the same geographic area in which the vast majority of capital expenditures are incurred prior to obtaining customer subscriptions.

Last-mile connectivity

The last-mile connectivity portion of our network is comprised of a mix of wireless technologies as well as fiber optics for customers within our metropolitan fiber optics rings. Our access technology is determined by cost-effectiveness analysis, customer applications and availability of service. We use fixed wireless access to serve customers requiring between one and nine lines of plain old telephony service (‘‘POTS’’) in a single point of service. Point-to-multipoint is used for customers that require between 10 and 30 POTS and/or require low- speed (below 2,048 Kbps) dedicated private line accesses. Our point-to-point and fiber optics accesses are used for customers requiring digital trunks or dedicated private line accesses of more than 2Mbps. Hybrid solutions are being used in order to reach more customers by expanding service using digital loop concentrator and multi-tenant solutions.

We have contracts with Telefónica Data de México, a subsidiary of Telefónica de España, pursuant to which we acquired the right to use capacity in Telefonica’s long haul fiber infrastructure which is located between the northern border of Mexico and Mexico City. Pursuant to such contracts, Telefónica Data de México has the right to

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document use a pair of dark fibers in a portion of our metropolitan fiber rings. We also maintain a similar agreement with Telereunión to use approximately 620 kilometers of long-distance fiber optic network in the Gulf of Mexico region.

Local Network

As of December 31, 2007, our metropolitan fiber optic rings totaled 1,366 kilometers in the cities where we offer local services. Our local network is comprised of several technologies, including fixed wireless access, WiMAX, copper, point-to-point, point-to-multipoint and fiber optic links.

The following summarizes our local infrastructure as of December 31, 2007:

Metro Fiber City FWA Symmetry WiMAX PMP Sites PTP Links Switches Rings (Kms) Monterrey 64 18 4 29 270 7 349 Guadalajara 63 8 19 23 231 5 145 Mexico 159 29 55 567 11 498 Puebla 20 3 7 79 1 70 Toluca 9 3 3 58 1 15 León 13 5 6 45 1 36 Querétaro 8 6 6 41 0 1 San Luís Potosí 11 5 5 16 0 22 Saltillo 7 4 4 31 0 37 Aguascalientes 9 5 4 15 0 9 Cd. Juárez 10 4 6 29 1 25 Tijuana 9 0 6 16 2 5 Torreón 7 5 3 34 1 6 Veracruz 6 5 4 16 1 24 Chihuahua 8 5 6 23 1 9 Celaya 2 3 2 13 0 10 Irapuato 0 3 1 0 0 19 Cuernavaca 5 2 3 16 0 5 Tampico 5 3 3 24 0 11 Morelia 4 4 2 4 2 3 Merida 4 3 2 21 1 16 Xalapa 3 3 1 1 0 5 Hermosillo 5 3 3 1 2 1 Others 0 14 0 6 4 0 45 Total 431 143 23 190 1,555 37 1,366

Long Distance Network

Our long distance fiber-optic network is 7,700 kilometers in length using ‘‘non-zero dispersion shifted’’ fiber-optic and underground and optical-ground wire cable, which supports SDH and Dense Wavelength Division Multiplexing (‘‘DWDM’’) technology. SDH enables the deployment of bi-directional ring architecture, a system that allows for nearly instantaneous re-routing of traffic in the event of an equipment failure or a fiber-optic cut. DWDM technology enables expanded transmission capacity over the same physical infrastructure through the installation of additional electronics. Our long distance network connects 49 cities through owned infrastructure, and 154 additional cities through leased infrastructure.

We use Nortel’s DMS-100 digital switches to route traffic in twelve cities and Nortel’s Call Server 2000 Softswitch to route traffic in five additional cities. We have four Nortel DMS-250 digital switches for long distance services are installed in the Main Switches Facilities to receive the traffic from more than 200 cities and international traffic from US and ROW. We have four Ericsson TL4 digital switches for local services, two located in Mexico, one in Monterrey and one in Guadalajara covering 16 cities. We use our A5020 Alcatel Softswitch used for Netvoice services and Internet Dialup. We have two SoftX3000 Huawei Softswitches that provide local services in eight cities and all the International VoIP traffic.

Our DMS-100 switches are capable of handling approximately up to 100,000 lines and the CS 2000 softswitches can handle up to 160,000, using the current software release. Both of these systems work on a modular basis and provide analog lines, E1 digital lines, digital high-speed data services, centrex services and operator assisted services. In addition, the CS2000 Softswitch can also provide multimedia capabilities by supporting multiple next generation protocols. Both switches can also provide private clear-channel digital lines, data transmission and value-added services such as four digit dialing, conference, call back, caller ID, call waiting, hot line and hunt group. i) Operational Support Systems

We have an information technology architecture that is based upon Siebel, a customer relationship management system, SAP software for enterprise resource planning, CSG Systems International software for billing and Net Boss, an advanced network management system. These systems enable us to perform on-line sales and service provisioning. We have been able to manage customer requests, generate accurate bills and produce timely financial statements. These systems allow us to respond to customer requests with speed, quality and accuracy.

We believe we have purchased sufficient spectrum to fulfill the capacity requirements of our business plan including the offering of broadband services to our customers. In September 1995, Avantel obtained a concession to offer local and long distance telephony services nationwide. In June 1996, Axtel also obtained a concession to offer local and long distance telephony services. Both concessions have a term of 30 years and, subject to the satisfaction of certain conditions, are renewable for an additional 30-year period.

We also hold concessions to use and exploit the following frequency bands:

· Two 929 MHz for radio messaging services;

· 50 MHz at 3.4 GHz, nationwide, divided into 9 regions for local telephony using fixed wireless access technology;

· 56 MHz at 7 GHz, nationwide, for long-haul point-to-point transport (a 50/50 ownership with Alestra);

· 60 MHz at 10.5 GHz, nationwide, for point-to-multipoint access;

· 120 MHz at 10.5 GHz, in 3 regions, for point-to-multipoint access;

· 168 MHz at 15 GHz, nationwide, for point-to-point access and transport;

· 368 MHz at 23 GHz, nationwide, for point-to-point access and transport; and

· 112 MHz at 37 to 38.6 GHz, in 5 regions, for point-to-point transport.

Each of the spectrum licenses has a term of 20 years and may be renewed at our option for additional 20-year periods as long as we are in compliance with all of our obligations thereunder and with any new conditions imposed in accordance with the law and as long as an agreement is reached on any new conditions set forth by the SCT.

The concession expressly permits us to provide the following services:

· basic local telephony;

· nationwide long distance 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;

· 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 services;

· credit or debit telephone cards; and

· public telephony services.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document In November 2006, SCT granted, as part of Axtel’s concession, a new permit to provide short message services (‘‘SMS’’) to our clients.

We have the required regulatory authority to provide such services to Mexico’s entire population. Some of our concessions require us to offer services in certain geographic areas where we are not currently offering services. With respect to those geographical areas in which we were required to provide such services by December 2007, we have complied with such coverage requirements. With respect to those geographical areas in which we are required to provide such services by December 2008, we expect to comply with such requirements as requested; however, if needed we may request the necessary extensions from the SCT in order to comply with the coverage requirements. If we do not receive the necessary extensions when requested, the SCT could revoke the specific permits and concessions covering such territories in which we do not provide services. In the past we have been able to obtain extensions from the SCT in order to comply with such requirements and have been able to maintain in full force in effect our permits and concessions. However, in the event that we were to lose our concessions for these areas where we do not presently offer our services, our concessions for the geographic areas where we do presently offer our services would not be adversely affected. k) Interconnection

In accordance with the Federal Telecommunications Law, all holders of concessions for the installation, operation and exploitation of public telecommunications networks are required to provide interconnection services to other holders of public telecommunications network concessions.

All terms of interconnection (such as point of interconnection and interconnection fees) are negotiated between telecommunications concessionaires under COFETEL’s supervision. Telecommunications concessionaires are prohibited from adopting discriminatory practices in the application of rates or any other terms of interconnection.

Agreements are typically signed for one-year periods. When agreements are renewed, parties can renegotiate new terms and conditions such as rates, technical aspects and minimum level of service conditions. If the parties do not come to an agreement, the previous existing conditions remain in place under an automatic extension until the parties reach a new agreement, maintaining the same rights and obligations until the new agreement is formalized. Parties can request that COFETEL intervene to resolve the conditions that cannot be agreed upon. By law, parties cannot cease to provide interconnection services to other carriers without a written authorization from SCT. In accordance with Mexican Telecommunications Regulations, we have established interconnection agreements depending on the type of traffic, as follows:

Local interconnection

Local interconnection agreements are established between two local fixed telephony providers in order to exchange local calls between their networks. Local interconnection agreements include provisions concerning local switched and non-switched interconnection, signaling, co-location and local transiting, among others.

The two most important conditions in local interconnection agreements are the per-minute interconnection fee and the ‘‘bill and keep’’ agreement. The current interconnection fee is US$0.00975 per minute. We currently have two interconnection agreements with Telmex; one between Axtel and Telmex and another between Avantel and Telmex. The major differences among these agreements are the expiration date and the exception elements for the imbalance calculation. The imbalance threshold under the bill and keep agreement refers to the difference between the outgoing and the incoming local traffic of any carrier. If at any given month, this difference falls below the permitted threshold, there are no payments among the carriers. If any carrier surpasses the threshold, payments have to be made between carriers for the full amount of the imbalance. The bill and keep agreements contain exceptions regarding internet traffic, long duration calls, traffic generated by call centers, trunking operators and traffic generated by new customers (for a six month period) so that these exceptions will not affect the calculation of the permitted imbalance percentage.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Axtel and Telmex’s agreement. Axtel entered into an interconnection agreement with Telmex in March of 1999. Axtel’s interconnection agreement with Telmex expires on December 31, 2008. If the agreement expires without having been expressly extended by the parties, the agreement explicitly contemplates an automatic extension until both parties mutually agree to extend the expired agreement or execute a new interconnection agreement. The threshold for the differential between incoming and outgoing traffic set in this agreement is 5% and no payments have been made to Telmex since the implementation of this agreement.

Avantel and Telmex agreement. The Avantel interconnection agreement with Telmex was signed on October 1, 2006 and will expire on December 31, 2008. The threshold for the differential between incoming and outgoing traffic set in this agreement is 5%.

In addition to local interconnection agreements with Telmex, we have established interconnection agreements with most of the local fixed carriers, such as Teléfonos del Noroeste, S.A. de C.V. (‘‘Telnor’’), Alestra, Operadora Unefon, S.A. de C.V. (‘‘Unefon’’) and Maxcom. The terms and conditions for each agreement are similar to those established with Telmex. Although we have no local interconnection agreement with Megacable Comunicaciones de Mexico, S.A. de C.V. due to particular legal issues between them and COFETEL, traffic is exchanged and interconnected between us and them through transit agreements with Telmex

Mobile interconnection

We have reciprocal interconnection agreements with all cellular providers (including Telcel, Unefon, Iusacell, Telefonica Movil, Cedetel, Norcel, Bajacel and Pegaso PCS) within each of the local coverage areas in which we operate. As of December 31, 2007, the wireline to mobile interconnection fee under the ‘‘calling party pays’’ mode payable to the cellular carriers was Ps. 1.34 per minute. In response to an administrative procedure we initiated against Telcel in 2005, the fixed to mobile interconnection fee payable to Telcel as of December 31, 2007 was Ps. 1.23 per minute, plus a 25% surcharge on the actual amount of minutes per month.

Long distance interconnection

Acting as local network. This interconnection agreement allows long distance carriers to deliver long distance calls from their users to our local network. It also allows our users to made calls to a non-geographic numbers (800s) assigned by COFETEL to such long distance carriers. We have long distance interconnection agreements in place with major long distance carriers such as LADA (Telmex and Telnor long distance operation) or Alestra, among others. Carriers that have not established this interconnection agreement with us, use traffic through LADA or other carrier that maintains an agreement in place with us. As of December 31, 2007, the interconnection fee we receive from long distance carriers was US$0.01003 per minute (US$0.00975 plus a surcharge of 2.085% per minute).

Acting as long distance network. These interconnection agreements, established with Telmex, Telnor and Maxcom, allow us to deliver long distance calls from our users to a local network. It also allows users of the local network to made calls to a non-geographic numbers (800s) assigned by COFETEL to us. It also allows users of Telmex or Telnor who have choose Avantel as their long distance carrier to use Avantel long distance services. As of December 31, 2007, the interconnection fee we pay to local carriers was US$0.01003 per minute (US$0.00975 plus a surcharge of 2.085% per minute).

Prices and tariffs charged under these long distance interconnection agreements are denominated in US dollars and then converted into Mexican pesos based on monthly exchange rates published by Banco de México.

International settlement

Mexican carriers entitled to operate an international gateway do not have any restriction on the volume of international traffic that they can terminate in Mexico, as long as they comply with the Mexican telecommunications regulations.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document In addition, each carrier is free to negotiate the applicable rates for international calls terminating in Mexico. Prior to application, rates must be registered with COFETEL. l) Customer Service

A key element of our competitive strategy is to consistently provide reliable, responsive customer service. In order to achieve this goal, we have established a 24/7 customer service center for voice, data and internet services which is staffed by highly trained personnel. We have implemented a comprehensive training, testing and certification program for all staff that directly interacts with customers.

We provide post-sales service on a nationwide basis through the following:

Customer Service provides post-sales customer support, ranging from general information, additions, moves and changes to · billing inquires and technical support.

Operator Service is 24/7, providing directory assistance, wake-up calls, time of day, emergency calls and placing domestic and · international long distance calls.

Repair Answer is our customer contact group that addresses and manages all customer trouble reports and provides on-line · technical support and analysis.

Local Test analyzes and tests all trouble reports that are not resolved on-line by Repair Answer. This team is accountable for · routing ‘‘in service’’ and ‘‘out of service’’ trouble reports to Repair Dispatch. Both Repair and Local Test work closely with our network maintenance center in order to monitor and fix network disruptions.

Additionally, with the acquisition of Avantel we added two National Management and Monitoring Centers located in Monterrey and Guadalajara. m) Billing and Collection

We believe our billing and collection process is an important aspect of our competitive advantage.

Our billing team receives and validates the call detail record from the network and bills customers on a monthly basis, typically within 14 days from the end of the billing period. Bills are due typically 25 days from the end of the billing period for mass market customers, while carriers, corporate and government customers have extended periods.

An ongoing revenue assurance process, which consists of reviewing the billing stream, payments and adjustments, as well as fraud detection and control, has become part of our regular billing operation. This process has contributed to minimizing fraud and risk.

To facilitate the reception of payments and to make the payment process convenient for customers, we have developed a number of payment reception channels. Some of these channels are:

· convenience stores;

· banks;

· Axtel MAPs (Axtel’s Sales and Payment Points);

· e-billing;

· supermarkets;

· automatic charges to credit cards, checking and debit accounts (upon customer approval); and

· TELECOM (Mexico’s mail and telegraph company) outlets for Avantel customers only.

These channels provide easy and fast options for customers to select the most suitable and convenient alternative for a prompt payment.

To encourage customers to pay on time, we use preventive tactics such as calls to remind customers that have failed to pay promptly on their previous payment due dates and call interception. Additional procedures involve suspension of long distance and cellular outgoing calling, suspension of outbound calling and total suspension of service.

Past due accounts are turned over to external collections agencies 90 days after their due date (except for government accounts). Accounts are disconnected 180 days after their due date. Prior to disconnection, we conduct a negotiation of the outstanding balance with the customer as part of our retention efforts oriented to provide alternate solutions payment programs. Alternatives include reconnection of the service under a pre-payment scheme with a payment schedule for the outstanding balance. n) Competition

We compete primarily in the local telephony services market on the basis of features, customer service and value. Our direct competitors are wireline and fixed wireless local telephony operators. We also compete directly in the long distance market and we now provide long distance services separately from our local telephony service.

We believe there may be additional opportunities for consolidation in the Mexican telecommunications industry. Although it is not our main strategy, we intend to review and evaluate opportunities from time to time and, if an appropriate opportunity arises, we may pursue it through the strategic acquisition of assets or an acquisition of, or combination with, another company.

Telmex. Our main local telephony competitor is Telmex, the former state-owned telecommunications monopoly. Telmex has significantly greater financial and other resources than we have and serves all of the cities and markets that we serve. In addition, Telmex has an established customer base which represents the vast majority of the wireline local telephony lines in Mexico.

Telmex is the dominant provider of local telephony services and, as such, a significant number of our customers maintain an ongoing relationship with Telmex. Telmex has a presence throughout Mexico and its established and long-standing customer base gives it a substantial competitive advantage. See Item 3.D ‘‘Risk Factors—Risks Relating to Our Company—We depend on Telmex for interconnection and we may be forced to pay higher interconnection fees in the future, which could have a material adverse effect on our business and results of operations.’’

With the convergence legislation enacted in 2006, Telmex will be able to provide video subject to obtaining the modification of its concession and complying with certain other obligations. Telmex’s significant customer base provides significant leverage to develop the triple play services (voice, Internet and video) demand significantly. Telmex has publicly stated its intentions to offer triple-play services in the near future.

Alestra. Alestra commenced operations in 1996, providing only long distance telephony services to residential and business customers. In 2000, Alestra also started to offer local services to corporate customers in Mexico, Monterrey and Guadalajara, primarily. According to their 2007 20-F Report, Alestra is owned 49% by AT&T Telecom Mexico, Inc., a wholly owned subsidiary of AT&T Inc. and 51% by Onexa, S.A. de C.V., a

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document corporation owned by Alfa, S.A.B. de C.V. Their network consists of 5,017 kilometers of long-distance fiber and 1,084 kilometers of metropolitan rings. Due to the acquisition by the former SBC Communications Inc. of the former AT&T Corp., AT&T Inc. acquired certain obligations and restrictions with Alestra concerning direct competition and mandatory net margin contribution, among others, due to the significant ownership that the former SBC Communications Inc., now AT&T Inc., maintain in Telmex.

Maxcom. Maxcom commenced operations in 1999 targeting, initially, residential and small business customers in the cities of Puebla, Mexico City and Querétaro. More recently, through joint-venture agreements with other companies, they have added a small presence in the cities of Guadalajara, Monterrey, Toluca and San Luis. Maxcom has deployed a wireline network in these cities and after eight years of operations, its customer base has grown to approximately 360,942 “revenue generating units” as of December 31, 2007.

Cable Companies. By virtue of the convergence legislation issued by COFETEL in October 2006, we expect that starting next year the most important cable companies in Mexico will start providing local telephone services to residential and small business customers in Mexico’s major cities, including many where we have operations.

Other. The legislative initiatives passed in 2006 created a legal framework for broadcasting companies to eventually provide voice and data services. o) Legal Proceedings

We are currently party to the following material legal proceedings:

Metronet Dispute

In October 2002, Metronet, S.A. de C.V. (‘‘Metronet’’) filed an action against us in the Fourth Civil Court in Monterrey (Mexico). Metronet claimed that we wrongfully terminated a letter of intent seeking payment for services and direct damages of approximately US$3.8 million, plus other expenses and attorneys’ fees. On December 14, 2007, the parties reached an agreement and settled the dispute on definitive terms.

Spectrasite Dispute

In March 2002, Spectrasite Communications Mexico, S. de R.L. de C.V. (‘‘Spectrasite Mexico’’) filed an action against us in the 30th Civil Court in Mexico City. Spectrasite Mexico is seeking recovery of a deposit in the amount of US$13.0 million that Spectrasite Mexico made with us in connection with a proposed sale-leaseback of towers. We, in turn, countersued Spectrasite Mexico and Spectrasite Communications Inc. for breach of contract in a related action. If the court rules against us, the deposit will have to be reimbursed as will Spectrasite Mexico’s legal costs and expenses and any other applicable amounts considered direct damages in accordance with applicable Mexican laws. If the court rules in our favor, we may be able to retain the deposit and/or any other applicable amounts considered as direct damages in accordance with applicable Mexican laws, in addition to receiving payment of our legal costs and expenses. On December 15, 2004, Spectrasite Communications Inc. was duly served. On April 1, 2008, the trial court ruled against us ordering Axtel to return the deposit and applicable interests. The Company will appeal the trial court’s order before the Superior Court of Appeal.

Global Link Dispute

On November 28, 2002, Global Link Telecom Corporation ("Global Link") requested a payment of one million US dollars from Avantel due to the fact that Global Link filed voluntary petition for reorganization under Chapter 11 of the US Bankruptcy Code. This amount relates to payments made by Global Telecommunications Solutions de Mexico, S. de R.L. de C.V. 90 days before the Global Link reorganization period began. In October 2003, the bankruptcy committee in charge of this case increased the requested amount to three million US dollars. On July 12, 2007, the parties reached an agreement and settled the dispute on definitive terms.

In April 2006, COFETEL issued new general rules for the obligation to implement, on a national level, the system named ‘‘Calling Party Pays’’. Under the new legal framework the interconnection fees for national and international long distance calls will be increased. Axtel and Avantel have challenged such new legal framework in the administrative and judicial courts of Mexico. These proceedings have not yet been resolved, and we cannot determine with reasonable certainty the impact these proceedings would have if they are not resolved in our favor.

In August 2006, COFETEL resolved interconnection disputes between Telcel and Avantel. In this resolution COFETEL approved a reduction of the interconnection fees to be paid by Avantel for calls terminated in Telcel’s network for the years between 2005 and 2010. Telcel challenged this resolution. These proceedings have not yet been resolved, and we cannot determine with reasonable certainty the impact that these proceedings may have if they are not resolved in Avantel’s favor.

In August 2006, COFETEL resolved interconnection disputes between us and Telcel. In this resolution COFETEL approved a reduction of the interconnection fees to be paid by us for calls terminated in Telcel’s network for the years between 2005 and 2010. Telcel challenged this resolution. This proceeding has been resolved confirming the reduced interconnection tariffs for the years between 2005 and 2007. The new resolution has been challenged by us and also by Telcel, and we cannot determine with reasonable certainty the impact that these proceedings may have if they are not resolved in our favor. In addition, we have started new administrative proceedings before COFETEL in order to obtain new interconnection tariffs for the years between 2008 and 2011.

In addition to the foregoing, on May 2007 COFETEL resolved other interconnection disputes initiated by us against the remaining cellular telephone companies. COFETEL approved a reduction of the interconnection fees with respect to such cellular telephone companies. We challenged this resolution. These proceedings have not been resolved and we cannot determine with reasonable certainty the impact that these proceedings may have if they are not resolved in our favor.

In December 2005, COFETEL determined the proportion of call attempts that each of the operators with an international port has the right to collect with respect to 1999 through 2004. Avantel challenged this resolution by initiating various administrative procedures. These proceedings have not yet been resolved, and we cannot determine with reasonable certainty the impact these proceedings would have if they are not resolved in our favor. q) Environmental, Health and Safety Matters

We are subject to laws and regulations relating to the protection of the environment and human health and safety, including those governing the management and disposal of hazardous substances and wastes and the cleanup of contamination. As an owner or operator of property and in connection with the current or historical use of hazardous substances at our sites, we could incur costs, including cleanup costs, fines and third-party claims, as a result of violations of or liabilities under environmental or health and safety laws and regulations. We believe, however, that our operations are in substantial compliance with all such laws and regulations. r) Enforceability of Civil Liabilities Against Foreign Persons

We and our subsidiaries (except for one subsidiary organized in the United States) are either variable capital corporations (sociedades anónimas de capital variable), limited liability companies (sociedades de responsabilidad limitada de capital variable) or fixed capital corporations (sociedades anónimas) (organized under the laws of Mexico, and are headquartered, managed and operated outside of the United States (principally in Mexico). Most of our directors and all of our officers reside in Mexico. All or a substantial portion of our assets and the assets of most of our directors and all of our officers are located outside of the United States (principally in Mexico). As a result, it may not be possible for investors or our shareholders to effect service of process outside of Mexico or within the United States upon us or such persons, or to enforce a judgment obtained in the United States against us or them outside of Mexico or in the United States courts that is based on the civil liability provisions under laws of jurisdictions other than Mexico including the federal and state securities laws or other laws of the United States.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We have been advised by our special Mexican counsel, D&A Morales y Asociados, S.C., that no treaty is in effect between the United States and Mexico calling for the mutual recognition and enforcement of their respective judgments. The recognition by Mexican courts of a judgment rendered in the United States is usually done under the principle of reciprocity, which means that Mexican courts would reexamine judgments rendered in the United States if such foreign country would reexamine Mexican judgments. Mexican courts may enforce judgments rendered in the United States through a homologation procedure consisting of the review by such Mexican courts of the foreign judgment to ascertain whether certain requirements of due process, reciprocity and public policy have been complied with, without reviewing the merits of the subject matter of the case. A judgment rendered in the United States may or need not be recognized if, among others:

the foreign court did not have jurisdiction over the subject matter in a manner that is compatible with or analogous to Mexican · laws or the subject matter is within the exclusive jurisdiction of Mexican courts;

· the judgment was rendered under a system which does not provide procedures compatible with due process requirements;

· enforcement of the judgment would be contrary to public policy of Mexico or generally accepted principles of international law;

· the defendant did not receive adequate personal notice in sufficient time to defend itself;

· the judgment is not final in the rendering state;

· the judgment conflicts with another final judgment; or

· the court of the rendering state would not enforce Mexican judgments as a matter of reciprocity.

Furthermore, there is doubt as to the enforceability, in actions originated in Mexico, of liabilities based in whole or in part on the United States federal or state securities laws, and as to the enforceability of judgments obtained in the United States in actions based in whole or in part on the civil liability provisions of United States federal or state securities laws. s) Current Regulatory Environment

General

The telecommunications industry in Mexico is subject to the Federal Telecommunications Law and its regulations. In addition, certain rules under the General Means of Communications Law (Ley de Vias Generales de Comunicación) and the Telecommunications Regulations (Reglamento de Telecomunicaciones) generally remain effective.

Under the Federal Telecommunications Law, the Mexican telecommunications industry is regulated for regulatory, administrative and operational matters by COFETEL. COFETEL was created in 1996 as a separate entity from the SCT to regulate and promote the efficient development of the telecommunications industry in Mexico. COFETEL is responsible for, among other things:

· enacting regulations and technical standards for the telecommunications industry;

· ensuring that concession holders fulfill the terms and obligations of their concessions and permits;

· suspending operators without concessions;

· maintaining a registry of applicable rates.

The SCT retains the authority to grant and revoke all concessions and permits. COFETEL makes recommendations to the SCT on major issues, such as amending existing telecommunications legal framework, allocating spectrum frequencies, granting, transferring, renewing or revoking concessions and applying penalties for concession violations. The SCT has final decision making power on these issues. Once a final decision is made, COFETEL implements the related regulations.

Concessions and permits

To provide telephony services in Mexico through a public telecommunications network, a service provider must first obtain a concession from the SCT. Pursuant to the Federal Telecommunications Law, concessions for public telecommunications networks may not exceed a term of 30 years, and concessions for spectrum frequencies may not exceed a term of 20 years. Generally, concessions for public telecommunications networks and spectrum frequencies may be extended for a term equivalent to the term for which the concessions were originally granted as long as the concessionaire is in compliance with ongoing obligations stated therein. Concessions specify, among other things:

the type and technical specifications of the network, system or telecommunication services that may be provided; ·

· the allocated spectrum frequencies, if applicable;

· the geographical region in which the holder of the concession may provide the telecommunication 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, if applicable, the participation of the · Mexican government in the revenues of the holder of the concession; and

· any other rights and obligations affecting the concession holder.

In addition to concessions, the SCT may also grant permits for the following:

· installing, operating or exploiting transmission-ground stations; and

· providing telecommunications services as a reseller.

There is no legally mandated maximum term for these permits unless specifically stated in the permit. Under the Federal Telecommunications Law, a company needs to register with COFETEL the rates for the telecommunications services that it wishes to provide in order to be able to provide them to the public.

On March 31, 2006, the Mexican Federal Congress approved certain amendments to the Federal Television and Radio Law and the Telecommunication Law, which contains certain modifications to the legal framework of the broadcasting and telecommunications industries.

In October 2006 the SCT issued a new convergence program by which the concessionaires of telephony services are allowed to provide restricted television and audio services and the concessionaires of restricted

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document television and audio services are allowed to provide telephony services as long as the concessionaries adhere and accept the program’s terms, which include among others, the obligation to allow telephone number portability.

Ownership restrictions. Under the Federal Telecommunications Law and the Mexican Foreign Investment Law (Ley Federal de Inversión Extranjera), basic telephony concessions may be granted only to:

· 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.

However, in the case of concessions for cellular telecommunications services, foreign investment participation may exceed 49% of the voting stock with the prior approval of the Mexican Foreign Investment Bureau of the Mexican Ministry of Economy (Secretaría de Economía).

Pursuant to the Foreign Investment Law, the Mexican Ministry of Economy may also authorize the issuance of non-voting or limited- voting stock (also known as ‘‘neutral shares’’) that are not counted for purposes of determining the foreign investment percentage of a Mexican corporation under the Mexican Foreign Investment Law. Any share transfers resulting in a violation of these foreign ownership requirements are invalid under Mexican law.

Transfer. Concessions are transferable after the first three-year period of the concession. If the SCT approves the transfer of the concession title, the assignee agrees to comply with the terms of the concession and such a transfer does not violate the foreign ownership requirements of the Federal Telecommunications Law and the Mexican Foreign Investment Law.

Termination. A concession or a permit may be terminated pursuant to the Federal Telecommunications Law upon the following events:

· expiration of its term;

· resignation by the concession holder or the permit holder;

· dissolution or bankruptcy of the concession holder or the permit holder; or

· revocation by SCT.

Revocation. A concession or a permit may be revoked pursuant to the Federal Telecommunications Law upon the following events:

· failure to exercise the rights of the concession within 180 days of its granting;

· failure to provide interconnection services with other holders of telecommunications concessions and permits without just cause;

· 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;

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document · failure to comply with the obligations or conditions specified in the concession or permit; and

failure to pay the Mexican government its fee for the concession or, where applicable, its participation in the revenues of the · holder of the concession.

The SCT may revoke a concession for violations in any of the circumstances referred to in the first four instances above. Under the last four instances above, the SCT would have to fine the concessionaire at least three times for the same failure before moving to revoke a concession.

Expropriation

The Mexican government has the statutory right to permanently expropriate any telecommunications concession and claim any related assets for reasons of public interest. Under Mexican law, the Mexican government is obligated to compensate the owner of such assets in the case of a statutory expropriation. The amount of the compensation is to be determined by appraisers. If the party affected by the expropriation disagrees with the appraisal amount, such party may initiate judicial action against the government. In such a case, the relevant judicial authority will determine the appropriate amount of compensation to be paid. We are not aware of any instance in which the SCT has exercised its expropriation rights in connection with a telecommunications company.

Temporary seizure

The Mexican government, through the SCT, may also temporarily seize all assets related to a telecommunications concession or permit in the event of a natural disaster, war, significant public disturbance, threats to internal peace or for economic reasons or for other reasons related to national security. If the Mexican government temporarily seizes such assets, except in the event of war, it must indemnify the concession holder for all losses and damages, including lost revenues. We are not aware of any instance in which the SCT has exercised its temporary seizure powers in connection with a fixed or mobile telecommunications company.

Rates for telecommunications services

Before the Federal Telecommunications Law was enacted, the SCT’s approval was required for setting the rates charged for all basic local, long distance and certain value-added local and long distance telecommunications services. Historically, the SCT permitted rate increases based on the cost of service, the level of competition, the financial situation of the carrier and certain macroeconomic factors. Carriers were not allowed to discount the rates authorized by the SCT, although operators occasionally waived activation fees on a promotional basis. Interconnection rates also required SCT approval. Rates for private dedicated circuit services through microwave networks and private networks through satellites were not regulated before the Federal Telecommunications Law was enacted.

Under the Federal Telecommunications Law, rates for telecommunications services (including local, cellular and long distance telephony services) are now freely determined by the providers of such services, except that such rates may not be set below a service provider’s long-term incremental cost.

In addition, COFETEL is authorized to impose specific rate, quality and service requirements on those companies determined by the Federal Antitrust Commission (Comisión Federal de Competencia) to have substantial market power pursuant to the provisions of Mexico’s antitrust statute. All rates for telecommunications services (other than value-added services) must be registered with COFETEL prior to becoming effective. The Federal Telecommunications Law prohibits telecommunications providers from cross-subsidizing among their services and requires that they keep separate accounting for each of their services.

The Mexican Antitrust Commission has found that Telmex has substantial power in the following five markets: interconnection, local services, domestic long distance services, international long distance services and long distance resale, as defined under Mexico’s antitrust statute. Based on this finding, COFETEL issued a resolution in September 2000 regulating Telmex as a dominant carrier and imposing special obligations regarding, among other

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document things, quality of services, tariffs and information disclosure. However, Telmex has obtained an injunction against any potential action by COFETEL for the purpose of implementing such resolution. As a result of this in-junction, Telmex is not currently subject to the specific obligations covered by COFETEL’s resolution.

Tax law

Income tax rate in Mexico is 28%. Mexican regulations allow companies to deduct tax losses against income tax, potentially reducing tax payments.

C. Organizational Structure

Axtel, S.A.B. de C.V. has the following direct or indirect ownership interest in the following Capital Stock (all but Telecom Networks Inc. are subsidiaries incorporated in Mexico):

(i) 100% of the Capital Stock issued by AVANTEL, S. DE R.L. DE C.V.,

(ii) 100% of the Capital Stock issued by AVANTEL INFRAESTRUCTURA, S. DE R.L. DE C.V.,

(iii) 100% of the Capital Stock issued by INSTALACIONES Y CONTRATACIONES, S.A. DE C.V.,

(iv) 100% of the Capital Stock issued by IMPULSORA E INMOBILIARIA REGIONAL, S.A. DE C.V.,

(v) 100% of the Capital Stock issued by SERVICIOS AXTEL, S.A.B. DE C.V.,

(vi) 100% of the Capital Stock issued by AVANTEL SERVICIOS, S.A. DE C.V.,

(vii) 100% of the Capital Stock issued by AVANTEL RECURSOS, S.A. DE C.V.,

(viii) 100% of the Capital Stock issued by AVANTEL EQUIPOS, S.A. DE C.V.,

(ix) 100% of the Capital Stock issued by AVANTEL TELECOMUNICACIONES, S.A. DE C.V.,

(x) 100% of the Capital Stock issued by ADEQUIP, S.A.,

(xi) 100% of the Capital Stock issued by TELECOM NETWORKS INC. (incorporated in the U.S.A.), and

(xii) 50% of the Capital Stock issued by CONECTIVIDAD INALÁMBRICA 7 GHZ, S.DE R.L.

D. Property, Plants and Equipment

All of our properties are located in Mexico. Our most important asset is our network infrastructure (See Item 4. Information on the Company, (h) Our Network).

Our corporate headquarters are located in Monterrey, Mexico. Our Monterrey office consists of 39,779 square meters. The lease on this property expires in 2015. We also own or lease office space and warehouses throughout the 27 cities where we operate. These are the facilities in which we have installed our switches and administrative offices. Office space or warehouses with more than 1,000 square meters are the following:

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Name Utilization/Use Location Area in m2 Property Contract Ending Date Headquarters Administrative Monterrey 39,779 Lease 25/05/2015 Monterrey Voice Center Apodaca Operating Center Monterrey 11,978 Lease 14/09/2005 Call Center Operating Center Santa Catarina 10,389 Lease 31/07/2011 Torre Axtel Santa Fe Administrative Mexico 10,259 Lease 01/01/2011 Workcenter Alse Blanco Operating Center Mexico 7,352 Lease 01/12/2011 Headquarters Axtel Reforma Administrative Mexico 6,150 Lease 28/02/2008 Switch 1 Technology Facility Guadalajara 5,550 Owned - CIC Apodaca Technology Facility Monterrey 5,164 Lease 14/09/2005 Switch 2 Technology Facility Mexico 3,434 Owned - Switch 1 Technology Facility Monterrey 3,096 Owned - Workcenter San Jerónimo Operating Center Monterrey 3,093 Lease 03/03/2012 Switch y Workcenter Operating and Cd. Juarez 3,043 Owned - administrative center Offices Administrative Tampico 3,000 Lease 30/11/2011 CIC Puente Technology Facility Mexico 2,851 Owned - Switch 2 Technology Facility Guadalajara 2,376 Owned - Switch 2 Technology Facility Monterrey 2,111 Lease 30/03/2030 Offices and MAP Administrative Mérida 1,908 Lease 31/03/2010 Switch 1 y 3 Technology Facility Mexico 1,898 Owned - Workcenter Operating Center Xalapa 1,724 Lease 30/10/2016 Workcenter Operating Center Leon 1,516 Owned - Workcenter Operating Center Tijuana 1,500 Lease 31/07/2007 Warehouse México Operating Center Mexico 1,500 Lease 01/05/2007 MSF Triunfo Operating Center Mexico 1,393 Owned - Systems Site Apodaca Technology Facility Monterrey 1,369 Leased 14/09/2005 Workcenter Operating Center Aguascalientes 1,200 Lease 14/06/2010 Workcenter Operating Center Reynosa 1,200 Lease 31/07/2010 Offices Administrative Puebla 1,193 Lease 30/09/2010 Warehouse Guadalupe Operating Center Monterrey 1,193 Lease 01/05/2006 Switch Technology Facility Toluca 1,188 Owned - POP Guadalupe Technology Facility Monterrey 1,140 Lease 01/10/2010 Offices, Administrative and MAP Workcenter Saltillo 1,100 Lease 31/05/2024 Admon. and Workcenter Oficinas y MAP Administrative Xalapa 1,100 Lease 27/02/2017 Switch Technology Facility Leon 1,099 Owned - Workcenter Operating Center Coatzacoalcos 1,061 Lease 31/12/2017 Workcenter Operating Center Veracruz 1,058 Lease 30/09/2011 Workcenter Operating Center Hermosillo 1,019 Lease 31/03/2010 Workcenter Operating Center Mérida 1,000 Lease 28/02/2009 Workcenter Operating Center Hidalgo 1,000 Lease 30/06/2010 Workcenter Operating Center Cd. Victoria 1,000 Lease 14/07/2010 Workcenter Operating Center Cuernavaca 1,000 Lease 14/10/2009 Workcenter Operating Center Culiacán 1,000 Lease 14/10/2010

Item 4.A UNRESOLVED STAFF COMMENTS

Not Applicable

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Form 20-F/A. The following discussion includes certain forward-looking statements. For a

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document discussion of important factors, including the continuing development of our business, actions of regulatory authorities and competitors and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see Item 3.D. “Risk Factors.”

A. Operating Results a) Overview

We provide multiple voice, data and internet services bundled into integrated telecommunications solutions for businesses and high- usage residential customers. We also offer services to foreign carriers with international traffic termination, as well as providing custom-made integrated telecommunications services to large corporate customers. Our integrated service offering enables us to maximize the recurring revenue received from each customer, increasing the return achieved on our investment in infrastructure, sales and marketing and distribution. . In addition, we believe that customers prefer to purchase their telecommunications services from a single provider and receive a single bill. We believe customer loyalty is increased with the provision of additional services, resulting in a lower customer churn rate. b) Key performance indicators

Management evaluates the performance of the Company by tracking the following indicators:

2005 2006 2007 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q Revenues(1) 1,238.5 1,325.6 1,372.1 1,426.2 1,406.3 1,510.3 1,580.9 2,178.1 3,005.5 3,116.0 3,081.3 2,987.9 Local Service 854.3 933.9 966.6 1,015.9 998.7 1,065.7 1,108.0 1,157.6 1,278.8 1,326.1 1,337.5 1,394.3 Long Distance Services 111.7 123.7 128.3 124.2 113.5 129.9 133.8 206.5 402.7 419.4 352.3 357.7 Data 49.5 50.5 56.4 59.3 60.6 69.1 80.3 249.2 619.5 628.4 645.8 620.1 International traffic 134.6 124.4 124.3 126.0 118.6 125.4 121.4 187.4 293.0 330.4 313.9 272.9 Other Services 88.4 93.0 96.5 100.8 114.9 120.3 137.5 377.5 411.5 411.7 431.7 342.9 Cost of Revenues and Operating Expenses (1) (831.5 ) (865.0 ) (880.6 ) (918.6 ) (896.8 ) (973.2 ) (1,025.4) (1,469.0) (2,070.8) (2,054.7) (1,995.2) (1,985.4) Access Lines (2)(3)(5) 490.2 529.7 567.2 605.9 648.4 697.0 733.1 792.5 815.2 843.7 884.6 932.3 Average Lines (2)(5)(6) 471.9 509.9 548.4 586.5 627.2 672.7 715.0 762.8 803.9 829.5 864.2 908.5 Monthly ARPU (4)(5)(7) 682.4 691.4 665.5 647.9 591.1 592.5 578.9 596.1 697.2 701.4 651.8 642.8 Customers (2)(3)(5) 307.9 327.7 347.5 368.2 394.0 422.0 444.6 502.4 518.0 543.8 576.0 623.2 Presubscription (LD) users (2)(3)(5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 298.5 280.8 270.0 265.1 246.1 ______

(1) Amounts in constant Ps. in millions as of December 31, 2007. (2) Amounts in thousands. (3) Figures as of the end of each period. (4) Amounts in constant Ps. as of December 31, 2007. (5) Unaudited information. (6) Average Lines is the result of the Access Lines at the beginning of the period plus Access Lines at the end of the period divided by 2. Monthly ARPU is the result of the sum of local and long distance revenues divided with the Average Lines of the quarter divided by (7) 3.

Revenues

We derive our revenues from:

Local calling services. We generate revenue by enabling our customers to originate and receive an unlimited number of calls · within a defined local service area. Customers are charged a flat

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document monthly fee for basic service, a per call fee for local calls (“measured service”), a per minute usage fee for calls completed on a cellular line (“calling party pays,” or CPP calls) and a monthly fee for value added services.

Long distance services. We generate revenues by providing long distance services (domestic and international) for our · customers’ completed calls.

Data & Network. We generate revenues by providing data and network services, like Internet access, virtual private networks · and private lines, to our customers.

· International Traffic. We generate revenues by terminating international traffic from foreign carriers in Mexico.

Other services. We generate revenues from other services, which include, among others, activation fees for new customers, sale · of customer premises equipments (“CPEs”) and revenues from integrated services billed to customers.

The following summarizes our revenues and percentage of revenues from operations from these sources: Revenues (1) % of Revenues Year ended December 31, Year Ended December 31, Revenue Source 2004 2005 2006 2007 2004 2005 2006 2007 Local calling services Ps. 3,002.5 Ps. 3,770.8 Ps. 4,330.0 Ps. 5,336.6 69.7 % 70.3 % 64.9 % 43.8 % Long distance services 425.9 487.9 583.6 1,532.2 9.9 % 9.1 % 8.7 % 12.6 % Data & Network 214.5 215.7 459.1 2,513.8 5.0 % 4.0 % 6.9 % 20.6 % International Traffic 410.2 509.3 552.8 1,210.2 9.5 % 9.5 % 8.3 % 9.9 % Other services 253.4 378.7 750.2 1,597.8 5.9 % 7.1 % 11.2 % 13.1 % Ps. Total Ps. 4,306.4 Ps. 5,362.4 Ps. 6,675.7 12,190.6 100.0 % 100.0 % 100.0 % 100.0 % ______(1) Amounts in constant Ps. in millions as of December 31, 2007.

Cost of Revenues and Operating Expenses

Our costs are categorized as follows:

Cost of revenues include expenses related to the termination of our customers’ cellular and long distance calls in other carriers’ · networks, as well as expenses related to billing, payment processing, operator services and our leasing of private circuit links.

Operating expenses include costs incurred in connection with general and administrative matters including compensation and · benefits, the costs of leasing land related to our operations and costs associated with sales and marketing and the maintenance of our network.

Depreciation and amortization includes depreciation of all communications network and equipment and amortization of · preoperating expenses and the cost of spectrum licenses.

Access Lines

Our access lines are separated into residential and business categories. We determine the number of our total access lines by adding to the ending balance of access lines from the previous period the gross installed access lines during such period and then subtracting any access lines that were disconnected during such period. By then determining the number of our access lines, we are able to estimate our share of that particular geographic market.

Average revenue per user is used as an industry-standard measurement of a telecommunications company’s ability to maximize the amount of recurring revenues it derives from each customer in light of the amount of capital expenditures made to attract such customer. This measurement allows us to gauge our return on investment as compared with both our domestic competitors in Mexico as well as other telecommunication services providers abroad. c) Year Over Year Comparisons

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Revenues from Operations

Revenues for 2007 were Ps. $12,190.6 million, compared to Ps. $6,675.7 million in 2006, an increase of Ps. $5,514.9 million or 83%. The number of access lines increased to 932,292 from 792,532, an increase of 18%, and our average revenue per user decreased from Ps. 590 pesos in 2006 to Ps. 673 pesos in 2007.

Local services. Local service revenues for the twelve-month period ended December 31, 2007, totaled Ps. 5,336.6 million, a growth of Ps. 1,006.6 million, or 23%, from Ps. 4,330.0 million recorded in 2006. This change is due to increased monthly rents, measured service and cellular revenues due to a higher number of lines in service.

Long distance services. In 2007, long distance service revenues increased to Ps. 1,532.2 million from Ps. 583.6 million registered in 2006, an increase of Ps. 948.6 million, or 163%, primarily due to the consolidation of Avantel not reflected in October and November 2006 and by the continued penetration of bundled commercial offers that incorporate long distance minutes.

Data & Network. Data and network service revenues increased to Ps. 2,513.8 million for the twelve-month period ended December 31, 2007, compared to Ps. 459.1 million in 2006, an increase of Ps. 2,054.7 million, or 448%. The increase is explained by an increase in dedicated Internet and VPNs services provided primarily to business customers.

International traffic. Revenues generated from international calls terminated in Mexico totaled Ps. 1,210.2 million in 2007, compared to Ps. 552.8 million in 2006, an increase of Ps. 657.4 million, or 119%. This growth is due mainly to the consolidation of Avantel. .

Other services. Revenue from other services accounted for Ps. 1,597.8 million in 2007, an increase of Ps. 847.6 million, or 113%, from Ps. 750.2 million registered in 2006, primarily due to and increase of Ps. 229.9 million from integrated services and Ps. 75.3 million from the sale of customer premises equipments (“CPEs”). Other revenues that include activation fees, interconnections and special services among others made up the difference.

Cost of Revenues and Operating Expenses

Cost of Revenues. Cost of revenues was Ps. 4,504.7 million in 2007, compared to Ps. $2,104.3 million in 2006, an increase of Ps. 2,400.4 million, or 114%, year-over-year. This growth was primarily due to Ps. 104.8, Ps. 1,168.2 and Ps. 53.3 million increases in costs related to the “calling party pays” scheme, long-distance termination costs and costs related to integrated services, respectively.

Operating Expenses. For the twelve-month period ended December 31, 2007, operating expenses increased to Ps. 3,601.4 million, from Ps. 2,260.1million in 2006, an increase of Ps. 1,341.3 million, or 59%. Among others, increases of Ps 734.6 million, Ps. 94.6 million and Ps. 53.3 million in personnel, consulting and outsourcing and advertising expenses, respectively explain this growth.

Depreciation and Amortization. Depreciation and amortization totaled Ps. 2,690.7 million in 2007, compared to Ps. 1,560.1 million in 2006, a growth of Ps. 1,130.6 million or 72%. The increase is due to the organic expansion in 2007 and the consolidation of Avantel not reflected in October and November 2006.

Revenues from Operations

Revenues from operations increased to Ps. 6,675.7 million for 2006 from Ps. 5,362.4 million for 2005, an increase of Ps. 1,313.3 million, or 24%. The number of access lines increased to 792,532 in 2006 from 605,904 in 2005, an increase of 31%, and our average revenue per user decreased from Ps. 672 pesos in 2005 to Ps. 590 pesos in 2006.

Local services. Local service revenues increased to Ps. 4,330.0 million for 2006 from Ps. 3,770.8 million for 2005, an increase of Ps. 559.2 million, or 15%. This change is due to increased monthly rents, value added services and cellular revenues due to a higher number of lines in service.

Long distance services. Long distance services revenues increased to Ps. 583.6 million for 2006 from Ps. 487.9 million for 2005, an increase of Ps. 95.7 million, or 20%%. This is a consequence of a higher number of access lines and a larger penetration of bundled offers including long distance minutes.

Data & Network. Data and network service revenues increased to Ps. 459.0 million for the twelve-month period ended December 31, 2006, compared to Ps. 215.6 million in 2005, an increase of Ps. 243.4 million, or 113%. This increase is explained by the contribution from Avantel in December and the remaining growth balance is due to increased data services provided primarily to business customers.

International traffic. Revenues generated from international calls terminated in Mexico totaled Ps. 552.8 million in 2006, compared to Ps. 509.3 million in 2005, an increase of Ps. 43.5 million, or 8.5%. This growth is due to handling more international traffic in 2006 compared to the previous year.

Other services. Revenue from other services increased to Ps. 750.2 million in 2006 from Ps. 378.7 million during 2005, an increase of Ps. 371.5 million, or 98.1%. The increase was due to Ps. 118.6 million contributed from integrated services and Ps. 82.4 million from the sale of customer premises equipments (“CPEs”). Activation fees and other revenues related to a higher number of lines in service made up the difference.

Cost of Revenues and Operating Expenses

Cost of Revenues. Cost of revenues from operations increased to Ps. 2,104.3 million for 2006 from Ps. 1,673.9 million in 2005, an increase of Ps. 430.3 million, or 26%. This growth was primarily due to Ps. 110.4 and Ps. 106.5 million increases in costs related to the “calling party pays” scheme and long-distance termination costs, respectively. Additionally, costs related to integrated services totaled Ps. 75.4 million, being these services not provided prior to the acquisition of Avantel.

Operating expenses. Operating expenses increased to Ps. 2,260.1 million for 2006 from Ps. 1,821.8 million for 2005, an increase of, Ps. 438.2 million or 24%. Increased personnel expenses of Ps. 208.5 million, expenses related to Avantel’s integration and other expenses related to the five new cities opened in 2006 were the main factors that generated this increase.

Depreciation and Amortization. Depreciation and amortization from continuing operations increased to Ps. 1,560.1 million for 2006 from Ps. 1,220.2 million for 2005, an increase of Ps. 339.8 million, or 28%. The year-over-year increase reflects our organic capital expenditures, and the acquisition of Avantel’s assets.

We describe below the principal differences between Mexican GAAP and US GAAP that relate to the operations of Axtel. See Note 25 to the audited consolidated financial statements for reconciliation to US GAAP of shareholders’ equity and net income (loss) for the respective periods presented.

Recognition of the effects of inflation on financial information. Under Mexican GAAP, the effects of inflation are reflected in financial statements. Such a convention has no counterpart under US GAAP. However, although Mexican GAAP includes the effects of inflation in financial statements, the SEC does not require the restatement of financial statements to reconcile the effects of the Mexican GAAP inflation accounting.

Preoperating expenses. Under Mexican GAAP, all expenses incurred while a company is in the preoperating or development stages are deferred and considered as a component of a company’s assets. Such capitalized expenses are amortized on a straight-line basis for a period not exceeding 10 years after the corresponding asset commences operations. According to US GAAP, such preoperating or development expenses are expensed and reported as a deficit to shareholders’ equity recorded during the developing stage.

Deferred income tax and employees statutory profit sharing. Under Mexican GAAP deferred income tax is accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax and employees statutory profit sharing is recognized only for timing differences arising from the reconciliation of book income to income for profit sharing purposes, on which it may reasonably be estimated that a future liability or benefit will arise and there is no indication that the liabilities or benefits will not materialize. Under US GAAP, deferred income tax and employees statutory profit sharing are determined under the asset and liability method recognizing the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards.

Statement of changes in financial position. In accordance with Mexican GAAP, we present statements of changes in financial position in constant pesos. This presentation identifies the generation and application of resources representing differences between beginning and ending financial statements balances in constant pesos.

The changes in the consolidated financial statement balances included in our audited consolidated financial statements constitute cash flow activity stated in constant pesos (including monetary losses which are considered as cash losses in the financial statements presented in constant pesos). SFAS No. 95 does not provide guidance with respect to inflation adjusted financial statements. However, US GAAP requires that non-cash financing and investing transactions should be excluded from the statement of cash flows and reported in related disclosures.

Capitalization of interest. In accordance with Mexican GAAP, capitalization of interest or, during inflationary periods, comprehensive cost of financing or income incurred in the period of construction and installation of an asset is permitted. Under US GAAP, capitalization of interest is required for certain qualifying assets that require a period of time to get them ready for their intended use. The amount of interest to be capitalized is that portion of the interest cost incurred during the assets’ acquisition period that theoretically could have been avoided if expenditures for the assets had not been made, and is not limited to indebtedness attributable to the asset.

Revenue recognition. In accordance with Mexican GAAP, we recognized activation fees received upon installation and activation of services when the customer has a contract with an indefinite term. Conversely, US GAAP SAB 104 indicates that the activation is deferred and recognized over the expected term of the customer relationship beginning on the date the service was installed.

On December 20, 1994, the Mexican government responded to exchange rate pressures by increasing the upper limit of the then existing free market peso/US dollar exchange rate band by 15% and, two days later, by eliminating the band to allow the peso to fluctuate freely against the US dollar. This resulted in a major devaluation of the peso relative to the US dollar. While the noon buying rate had been Ps. 3.47 per US$1.00 on December 19, 1994, by December 31, 1994 the noon buying rate had fallen to over Ps. 5.00 per US$1.00, representing a 44.1% devaluation. The peso continued to decline against the US dollar during 1995, closing at a noon buying rate of Ps. 7.74 per US$1.00 on December 31, 1995, which represented a 54.8% devaluation relative to the US dollar for the year.

The Mexican economy began to recover in 1996 and 1997, as exchange rates stabilized, inflation decreased and real gross domestic product grew by 5.2% and 6.8%, respectively. However, the financial crisis in Asia and Russia, together with the weakness in the price of oil in 1998, which is a significant source of revenue for the Mexican government, contributed to renewed weakness in the peso, which devalued 22.7% relative to the US dollar. In 1999, the peso appreciated 4.0% relative to the US dollar. From 1999-2000, the peso-to-dollar denominated exchange rate remained relatively stable. In 2001, the peso-to-dollar exchange rate showed a slight recovery of 4.6% from Ps. 9.61 on December 31, 2000 to Ps. 9.17 on December 31, 2001. However, in 2002, the peso devaluated 13.8% relative to the US dollar. In 2003, the peso devalued approximately 7.6% relative to the US dollar. During the years ended December 31, 2004, 2005 and 2006, the peso appreciated 0.8%, 4.6% and depreciated 1.6% (in nominal terms) respectively, relative to the US dollar. In 2007, the peso depreciated 1.1% (in nominal terms) respectively, relative to the US dollar.

Peso devaluation has contributed to sharp increases in inflation. Inflation, which had been 7.1% in 1994, increased to 52.0% and 27.7% in 1995 and 1996, respectively. After a reduction to 15.7% in 1997, inflation was 18.6% in 1998. In 1999, 2000 and 2001, the inflation rate decreased to 12.3%, 9.0% and 4.4%, respectively. In 2002, 2003, 2004 and 2005, the inflation rate was 5.7%, 4.0%, 5.2% and 3.3%, respectively. For the twelve month periods ending on December 31, 2006 and 2007, the inflation rates were 4.1% and 3.8%, respectively.

The general economic conditions in Mexico resulting from a devaluation of the peso and inflation may have a negative impact on Axtel’s results of operations and financial condition, primarily as a result of:

the resulting decrease in the purchasing power of Mexican consumers, which results in a decrease in the demand for telephony · services;

· Axtel’s inability, due to competitive pressures, to increase its prices in line with inflation; and

an increase in the peso-carrying amount of its US dollar-denominated debt, reflecting the additional amounts of pesos required · to meet such debt.

See Item 3.D. “Risk Factors—We may lose money because of peso devaluation.”

Recent Accounting Pronouncements

Recently issued accounting pronouncements under Mexican GAAP

The CINIF has issued the following FRS, effective for years beginning after December 31, 2007, and which do not provide for earlier application.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (accumulated inflation equal to or higher than 26% in the most recent three-year period); and (iv) the accounts of Gain or Loss from Holding Non-monetary Assets (RETANM - Spanish abbreviation), Monetary Position Gains or Losses (REPOMO - Spanish abbreviation), and Deficit/Excess in Equity Restatement, will be reclassified to retained earnings, when the unrealized portion is not identified.

FRS D-3 “Employee benefits”- FRS supersedes Bulletin D-3, the portion applicable to Employee Statutory Profit Sharing (ESPS) of Bulletin D-4 and INIF (Interpretation of Financial Reporting Standards) 4. The principal considerations established by this FRS are: (i) a maximum of five years is established for amortizing unrecognized/unamortized items, and the option is provided for immediate recognition of actuarial gains or losses in results of operations; (ii) the recognition of an additional liability and related intangible (b) asset and any related item as a separate element of stockholders’ equity, is eliminated; (iii) severance benefits are to be recognized directly in results of operations; and (iv) ESPS, including deferred ESPS, is to be presented in the statement of income as ordinary operations. Furthermore, FRS D-3 establishes that the asset and liability method required by FRS D-4 should be used for determining deferred ESPS, stating that any effects arising from the change are to be recognized in retained earnings, with no restatement of prior years’ financial statements.

FRS D-4 “Tax on earnings”- FRS supersedes Bulletin D-4 and Circulars 53 and 54. The principal considerations established by this FRS are: (i) the balance of the cumulative IT effects resulting from the initial adoption of Bulletin D-4 in 2000 is reclassified to (c) retained earnings; (ii) AT is recognized as a tax credit (benefit), rather than as a tax prepayment; and (iii) the accounting treatment of ESPS incurred and deferred is transferred to FRS D-3, as mentioned in paragraph (b) above.

FRS B-2 “Statement of cash flows”- FRS supersedes Bulletin B-12 and paragraph 33 of Bulletin B-16. The principal considerations established by this FRS are: (i) the statement of cash flows replaces the statement of changes in financial position; (ii) cash inflows and cash outflows are reported in nominal currency units i.e. the effects of inflation are not included; (iii) two (d)alternative preparation methods (direct and indirect) are established, without stating preference for either method. Furthermore, cash flows from operating activities are to be reported first, followed by cash flows from investing activities and lastly cash flows from financing activities; (iv) captions of principal items are to be reported gross; and (v) disclosure of the composition of those items considered cash equivalents is required.

Recently issued accounting pronouncements under US GAAP

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (Statement 159). Statement 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value that are not currently required to be measured at fair value. If the fair value option is elected, changes in fair value would be recorded in earnings at each subsequent reporting date. SFAS 159 is effective for the Company’s 2008 fiscal year. The Company is currently evaluating the impact the adoption of this statement could have on its financial condition, results of operations and cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS No. 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. In February 2008, the FASB approved FASB Staff Position FAS 157-2 (“FSP 157-2”) that permits companies to partially defer the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP 157-2 did not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. SFAS No. 157 is effective for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document remeasured at least annually for the Company’s fiscal year beginning February 24, 2008. The Company will defer adoption of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company is evaluating the effect the implementation of SFAS No. 157 will have on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) expands the definition of a business combination and requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. SFAS No. 141(R) also requires that all assets, liabilities, contingent considerations and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, SFAS No. 141(R) requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. SFAS No. 141(R) is effective for the Company’s fiscal year beginning December 15, 2008 on a prospective basis for all business combinations for which the acquisition date is on or after the effective date of SFAS No. 141(R), with the exception of the accounting for adjustments to income tax-related amounts, which is applied to acquisitions that closed prior to the effective date of SFAS No. 141(R). The Company is evaluating the effect the implementation of SFAS No. 141(R) will have on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51.” SFAS No. 160 changes the accounting and reporting for minority interests such that minority interests will be recharacterized as noncontrolling interests and will be required to be reported as a component of equity, and requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions and, upon a loss of control, requires the interest sold, as well as any interest retained, to be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for the Company’s fiscal year beginning December 15, 2008 with early adoption prohibited. The Company is evaluating the effect the implementation of SFAS No. 160 will have on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS No. 161 is effective for the Company’s fiscal year beginning November 15, 2008 with early adoption permitted. SFAS No. 161 does not impact the consolidated financial statements and the Company is evaluating the effect the implementation will have on the Notes to Consolidated Financial Statements.

In September 2006, the FASB’s Emerging Issues Task Force reached a consensus on Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4). EITF 06-4 provides guidance on the accounting for arrangements in which an employer owns and controls the insurance policy and has agreed to share a portion of the cash surrender value and/or death benefit with the employee. This guidance requires an employer to record a postretirement benefit, in accordance with FASB Statement No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions” or APB Opinion No. 12, “Omnibus Opinion-1967, if there is an agreement by the employer to share a portion of the proceeds of a life insurance policy with the employee during the postretirement period. This guidance is effective for reporting periods beginning after December 15, 2007. The Company is in the process of assessing the impact of adopting EITF 06-4 on its results of operations and financial position; however, the company currently expects that additional liabilities may be required to be recognized upon implementation of the consensus based on the current terms of certain life insurance arrangements with executive officers of the Company.

Critical Accounting Policies

Our consolidated financial statements included elsewhere in this Form 20-F/A have been prepared in accordance with Mexican GAAP, which differ in significant respects from US GAAP. See Note 25 to our consolidated financial statements, included elsewhere in this Form 20-F/A, for a description and the effects of the principal differences between Mexican GAAP and US GAAP as they relate to us.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We have identified below the accounting policies we have applied under Mexican GAAP that are critical to understanding our overall financial reporting.

Income taxes, tax on assets, and employee’s statutory profit sharing

Under Mexican GAAP, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Significant judgment is required to appropriately assess the amounts of tax assets. Axtel records tax assets when it believes there will be enough future taxable income for the realization of such deductible temporary difference. If this determination cannot be made, a valuation allowance is established to reduce the carrying value of the asset.

Deferred income tax and employees statutory profit sharing is recognized only for timing differences arising from the reconciliation of book income to income for profit sharing purposes with respect to which it may reasonably be estimated that a future liability or benefit will arise and there is no indication that the liabilities or benefits will not materialize.

Recognition of the effects of inflation

Under Mexican GAAP, the financial statements are restated to reflect the loss of purchasing power (inflation) of their functional currency. The inflation effects arising from holding monetary assets and liabilities are reflected in the income statements as monetary position result. Inventories, property, systems and equipment and deferred charges, with the exception and the equity accounts, are restated to account for inflation using the Mexican National Consumer Price Index published by Banco de México (central bank). The result is reflected as an increase in the carrying value of each item. Income statement accounts are also restated for inflation into constant Mexican Pesos as of the reporting date.

Impairment of long-lived assets

The Company evaluates, at least once a year, the adjusted values of its property, systems and equipment and other non-current assets subject to amortization to determine whether there is an indication of potential impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed off are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Revenue recognition

Our revenues are recognized when earned, as follows:

Local calling services. We generate revenue by enabling our customers to originate and receive an unlimited number of calls within a defined local service area. Customers are charged a flat monthly fee for basic service, a per call fee for local calls · ("measured service"), a per minute usage fee for calls completed on a cellular line ("calling party pays" or "CPP calls") and a monthly fee for value-added

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document services when requested by the customer. The costs related to the termination of our customers' cellular in other carriers' networks are charged to cost in the same month that the revenue is earned.

Long distance services. We generate revenues by providing long distance services for our customers' completed calls. The · costs related to the termination of our customers' long distance calls in other carriers' networks are charged to cost in the same month that the revenue is earned.

Data & Network. We generate revenues by providing Internet, data and network services, like virtual private networks and · dedicated private lines. The costs related to providing Internet, data and network services to our customers are charged to cost in the same month that the revenue is earned.

International Traffic. We generate revenues terminating international traffic from foreign carriers. The costs related to the · termination of international traffic are charged to cost in the same month that the revenue is earned.

Other Services. We generate revenues from other services, which include among others, activation fees, equipment installation · and customer premises equipment (‘‘CPE’’) for new customers as well as custom-made integrated telecommunications services to corporate customers.

Other costs and expenses related to sales and marketing, costs of leasing land related to our operations and maintenance of the network, billing, payment processing, operator services and our leasing of private circuit links are recorded as incurred.

On December 17, 2003, the SEC issued Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (SAB 104). This bulletin summarizes the point of view of the SEC in the recognition of revenues in the financial statements according to US GAAP. The SEC concluded that only when all the following conditions are met is revenue recognition appropriate:

(a) there is persuasive evidence of an agreement;

(b) the delivery was made or the services rendered;

(d) collection is reasonably assured.

SAB 104, specifically in Topic 13A, Question 5, discusses the situation of recognizing as revenue certain non-refundable cash items. SAB 104 provides that the seller should not recognize non-refundable charges generated in certain transactions when there is continuous involvement by the vendor.

One of the examples provided by SAB 104 is activation revenues from telecommunication services. The SAB concludes that unless the charge for the activation service is an exchange for products delivered or services rendered that represent the culmination of a separate revenue-generating process, the deferral method of revenue is appropriate.

Based on the provisions and interpretations of SAB 104, for purposes of the US GAAP reconciliation, we have deferred the activation revenues over a three-year period starting in the month such charge is originated. This period was determined based on our experience. The net effect of the deferral and amortization is presented in the US GAAP reconciliation presented in this Form 20-F/A.

Axtel estimates the useful lives of particular classes of plant, property and equipment in order to determine the amount of depreciation expense to be recorded in each period. Depreciation expense is a significant element of its costs, amounting in 2007 to Ps. 2,299.6 million, or 21% of its operating costs and expenses.

The estimates are based on historical experience with similar assets, anticipated technological changes and other factors, taking into account the practices of other telecommunications companies. We review estimated useful lives each year to determine whether they should be changed, and at times we have changed them for particular classes of assets. We may shorten the estimated useful life of an asset class in response to technological changes, changes in the market or other developments.

Derivative financial instruments

The Company accounts for derivatives and hedging activities in accordance with Bulletin C-10 for Mexican GAAP and FASB Statement No. 133, for US GAAP, Accounting for Derivative Instruments and Certain Hedging Activities, as amended, which require that all derivative instruments be recorded on the balance sheet date at their respective fair values, including those derivatives embedded in financial or non financial contractual agreements.

The Company uses financial derivative instruments in order to manage financial exposures, especially foreign exchange related, and rates related. According to NIF C-10 and FASB-133, allows to account such operations as a hedging operation if it accomplishes certain requirements as effectiveness proves, and to avoid the recording of volatility in derivative instruments fair values in the income statement. The Company accounts the operations with financial derivative instruments with hedging activities into two main classifications: (i) Fair value hedging and (ii) Cash flows hedging.

In spite of last paragraph, the Company has accounted operations with financial derivative instruments under the classification of trade, which fair value have been accounted directly in the income statement. This is due to the fact that some operations did not accomplish some of the requirements in actual norms to be registered under accounting hedge model, even though these operations are hedging activities highly effective.

The Company has financial derivative instruments that are registered as fair value hedge and the accounting register is realized by taking the changes in the fair value and the changes in the fair value of the risk primary position to the results of the year, for their compensation. For the financial derivative instruments registered as cash flow hedging the Company registers in the comprehensive income the change in the fair value of them and at the moment when a profit or loss is realized, is registered at the results of the Company, recycling the comprehensive income.

The ineffectiveness portion of the change in the fair value of a derivative instrument that qualifies as a hedging activity is reported in the income statement.

Inventory

We periodically examine our inventory in order to determine its obsolescence. Based on these examinations, we might be required to establish reserves to provide for obsolescence. To date, those circumstances have not arisen to establish such a reserve.

We believe that proper management of our working capital is essential to successful management of our finances generally. For this reason, controlling and monitoring of our accounts receivable is a priority in daily financial management. In furtherance of the above, we have established a policy of reserving for all balances over 30 days past due.

Business Combinations

To account for the acquisition of Avantel, the Company followed guidelines established in FRS B-7 “Business Combinations”, which was effective since January 1, 2005. The following procedures were followed by Axtel: a) the acquisition was accounted for by the purchase method of accounting; b) the cost of Avantel were allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition; c) an account for identifiable intangible acquired assets was created; and d) the negative goodwill was reduced proportionately from the fixed assets and intangibles acquired, net of taxes.

B. Liquidity and Capital Resources

Liquidity and Capital Resources

Historically we have relied primarily on vendor financing, the proceeds of the sale of securities, internal cash from operations and the proceeds from bank debt to fund our operations, capital expenditures and working capital requirements. Although we believe that we would be able to meet our debt service obligations and fund our operating requirements in the future with cash flow from operations, we may seek additional financing in the capital markets from time to time depending on market conditions and our financial requirements. We will continue to focus on investments in property, systems and equipment (fixed assets) and working capital management, including the collection of accounts receivable and management of accounts payable.

Net resources provided by operating activities was Ps. 3,226.7 million, Ps. 2,532.0 million and Ps. 1,524.1 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Net resources used in investing activities was Ps. 2,556.4 million, Ps. 8,800.6 million and Ps. 1,825.8 million for the years ended December 31, 2007, 2006 and 2005, respectively. These cash flows primarily reflect investments in property, systems and equipment of Ps. 2,486.0 million, Ps. 7,854.5 million and Ps. 1,767.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Net resources provided by (used in) financing activities from continuing operations was Ps. (318.6) million, Ps. 5,449.0 million and Ps. 1,725.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Since our inception, we have invested over Ps. 21,968.6 million as we built out our infrastructure. We expect to make additional investments in future years as we selectively expand our network into other areas of Mexico in order to exploit market opportunities as well as to maintain our existing network and facilities.

Indebtedness

During the twelve-month period ended on December 31, 2006, we incurred in significant new indebtedness to finance the acquisition of Avantel. In addition, in February 2007, we prepaid Ps. 3,383.4 million (US$311.0 million) of the Bridge Loan with the proceeds of the Senior Note we issue on February 1,2007 due on 2017 . See Item 11 “Quantitative and Qualitative Disclosures About Market Risk”, for hedging transactions related to our indebtedness. The following table summarizes our total debt, currency and interest rate structure as of December 31, 2007.

2012 Syndicated Term Loan - peso tranche 1,042.4 MXN Floating rate 2012 Syndicated Term Loan - US dollar tranche 1,197.7 USD Floating rate 2013 Senior Notes 1,765.8 USD Fixed rate 2017 Senior Notes 2,988.2 USD Fixed rate Avantel - Telmex Capital Lease Obligation 534.3 MXN Fixed rate Other Leasings 120.5 MXN and USD both Notes Premium and Accrued Interest 108.1 n.a. n.a. Total Debt 7,757.0

All financial contracts and indentures governing Company’s indebtedness do not limit the ability of subsidiaries to transfer funds or pay dividends to the Company. The average life of Axtel’s debt is 7 years approximately. The following table summarizes the maturity profile of the Company’s indebtedness as of December 31, 2007:

Year Million Ps. 2008 159.3 2009 175.0 2010 1,088.9 2011 1,023.7 2012 448.0 2013 1,765.8 2017 2,988.2

OTHERS: Notes Premium 27.3 Accrued Interest 111.8 Var. Fair Value Swaps (31.0) Total Debt as of Dec 31, 2007 7,757.0

The most relevant financial covenants on existing debt are the following:

2012 Syndicated Loan

(i) Net Worth as of the end of any fiscal quarter not less than 80% of the Net Worth as of December 31, 2006,

(ii) Consolidated EBITDA to interest ratio to be greater than 3.0x as of the end of any fiscal quarter, commencing with the fiscal quarter ending September 30, 2006,

(iii) Consolidated Senior Indebtedness to EBITDA ratio not greater than 3.0x as of the end of any fiscal quarter, commencing with the fiscal quarter ending September 30, 2006.

2013 Senior Notes

(i) Consolidated Indebtedness to EBITDA ratio not greater than 4.0x as of the end of any fiscal quarter.

2017 Senior Notes

(i) Consolidated Indebtedness to EBITDA ratio not greater than 4.0x as of the end of any fiscal quarter.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document As of December 31, 2007, the Company has no material capital expenditures commitments.

Capitalization of preoperating expenses

We commenced commercial operations in June 1999. As permitted under Mexican GAAP, during our preoperating stage we were able to capitalize all of our general and administrative expenses and our net comprehensive cost of financing.

Beginning in June 1999, we are required to amortize all previously capitalized general and administrative expenses and to depreciate all previously capitalized net comprehensive cost of financing. These capitalized preoperating expenses are amortized on a straight-line basis for a period not exceeding ten years.

C. Research and development, patents and licenses, etc.

Not applicable.

D. Trend information.

The following discussion contains forward-looking statements that reflect our current expectations and projections about future events based on our knowledge of present facts and circumstances and assumptions about future events. In this Form 20-F/A, the words "expects," "believes," ”anticipates," "estimates," "intends," "plans," "probable" and variations of such words and similar expressions are intended to identify forward-looking statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ.

In 2007, we made significant progress in the integration of Avantel, consolidating our position as the largest fixed-services telecommunications company in Mexico measured by lines in service, revenues, and EBITDA, after the incumbent. Our robust network and comprehensive portfolio of products and services allowed us to continue growing in existing cities and commencing operations in 10 new cities in 2007. We expect to continue growing primarily from customer acquisitions in our current markets as we continue to expand our coverage and capacity in the major metropolitan areas that we currently serve. We also expect to expand into selected geographies we do not yet serve through organic growth and, possibly, strategic acquisitions or commercial agreements. The Mexican telecommunications industry is highly influenced by various factors, such as: (i) competition in local services, long distance, data, internet, voice over internet protocol, or VoIP, services and video; (ii) ability to attract subscribers; (iii) changes and developments in technology, including our ability to upgrade our networks to remain competitive and our ability to anticipate and react to frequent and significant technological changes; (iv) the effects of governmental regulation of the Mexican telecommunications industry; (v) declining rates for long distance traffic; and (vi) other factors described in this Form 20-F/A.

Therefore, a number of factors that have been particularly significant to the results of operations for the periods discussed in this Form 20-F/A, and the expected results for upcoming years, requires an appreciation of the telecommunications industry in Mexico, competition from existing and new entrants, prices in local and long-distance services, economic conditions in Mexico and the U.S.A., exchange and inflation rates, among many other factors described in this Form 20-F/A.

E. Off-balance sheet arrangements.

As of December 31, 2007, the Company maintains the following stand-by letters of credit and performance and surety bonds, that due to their contingency nature, are not reflected in our balance sheet.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Issuer Type US Dollars Pesos (in Thousands) (in Thousands) Avantel Infraestructura S. de R.L. de C.V Quality 0.0 2,000.0 Performance 109.7 0.0 Performance 0.0 56,731.2 Avantel S. de R.L. de C.V. Leasing 0.0 4,005.2 Concession 0.0 2,828.3 S-By L/C in favor of Telmex 60,000.0 0.0 Performance 2.9 0.0 Performance 0.0 64,805.7 Avantel, S.A. A. en P. Performance 1.3 Performance 2,812.6 Avantel, S.A. Performance 0.0 4,020.1 Axtel, S.A.B. de C.V. Leasing 0.0 1,046.6 Quality 0.0 1,746.3 Concession 0.0 1,213.7 Performance 0.0 26,186.3 Servicios Axtel S.A. de C.V. Others 0.0 254.9 Instalaciones y Contrataciones S.A. de C.V. Others 0.0 0.0 TOTAL 60,114.0 167,650.9

F. Tabular disclosure of contractual obligations.

The following table discloses aggregate information about our contractual obligations as of December 31, 2007, and the periods in which payments are due.

Less than More than 5 Total 1 year 1-3 years 3-5 years years pro forma, payments due by period

(US$ in millions) Debt maturing within one year 14.7 14.7 — — — Long-term debt 689.1 — 115.4 136.2 437.5 Interest payments 360.9 55.3 107.7 85.6 112.3 Operating leases 130.1 23.3 36.3 24.6 45.9 Total contractual cash obligation 1,194.8 93.3 259.4 246.4 595.7

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

Pursuant to our bylaws (estatutos) and Mexican law, management is entrusted to a Board of Directors and a Chief Executive Officer. The Board of Directors is composed of a maximum of 21 regular members and their respective alternate directors, as approved by a shareholders meeting. At least 25% of the members of the Board of Directors must be independent pursuant to the new Mexican Securities Market Law. Our Board of Directors currently is comprised of nine regular members and nine alternate directors. Pursuant to our bylaws and Mexican law, the members of the Board of Directors remain in office for thirty days after their resignation or conclusion of the term to which they were appointed unless replaced; the Board of Directors may appoint provisional members.

The following table presents information concerning our directors and executive officers as of April 25, 2008:

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Officer Position Tomás Milmo Santos Chairman, Director and Chief Executive Officer Patricio Jiménez Barrera Chief Financial Officer and Director Andrés Velásquez Romero(1) Executive Director - Mass and Business Markets and Alternate Director Bruno Gustavo Ramos Maza Executive Director - Strategic Accounts Ivan Alonso Hernández Executive Director - Technology Alberto de Villasante Herbert(1) Executive Director - Negotiations, Alliances and Institutional Relations and Alternate Director José Eloy Valerio Treviño Vice President of Human Resources Gerardo González Villarreal Audit Director Federico Gil Chaveznava General Counsel Thomas Milmo Zambrano Director Alberto Santos de Hoyos Director Lorenzo H. Zambrano Treviño Director Alberto Garza Santos Director Héctor Medina Aguiar Director Bernardo Guerra Treviño(2)(3) Director Fernando Quiroz Robles(2)(3) Director Lawrence H. Guffey(2)(3) Director Balbina Milmo Santos(1) Alternate Director Francisco Garza Zambrano(1) Alternate Director Alberto Santos Boesch(1) Alternate Director David Garza Santos(1) Alternate Director Ramiro Villarreal Morales(1) Alternate Director Mauricio Morales Sada(1) Alternate Director Javier Arrigunaga Gómez del Campo(1) Alternate Director Benjamin Jenkins(1) Alternate Director

(1) The role of alternate director is to perform the role of the primary director if the primary director is not in attendance.

(2) Independent Directors.

(3) Member of audit and corporate practices committee.

Set forth below is a summary of the business experience, functions, areas of expertise and principal outside business interests of our current directors, alternate directors and senior management. The business address for each of our current directors, alternate directors and senior management is Blvd. Gustavo Díaz Ordaz km. 3.33 No. L-1, Col. Unidad San Pedro, San Pedro Garza García, N.L., México, CP 66215.

Tomás Milmo Santos has held the position of Chief Executive Officer of Axtel since 1994 and Director since October 1997. Mr. Milmo was also appointed Chairman of the Board of Directors in October 2003. Prior to joining Axtel, Mr. Milmo worked at Carbonifera de San Patricio, S.A. de C.V., a medium sized mining company in Mexico. In 1988 he was named CEO of that same company, holding this post until 1990, when he founded and became CEO of Milmar, S.A. de C.V., a housing development company that developed and sold over 10,000 homes between 1990 and 1993. He is a member of the Board of Directors of Cemex, S.A. de C.V., HSBC Mexico S.A., ITESM (Tec de Monterrey) and Universidad de Monterrey. Mr. Milmo holds a degree in Business Economics from Stanford University.

Patricio Jiménez Barrera has held the position of Chief Financial Officer of Axtel since January 1998. Prior to joining Axtel, Mr. Jiménez held a variety of finance-related positions, including an investment banker while at Invermexico Casa de Bolsa, a corporate treasurer while at Grupo Cydsa, S.A. and an investment banker, international treasurer, financing and correspondent banker while at Banca Serfín, S.A. (Mexico’s third largest bank). Immediately prior to joining Axtel, Mr. Jiménez was responsible for the International Division at Banca Serfín, S.A. He is a member of the board of Seguros Banorte Generali and Pensiones Banorte Generali. Mr. Jiménez is a CPA and holds a degree from the Instituto Tecnológico y de Estudios Superiores de Monterrey.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Andrés Velázquez Romero has held the position of Executive Director of Mass and Business Markets in Axtel since March 2007. Prior to his current position, Mr. Velazquez held various Senior Management positions in Axtel including Executive Director for Central Region and Treasurer and Administrative Director. Mr. Velázquez has been responsible for treasury, risk management, credit lines, funding structure and foreign exchange for a number of banking institutions. Prior to joining Axtel, he was the COO in charge of the Banca Serfín International Agency in New York. Mr. Velázquez holds a degree in Economics from the ITAM in Mexico City.

Ivan Alonso Hernández has held the position of Executive Director of Technology since May 2002. Prior to his present position, Mr. Alonso held the Information Technology and Business Process Director positions at Axtel. Mr. Alonso has over 17 years experience in information technology and telecommunications areas with various companies, including Copamex Services & Real Estate Division. He has also collaborated with financing institutions including Banco del Atlantico & Banpais, with responsibility for the telecommunications group of its Northeast Division. Mr. Alonso holds a B.S. degree in Electronics and Communications Engineering from the Instituto Tecnológico y de Estudios Superiores de Monterrey.

José Eloy Valerio Treviño has held the position of Human Resources Vice President of Axtel since June 2007. Prior to his present position, Mr. Valerio was Director for Planning of Human Resources & Human Development at Axtel. Mr. Valerio has 26 years of experience in Human Resources and Administration in which he has carried out directive and consultant positions at Telecommunications, Paper and Cellulose, Tourism, Steel-Mechanical, Automotive and Pharmaceutical Industry. He was President of the Human Resources Executives Association (ERIAC) and has been an Advisor for Academic, Governmental and Non-Governmental Organizations. Mr. Valerio holds a degree in Administration and an M.B.A.

Gerardo Gonzalez Villarreal has held the position of Audit Director in Axtel since March 2000. Prior to his current position, Mr. González held the Comptroller Director position. Mr. González has over 20 years experience in the audit, tax and accounting field. Prior to joining Axtel, he collaborated with international accounting firms such as Coopers & Lybrand International and DFK International, as well as a member of the Mexican and International DFK Audit Committee, in his capacity as Chairman in the Mexican accounting firms. Mr. González holds a degree as CPA & BA from Universidad del Norte.

Thomas Milmo Zambrano has been a Director of Axtel since October 1997 and held the position of Chairman of the Board of Directors from October 1997 until 2003. Mr. Milmo Zambrano was founder and Chairman of Grupo Javer S.A. de C.V., one of the largest housing development companies in Mexico, and of Incasa, S.A. de C.V., one of the largest aggregate producers in Mexico. He was also Chairman and CEO of both Carbonifera de San Patricio S.A. de C.V. and Carbon Industrial, S.A. de C.V., medium-sized mining companies in Mexico. He was a Director of Cemex, S.A. de C.V. until 1996.

Alberto Santos de Hoyos has been a Director of Axtel since October 1997. Mr. Santos is a director of Banco de México (regional), Grupo Cydsa, S.A., Sigma Alimentos and Seguros Comercial America. He has been Senator and Representative of the Mexican Congress; President and Vice-President of the Cámara de la Industria de Transformación de Nuevo León; Vice-President of the Mexican Confederación de Cámaras Industriales (CONCAMIN); and President of the Comisión de Productos Básicos of CONCAMIN; President of the Cámara Nacional de la Industria Azucarera y Alcoholera. Mr. Santos has also been Chairman of the Board, CEO and director of Gamesa. Mr. Santos holds a degree in Business Administration from the Instituto Tecnológico y de Estudios Superiores de Monterrey.

Lorenzo Zambrano Treviño has been a Director of Axtel since October 1997. Mr. Zambrano is the Chairman of the Board and CEO of Cemex, S.A. de C.V. He is also the Chairman of the Boards of Directors of the Instituto Tecnológico y de Estudios Superiores de Monterrey and the Americas Society. He is a member of the Executive Committee of Grupo Financiero Banamex Accival, S.A. de C.V. and the Salomon Smith Barney International Advisory Board. In addition, he is a member of the Board of Directors of Coca Cola Femsa, S.A. de C.V. and Televisa, S.A. He is also a member of the Advisory Council to the Stanford Graduate School of Business, the Museo de Arte Contemporaneo and the U.S.-Mexico Commission for Educational and Cultural Exchange. Mr.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Zambrano holds a B.S. degree in Mechanical Engineering from the Tecnológico de Monterrey and an M.B.A. from Stanford University.

Alberto Garza Santos has been a Director of Axtel since October 2003. Mr. Garza is the founder and Chairman of the Board of Promotora del Viento, S.A de C.V., a company dedicated to wind power in Mexico. He is also founder and Chairman of the Board of Promotora Ambiental, S.A.B. de C.V. (PASA), a leading waste management company in Mexico. Mr. Garza has engineered PASA’s growth through multiple acquisitions, local unit start-ups, municipal concessions and the development of world-class landfills, including Mexico’s first five privately owned landfills. In 2002, he positioned PASA as PEMEX’s waste services provider of choice, winning various large, multiyear contracts.

Héctor Medina Aguiar has been a Director of Axtel since October 2003. Mr. Medina is the Executive Vice-President of Planning and Finance of Cemex, S.A. de C.V. and responsible for worldwide strategic planning and finance. Before joining Cemex, Mr. Medina was a Senior Manager at Grupo Alfa S.A. de C.V. He is Chairman of the Board of Universidad Regiomontana, Board Member of Minera Autlan, Cementos Chihuahua, Nacional Monte de Piedad and Mexfrutas. Mr. Medina is also member of the Advisory Committee of the Monterrey Institute of Technology (Instituto Tecnológico y de Estudios Superiores de Monterrey). Mr. Medina is a graduate of the Instituto Tecnológico y de Estudios Superior de Monterrey with a degree in Chemical Engineering. He also holds an M.S.C. degree in Management from the University of Bradford Management Center in England and an M.S. degree from the Escuela de Organización Industrial in Spain.

Bernardo Guerra Treviño has been a Director of Axtel since April 2006. Chief Executive Officer, and founding member in 1995, of MG Capital, an independent asset management firm in Mexico. From 1986 to 1995, he held different positions in financial institutions in Monterrey. Mr. Guerra holds an Industrial Engineering degree from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). He currently serves in the Board of Director of Promotora Ambiental S.A.B. de C.V.(PASA) and Banco Ahorro Famsa S.A.

Fernando Quiroz Robles has been a Director of Axtel since April 2007. Mr. Quiroz is Chairman of the Board of Acciones y Valores Banamex (Accival) and Head of Corporate and Investment Banking Latin America of Citigroup. He is also member of the Administration and Investment Banking and Planning Committees at Citigroup, and member of the Executive Committee and Head of Specialized Banking at Banamex. Prior to his current position, Mr. Quiroz held various Senior Management positions in Banamex and Citigroup, including consumer banking, international banking, strategic planning and economic research. Mr. Quiroz joined Banamex in 1979.

Lawrence H. Guffey has been a Director of Axtel since May 2000. Mr. Guffey is also a Senior Managing Director in the Private Equity group of Blackstone. Mr. Guffey has led Blackstone’s efforts in virtually all media and communications-related investments and has day-to-day responsibility for management of Blackstone Communications Advisors. Since joining Blackstone in 1991, Mr. Guffey has been involved in the execution of Blackstone’s investments in Axtel, Bresnan Communications, Centennial Communications Corp., Crowley Wireless (Salmon PCS), CommNet Cellular, CTI Holdings, Encoda Systems (a LiveWire Media company), iPCS, Iusacell, LiveWire, PaeTec, TWFanch-one, TWFanch-two, Universo Online and U.S. Radio. Before joining Blackstone, Mr. Guffey worked in the Acquisitions Group at Trammell Crow Ventures, the principal investment arm of Trammell Crow Company. He currently serves as a director of Centennial Communications, Encoda Systems, Orcom and FiberNet. Mr. Guffey holds a degree from Rice University.

Javier Arrigunaga Gomez del Campo has been an Alternate Director of Axtel since April 2007. Mr. Arrigunaga is General Counsel and Head of Insititutional Development for Citigroup Latinamerica and Banamex. Prior to his current position, Mr. Arrigunaga was Mexico’s Ambassador at OECD and held various Executive positions in Banco de México (Mexico’s Central Bank) including General Counsel and Secretary of the Board of Governors. Mr. Arrigunaga has been Director of AeroMéxico, Mexicana and Scotiabank. Mr. Arrigunaga holds a Law degree from the Universidad Iberoamericana and a L.L.M. from Columbia University.

Benjamin Jenkins has been an Alternate Director of Axtel for Mr. Lawrence H. Guffey since October 2003. Mr. Jenkins is a Principal in the Private Equity group of Blackstone. Since joining Blackstone in 1999, Mr.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Jenkins has been involved in the execution of Blackstone’s investment in Axtel and has evaluated numerous industrial and communications investments. Previously, Mr. Jenkins was an Associate at Saunders Karp & Megrue. Prior to that, Mr. Jenkins worked in the Mergers & Acquisitions Department at Morgan Stanley & Co. Mr. Jenkins holds a B.A. in Economics from Stanford University and an M.B.A. from Harvard Business School.

Francisco Javier Garza Zambrano has been an Alternate Director of Axtel for Mr. Lorenzo Zambrano Trevio since June 17, 2005. Mr. Garza holds the position of Regional Chairman for Cemex México, United States and Foreign Trade. He has been Chairman of Cemex México, Cemex Panama, Venezolana de Cementos (Vencemos, S.A.), Vice President of Trading Cemex, S.A. and Chairman in charge of Cemex, S.A. de C.V.’s operations in the United States. Mr. Garza holds a degree in Business Administration from the Instituto Tecnológico y de Estudios Superiores de Monterrey and an M.B.A. from Cornell University-Johnson Graduate School of Management.

Alberto Santos Boesch has been an Alternate Director of Axtel for Mr. Alberto Santos de Hoyos since June 17, 2005. Mr. Santos has held the position of Chief Executive Officer at Empresas Santos, S.A. since the year 2000. He is a shareholder and director of Grupo Tres Vidas Acapulco, S.A., Desarrollos Marinos del Caribe (Hotel Mandarin Oriental Rivera Maya) and Gimnasio Body-tek, S.A. Mr. Santos is also a member of Generación 2000 and Grupo México Nuevo. He is currently the Chairman of the Board of Directors of Grupo Monde (Mundo de Adeveras theme park). Mr. Santos holds a degree in International Studies from the Universidad de Monterrey as well as international studies from Cushing Academy.

David Garza Santos has been an Alternate Director of Axtel for Mr. Alberto Garza since November 2005. Mr. Garza is Chairman of the Board of Directors and Chief Executive Officer of Maquinaria Diesel, S.A de C.V., a company which distributes Caterpillar, Ingersoll Rand and other construction equipment in Mexico and is also Chairman of the Board of Directors of Comercial Essex, S.A. de C.V., which is the largest distributor of Exxon Mobil lubricants in Mexico. Mr. Garza is also a member of the Board of Directors of Desarrollos Delta, S.A. de C.V., a real estate developer for residential, offices and resorts in Mexico, a member of the Board of Directors of Promotora Ambiental, S.A. de C.V., a leading waste management company in Mexico and also a member of the Advisory Committee of the School of Business Administration of the Instituto Tecnológico y de Estudios Superiores de Monterrey. Mr. Garza holds a degree in Business Administration from the Instituto Tecnológico y de Estudios Superiores de Monterrey.

Federico Gil Chaveznava has been an Alternate Director of Axtel for Mr. Tomás Milmo Santos since November 11, 2005. Mr. Gil has held the position of General In-House Counsel of Axtel since the year 2000. Previously, Mr. Gil was an Associate at the law firm D&A Morales y Asociados, S.C. Prior to that, Mr. Gil worked as Legal Counsel for Grupo Internacional de Inversiones. He was a legal advisor for Nuevo Leon State Congress. Mr. Gil holds a Licenciatura en Derecho (J.D. equivalent) from the Universidad de Monterrey.

Mauricio Morales Sada has been an Alternate Director of Axtel for Mr. Bernardo Guerra Treviño since April 2006. Mr. Morales Sada is president, and founding member in 1995, of MG Capital, an independent asset management firm in Mexico. From 1984 to 1995, he held different positions in financial institutions in Monterrey. Mr. Morales holds a Mechanical Engineering degree from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), and currently serves in the Advisory Committee for the Business Incubator of the same institute.

Ramiro G. Villarreal Morales has been an Alternate Director of Axtel for Mr. Héctor Medina Aguiar since April 2006. Mr. Villarreal is the General Counsel of Cemex S.A de C.V. since 1987. Mr. Villarreal is also Secretary of the Board of Directors of Cemex S.A. de C.V. since 1995. Prior to joining Cemex, he served as Assistant General Director of Grupo Financiero Banpais (now part of Banco Mercantil del Norte S.A.) from 1985 to 1987. Mr. Villarreal is a graduate of the Universidad Autonoma de Nuevo Leon with a degree in law and holds a Master of Science in Finance from the University of Wisconsin.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Thomas Milmo Zambrano is the father of Tomas and Balbina Milmo Santos and cousin of Lorenzo Zambrano. Alberto Santos de Hoyos is the uncle of Tomas Milmo Santos and of Alberto Garza Santos and the father of Alberto Santos Boesch.

B. Compensation

For the year ended December 31, 2007, the aggregate compensation, including benefits, we paid to our directors, alternate directors and executive officers for services in all capacities was approximately US$4.4 million.

In 2007, we and our subsidiaries incurred no costs to provide pension, retirement or similar benefits to our respective officers and directors pursuant to retirement plans or pension plans.

C. Board Practices

See “Item 6A. Directors and Senior Management” above. None of the directors of Axtel have any type of arrangement with Axtel whereby such director would receive benefits upon termination of employment.

Audit and Corporate Practices Committee

Pursuant to the new Mexican Securities Market Law, the Board of Directors in its supervision activities, will be assisted by one or more committees. For corporate practice matters, a committee will: provide its opinion to the Board of Directors with respect items of its concern as set forth under the new Mexican Securities Market Law; request expert opinions when considered advisable; call for shareholders meetings; provide support to the Board of Directors on reports needed to be prepared; and all other actions provided for under the new Mexican Securities Market Law or set forth under the bylaws. For audit matters, the same committee will: provide its opinion to the Board of Directors with respect items of its concern as set forth under the new Mexican Securities Law; evaluate the audit firm’s performance; discuss the financial statements for the company and recommend their approval to the Board of Directors; report the Board with the status of the internal control and audit systems of the company; render the opinion with respect the accounting policies and criteria and financial information submitted by the Chief Executive Officer; assist the Board of Directors by preparing the necessary reports; request expert opinions when considered advisable; request the relevant officers reports related with financial information as may be deemed necessary; investigate possible failures to comply with the policies and guidelines related to the operations, internal control systems and audit; receive information submitted by shareholders, directors, officers, employees or any third party with respect the items set forth on the items described in the previous item; inform the Board of Directors of any important irregularity detected in connection with the corrective actions proposed; call for shareholders meetings; verify that the Chief Executive Officer complies with resolutions adopted at the shareholders and board of directors meetings.

Our audit and corporate practices committee consists of Bernardo Guerra Treviño, Lawrence H. Guffey and Bertrand F. Guillot and their respective alternates, Mauricio Morales Sada, Benjamin Jenkins and Patricio D´Apice. Our shareholders meeting appointed Mr. Bernardo Guerra Treviño as Chairman of such committee.

Compensation Committee

the shareholders’ meeting of the Company approved the elimination of the compensation committee. Most of the duties and responsibilities of our former compensation committee will be assumed by our Board of Directors and our Audit and Corporate Practice Committee.

D. Employees

For the years ended December 31, 2005, 2006 and 2007, we had 2,940, 5,656 and 6,872 employees, respectively. All of our employees, except for our executive officers and certain other managers, are members of 3 different labor unions. We believe we have good relationships with our employees and their respective unions.

Share ownership of directors and senior management as of December 31, 2008 is as follows:

NAME POSITION Series A % of total Series B CPOs % of total % total ownership (1) ownership Tomás Milmo Santos Chairman, CEO 27,855,354 0.3% 3 170,000,959 13.7% 13.9% Thomas Milmo Zambrano Director 17,369,850 0.2% 12 97,909,183 7.9% 8.0% Lorenzo Zambrano Treviño Director ------Alberto Santos de Hoyos Director 15,505,689 0.2% 15 64,362,365 5.2% 5.3% Patricio Jiménez Barrera Director, Senior Mgt. - - - - - (*) Alberto Garza Santos Director - - - - - (*) Hector Medina Aguiar Director ------Bernardo Guerra Treviño Director - - - - - (*) Fernando Quiroz Robles Director ------Lawrence H. Guffey Director ------Alberto de Villasante Alternate Director, - - - - - (*) Herbert Senior Management Balbina Milmo Santos Alternate Director - - - - - (*) Francisco Garza Zambrano Alternate Director - - - - - (*) Alberto Santos Boesch Alternate Director - - - - - (*) Andrés Velázquez Romero Alternate - - - - - (*) Director, Senior Management David Garza Santos Alternate Director - - - - - (*) Ramiro Villarreal Morales Alternate Director ------Mauricio Morales Sada Alternate Director - - - - - (*) Javier Arrigunaga Gómez delAlternate Director ------C. Benjamin Jenkins Alternate Director ------Bruno Ramos Maza Senior Management ------Iván Emilio Alonso Senior Management ------Hernández

(*) Beneficially owns less than 1% of the capital stock of the Company in accordance with Item 6.E of Form 20-F (1) 1 CPO is equal to 7 Series B shares

None of the shares held by Directors or Senior Management grant to their holders different voting rights.

As of December 31, 2007 (except as otherwise noted), there are no arrangements that involve any employees in the capital of the Company or any arrangement that mandates the issue or grant of options or shares or securities of the Company.

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Mexican law limits foreign ownership of those companies, like ours, owning certain telecommunications concessions to 49% of the voting stock of such companies.

The following chart reflects information with respect to each shareholder that is the beneficial owner of five percent or more of each class of the Company’s shares including the shares held by the trustee of the CPO trust as of December 31, 2008, to the extent that the information is known to the Company or can be ascertained from public filings:

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) Total Number of Shares: 8,769,353,223 shares (including Series A and Series B shares).

Shares held by Nacional Financiera, S.N.C., as trustee of the CPO Trust: 8,672,716,395 shares, which represents 98.9% of the (ii) entire capital stock of the Company.

(iii) Beneficial owners of 5% or more of the Company’s shares:

NATIONALITY % of total CPOs % of total NAME (1) Series A ownership Series B (2) ownership % total

Tomás Milmo Santos Mexican 27,855,354 0.3 % 3 170,000,959 13.7 % 13.9 % Thomas Milmo Zambrano Mexican 17,369,850 0.2 % 12 97,909,183 7.9 % 8.0 % Alberto Santos de Hoyos Mexican 15,505,689 0.2 % 15 64,362,365 5.2 % 5.3 % Credit Suisse & BBVA (3) Foreign - - 12 119,000,000 9.5 % 9.5 % Telecomunicaciones Holding Mx (4)(5) Foreign - - - 111,490,101 8.9 % 8.9 % (1) Foreign holders must hold their Series B shares beneficially through CPO’s or ADS. (2) 1 CPO is equal to 7 shares. (3) Share ownership through 3-year forward agreement with Impra Café S.A. de C.V., a subsidiary of Cemex S.A.B. de C.V. Based upon information available to the Company as of March 31, 2008. (4) Based upon information available to the Company during the latest annual shareholder's meeting dated April 23, 2008. (5) Telecommunicationes Holding MX is an afffiliate of Citigroup, Inc.

At December 31, 2008, 98.9% of our outstanding Series B Shares were held by the CPO trust, with each CPO representing the right to receive 7 Series B Shares. We do not have information concerning CPO holders with registered addresses in the United States.

(iv) Securities (representing capital stock) of the Company held in the United States: 6,260 ADR’s = 43,820 shares.

(v) Number of record holders in the United States: 1.

None of the shares held by the persons or entities mentioned above grant to their holders different voting rights.

For a full description on voting rights, please see Item 10.B memorandum and articles of incorporation, “Shareholder Meetings and Voting Rights”.

B. Related Party Transactions

Merger Agreement

On August 26, 2005, we and our former shareholder Telinor entered into a Merger Agreement providing for the Merger of Telinor with and into Axtel. The Merger was effective on September 13, 2005, after which Telinor ceased to exist and Axtel survived with its current corporate name. As a result of the Merger and pursuant to the terms of the Merger Agreement, the equity holders of Telinor are now shareholders of Axtel. The Merger was duly approved by an extraordinary shareholders’ meeting of Axtel and by an extraordinary partners’ meeting of Telinor.

Resolution of Shareholdings Dispute

On August 26, 2005, we, Telinor, Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore Capital Partners III L.P. and Blackstone Family Investment Partnership III L.P. (collectively, ‘‘Blackstone’’), LAIF X sprl and LAIF IV Ltd. entered into a settlement agreement (the ‘‘Settlement Agreement’’) pursuant to which all issues in an arbitration and other previously disclosed judicial

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document proceedings in the United States and Mexico relating to the issuance and ownership of certain of our shares were resolved. As a consequence of the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Settlement Agreement, our shareholders held an ordinary and extraordinary shareholders meeting on August 26, 2005 pursuant to which, among other matters: they acknowledged and ratified all current shareholdings in Axtel including the issuance and subscription of the previously issued shares which were the subject of dispute; they authorized a decrease in an immaterial amount in Telinor’s and Blackstone’s ownership of our shares and an increase in the same amount in LAIF X sprl’s ownership share, the Merger of Telinor and Axtel and a number of ancillary matters. All of the proceedings between the parties to the Settlement Agreement with respect to the matters previously in dispute have been definitely resolved.

Employment Retention Plan

In 2002 Axtel implemented a retention plan with respect to key employees in its sales and operations areas. The retention plan consisted of granting loans (each loan supported by a signed promissory note from the recipient) ranging from US$10,000 to US$100,000 to its key employees. The loans are not interest bearing and are not payable until the employee’s employment with Axtel terminates. The total amount outstanding under these loans is US$347,757, which includes: US$92,170 to Andres Velázquez Romero (regional executive director) made on July 04, 2002; and US$73,736 to Ivan Alonso Hernandez (Chief Technology Officer) made on July 05, 2002. The balance is distributed among four other key employees. This Employment Retention Plan was terminated at the end of 2002.

Banamex and/or Citigroup Inc. Agreements

Term Loan Facility

On November 30, 2006 we entered into an unsecured credit agreement with Citibank, N.A. as the Administrative Agent and Banamex as the Peso Agent, which was subsequently amended and restated on February 23, 2007, with a peso tranche in the aggregate amount of Ps. 1,042,362,416.67 and a US dollar tranche in the aggregate amount of US$110,225,133.28. The term loan facility will mature in February 2012, with partial principal repayments payable quarterly starting in February 2010. The facility was syndicated with thirteen Mexican and international financial institutions.

Banamex Master Services Agreement

On November 27, 2006, Axtel, Avantel and Banamex entered into a master services agreement in which it was agreed that all service agreements in effect between Avantel and Banamex as of the date of the acquisition would survive with substantially identical terms and Axtel would provide telecommunications services (including, local, long distance and other services) to Banamex and its affiliates located in Mexico. During the term of the agreement, Banamex has agreed to contract with us for all of its current and future telecommunications needs and we have agreed to grant Banamex a most favored customer benefit with respect to rates and services levels. The initial term of this agreement is for five years, with automatic renewal for similar periods of five years if at that time of renewal we are not in breach of our obligations.

Banamex Credit Agreement

On December 7, 2006, Avantel Concesionaria and Banamex entered into a credit agreement under which Avantel Concesionaria issued a standby letter of credit in favor of Telmex and Telnor for an amount of US$60.0 million to secure payment of services rendered by Telmex and Telnor in connection with the interconnection agreement dated as of October 1, 2006 among Telmex, Telnor and Avantel Concesionaria.

TelHolding Agreement

On November 30, 2006, we entered into an agreement with Tel Holding whereby Tel Holding was granted the option to subscribe for a number of shares (in the form of CPOs) representing up to 10% of our outstanding shares. Pursuant to this subscription agreement, Tel Holding subscribed and paid 82,151,321 Series B shares in the form of CPOs on January 04, 2007. According to the terms of this subscription agreement, Tel Holding agreed not

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to transfer any of the CPOs acquired pursuant to such subscription agreement for a period of 364 days following the date of the acquisition of such CPOs, except in certain circumstances. In addition, Tel Holding was granted the right to request us to assist and support them, at our expense, in preparing and issuing placement prospectus and in participating in investor meetings for the offer of the CPOs, provided that (i) three years have elapsed since the acquisition of the CPOs by Tel Holding and (ii) such offer is made in any securities exchange where the CPOs representing our shares are trading at the time.

Other Transactions

In March and May 2000, we and Gemini, S.A. de C.V. (a company controlled by Alberto Garza Santos, one of our shareholders) entered into lease agreements for the lease of land and property on which our corporate offices and a switch are · located. For the period beginning January 1, 2002 and through December 31, 2007, we paid Gemini approximately US$12.1 million in rental payments under these leases.

In August 2002, we and Neoris de México, S.A. de C.V. (a consulting firm indirectly controlled by an affiliate of Impra Café, S.A. de C.V., one of our shareholders) entered into a professional services agreement for the provision of technical assistance · to us with respect to a customer care platform. For the period beginning August 1, 2002 and through December 31, 2003, we paid Neoris approximately US$0.2 million in fees for services In 2007, we paid an aggregate amount of US$0.2 million in service fees.

In April 2002, we and Instalaciones y Desconexiones Especializadas, S.A. de C.V. (a company controlled by the son of Alberto Santos de Hoyos, one of our shareholders) entered into a services agreement for the provision of installation services · with regard to customer premise equipment. For the period beginning April 1, 2002 and through December 31, 2007, we paid them approximately US$3.0 million in fees for services.

We and Operadora de Parques y Servicios. S.A. de C.V. (a company controlled by the son of Alberto Santos de Hoyos, one of our shareholders) entered into a service agreement dated February 16, 2005, for the marketing and advertising of Axtel · inside a theme park. For the period beginning January 1, 2002 and through December 31, 2007, we paid them approximately US$1.1 million in related fees.

Fundación Axtel A.C., a non-profit charity, was founded in 2005 to promote provide assistance in the communities where we · operate. Among others, Tomas Milmo Santos and Patricio Jimenez serve as Directors in Fundación Axtel. For the twelve- month period ended December 31, 2007, we contributed US$1.6 million to Fundación Axtel.

On November 24, 2006, our shareholders Thomas Milmo Zambrano, Maria Luisa Santos de Hoyos, Alberto Santos de Hoyos, Tomas Milmo Santos and Impra Cafe, S.A. de C.V., entered into an shareholders agreement whereby they agreed, among other things, to vote their shares (in any meeting of shareholders whereby the members of the board are to be elected) in · order to designate one director (and its alternate) to our board as proposed jointly by Citigroup Inc., its subsidiaries and Tel Holding and its assigns, so long as such entities collectively hold or beneficial own (directly or indirectly through CPOs) shares representing between 7% and 10% of our outstanding shares.

C. Interests of Experts and Counsel

Not applicable.

A. Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements.”

B. Significant Changes

Not applicable.

Item 9. THE OFFER AND LISTING

A. Offer and Listing Details

Not applicable.

B. Plan of Distribution

Not applicable.

C. Markets

Not applicable.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Bylaws

Below is a brief summary of certain significant provisions of our bylaws and applicable Mexican law. This description does not purport to be complete and is qualified in its entirety by reference to our bylaws and the provisions of applicable Mexican law. For a description of the provisions of our bylaws relating to the board of directors and audit and corporate practices committee, See “Item 6. Directors, Senior Management and Employees.”

We are a sociedad anónima bursátil de capital variable organized under the laws of Mexico. We were incorporated in 1994 under the name Telefonía Inalámbrica del Norte, S.A. de C.V. Thereafter, on March 1999, our corporate name changed to Axtel, S.A. de C.V. Later, on December 2006, our corporate name changed to Axtel, S.A.B. de C.V.

Our corporate domicile is San Pedro Garza García, Nuevo León, Mexico, and our headquarters are located at Blvd. Gustavo Díaz Ordaz Km. 3.33, Colonia Unidad San Pedro, 66215, San Pedro Garza García, Nuevo León.

Our corporate purpose is to install, operate and exploit a public telecommunications network for the provision of telephony, internet and other value added telecommunication services to the public, using primarily fixed wireless technology, and/or use, utilize and exploit frequency bands of the radioelectric spectrum.

Board of Directors

Pursuant to our bylaws (estatutos) and Mexican law, management is entrusted to a Board of Directors and a Chief Executive Officer. According to Mexican law and our bylaws, our Board of Directors shall be composed of a maximum of 21 regular members and their respective alternate directors, as approved by a shareholders meeting. At least 25% of the members of the Board of Directors must be independent pursuant to the new Mexican Securities Market Law. Our Board of Directors currently is comprised of ten regular members and ten alternate directors. Pursuant to our bylaws and Mexican law, the members of the Board of Directors remain in office for thirty days after their resignation or conclusion of the term to which they were appointed unless replaced; the Board of Directors may appoint provisional members.

Capital Stock

Outstanding Capital Stock

Our capital stock consist of two series of shares of common stock without par value: Series A shares and Series B shares. Pursuant to Article 54 of the Mexican Securities Market Law and subject to the prior authorization of the CNBV, we may issue shares of a different series without voting rights, or with restricted voting rights, or with additional limitations of other corporate rights. The Shareholders’ meeting approving such issuance shall determine the rights corresponding to the new series of shares issued.

Since we are a variable capital corporation, our capital stock must have a fixed portion and may have a variable portion. As of the date of this form, our outstanding capital consists of 8,769,353,223 shares representing only fixed capital. Neither our subsidiaries nor we may own our shares although there are limited instances in which we can repurchase our shares. See “—Share Repurchases” below.

There are no material differences between the rights, preferences and restrictions associated to the company’s Series A and Series B shares. However, for administrative purposes and pursuant to the authorization granted by the Mexican “Dirección General de Inversion Extranjera” (Foreign Investments Authority) for the constitution of the CPO Trust, Series A shares are ordinary shares not subject to and not governed by the CPO Trust, may only be subscribed by Mexicans and shall always comprise at least 1% of the capital stock of the Company.

Series B shares may either be subscribed in the form of (i) ordinary shares (not subject to the CPO Trust), or (ii) “Certificados de Participación Ordinarios” (“CPO’s”), the latter are subject to, and governed by, the CPO Trust. Series B shares may be subscribed freely by Mexicans or by foreign investors, provided however that, if such shares are subscribed by foreign investors, the subscription has to be made in the form of CPO’s and subject to the CPO Trust or in the form of American Depositary Shares.

In accordance with the Company’s bylaws and as of this date, the entire capital stock of the company is represented by “Class I” shares (which consist of all Series A and Series B shares). Due to the fact that that Series A

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and Series B shares are of the same Class, and in accordance with the bylaws of the Company and the Mexican Ley General de Sociedades Mercantiles (Mexican Companies Law), all shares of the Company grant to their record holders and beneficial owners the same rights, preferences and restrictions.

Changes in Our Capital Stock, Preemptive Rights and Redemption

Our fixed capital stock may be increased or decreased by a resolution passed at a general extraordinary shareholders’ meeting. The variable portion of the capital stock may be increased or decreased by a resolution passed at a general ordinary shareholders’ meeting. Increases or decreases in the fixed or variable portion of the capital stock must be recorded in our registry of capital variations. Pursuant to Mexican law, our bylaws provide that changes in the variable portion of our capital stock do not require an amendment to the bylaws nor registration in the Public Registry of Property and Commerce to effect such changes. New shares cannot be issued unless the outstanding shares have been paid in full.

In the event of an increase in our capital stock (whether fixed or variable), the shareholders have preemptive rights to subscribe the newly issued shares in proportion to their holdings, except in the case of:

shares issued in connection with capitalization of subscription premiums, retained earnings and other capital reserves and · accounts in favor of all shareholders in proportion to their shareholdings;

shares issued for placement in public offerings, if an extraordinary shareholders’ meeting called for such purpose approves the · issuance of shares and other requirements specified in Article 53 of the Mexican Securities Market Law are satisfied, including obtaining the prior written approval of the CNBV;

· shares issued in connection with mergers;

shares issued as treasury shares in connection with the issuance of securities convertible into our shares in accordance with · Article 210 bis of the Law of Negotiable Instruments and Credit Transactions (Ley General de Títulos y Operaciones de Crédito); and

· the resale of shares held in the treasury as a result of repurchases of shares conducted on the Mexican Stock Exchange.

The subscription period for the exercise of preemptive rights will be determined at the shareholders’ meeting which approves the respective capital increase, provided that such period will not be less than 15 calendar days following the publication in the official gazette of our corporate domicile and in a newspaper of general circulation in our corporate domicile. Under Mexican law, preemptive rights cannot be waived in advance or assigned, or be represented by an instrument that can be negotiable separately from the corresponding share certificate.

Shares representing our capital stock are subject to redemption in connection with either (i) a reduction of capital stock or (ii) a redemption with retained earnings, which in either case must be approved by our shareholders. In connection with a capital reduction, the redemption of shares shall be made pro rata among the shareholders, or, if affecting the variable portion of the capital stock, as otherwise determined in the relevant shareholders’ meeting; but, in no case shall the redemption price be less than the book value of such shares as determined pursuant to our latest balance sheet approved at a general ordinary shareholders’ meeting. In the case of a redemption with retained earnings, such redemption shall be conducted (a) by means of a tender offer conducted on the Mexican Stock Exchange, in accordance with the Mexican Companies Law, the Mexican Securities Market Law and our bylaws, or (b) pro rata among the shareholders.

According to the Mexican Securities Market Law and our bylaws, our shareholders holding shares of the variable portion are not entitled to the redemption right referred to in Article 220 of the Mexican Companies Law.

Share Repurchases

Pursuant to the Mexican Securities Market Law, our bylaws provide that we may repurchase our shares on the Mexican Stock Exchange at the prevailing market price. Share repurchases must be charged to either our net worth, if the repurchased shares remain in our possession, or to our capital stock, if the repurchased shares are converted into treasury shares. The general ordinary shareholders’ meeting must approve, for each year, the aggregate amount allocated to share repurchases, which amount cannot exceed the total amount of our net profits, including retained earnings. Our Board of Directors must appoint an individual or group of individuals responsible for effecting share repurchases, and sales of repurchased shares. Repurchased shares cannot be represented at any shareholders’ meeting. Share repurchases must be carried out, reported, and disclosed in the manner established by the CNBV.

Cancellation of Registration in the RNV

In the event that we decide to cancel the registration of our shares in the RNV or if the CNBV orders such cancellation, we and our shareholders who are deemed to have “control” of us will be required to, prior to such cancellation, make a tender public offer to purchase the shares, in accordance with Article 108 of the Mexican Securities Market Law. The offer price shall be at least the higher of (i) the average of the trading price on the Mexican Stock Exchange during the last 30 days on which the shares were quoted prior to the date on which the tender offer is made, during a period no longer than six months or (ii) the book value of such shares as determined pursuant to our latest quarterly financial information filed with the CNBV and the Mexican Stock Exchange. We and our shareholders who are deemed to have “control” shall form a trust and contribute to it, for a minimum period of six months, the amount needed to purchase, at the same price offered in the tender offer, all of the shares that were not tendered in the offer. Such trust must be maintained for at least six months. We and our shareholders who are deemed to have “control” are not required to make such public offer if the cancellation of the listing is approved by at least 95% of our shareholders and the aggregate amount of the shares to be tendered from the general public is less than 300,000 Unidades de Inversión, or UDIs. Pursuant to CNBV rules, shareholders deemed to have “control” are those that own a majority of our shares, have the ability to impose decisions at our shareholders’ meetings or have the ability to appoint a majority of the members of our Board of Directors.

Registration and Transfer

Our shares are represented by share certificates in registered form. Our shareholders may either hold their shares directly, in the form of physical certificates, or indirectly, in book-entry form through brokers, banks, other financial entities or other entities approved by the CNBV that have accounts with Indeval (“Indeval Participants”). Indeval will issue certificates registered in the name of any shareholder who may request them. We maintain a stock registry and only those persons listed in such stock registry, and those holding certificates issued in their name as registered holders directly or through any relevant Indeval Participants, will be recognized as shareholders by us. The transfer of shares must be registered in our stock registry. Transfers of shares deposited with Indeval shall be registered in book-entry form pursuant to the Mexican Securities Market Law.

Pursuant to the concessions, in the event that in one or a series of transactions, the subscription for or transfer of shares that represent ten percent (10%) or more of the capital stock of the Company is proposed:

We must give notice to the Ministry of Communication and Transportation (Secretaria de Comunicaciones y Transportes or (i) “SCT”) of Mexico of the intention of the interested party to carry out the subscription or transfer, which notice shall include information about the interested party acquiring the shares;

The SCT will have 90 days, from the date the notice is given, to object in writing, on reasonable cause, to the transaction; (ii) and

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (iii) If the transaction has not been objected by the SCT during the 90 day period, such transaction will be deemed as approved.

The transactions not objected to by the SCT may be recorded on our stock registry, any other authorizations required pursuant to applicable provisions must be obtained from the other authorities. The notice required by this paragraph will not be necessary if the subscription or transfer relates to shares that represent neutral investment under the terms of the Foreign Investment Law or to capital increases subscribed for by the existing shareholders, provided the participation proportion of each remains the same in the capital stock. If the party subscribing for or acquiring the shares is an entity, the notice referred to in this paragraph shall include all necessary information for the SCT to know the identity of any individual that has more than a ten percent economic interest in the capital stock of such entity.

In accordance with the CPO Trust, the transfer of CPOs or ADSs held by non-Mexican investors whose underlying shares represent 10% or more of our voting shares will not require the prior approval of the SCT provided the CPOs continue to qualify as “neutral investment” for purposes of Mexican law.

Shareholder Meetings and Voting Rights

General shareholders’ meetings may be ordinary or extraordinary. At every general shareholders’ meeting, each holder of shares is entitled to cast one vote per share.

General extraordinary shareholders’ meetings are those called to consider:

· extension of our duration or voluntary dissolution;

· an increase or decrease in the fixed portion of our capital;

· change of our corporate purpose or nationality;

· any merger or transformation into another type of company;

· issuance of preferred stock or bonds;

· any amendments to our bylaws;

· our spin-off;

· the redemption of shares with retained earnings; and

· the cancellation of the registration of shares at the RNV or any stock exchange (except for automated quotation system).

General ordinary shareholders’ meetings are those called to discuss any issues not reserved to extraordinary meetings. General ordinary shareholders’ meeting must be held at least once each year, during the first four months after the end of each fiscal year, to:

consider the annual reports of the Chief Executive Officer, the annual report of Board of Directors, and the annual report of the · Audit and Corporate Practices Committee;

· discuss the allocation of profits for the preceding year;

appoint the members of the Board of Directors and to determine their compensation, and to appoint the chairperson to the Audit · and Corporate Practices Committee; and

In order to attend a general shareholders’ meeting, holders of shares must be registered in our stock registry, or submit appropriate evidence of the title to their shares. Holders of shares do not have cumulative voting rights.

The quorum for the ordinary shareholders’ meeting is at least 50% of the outstanding shares, and resolutions may be taken by a majority of the outstanding capital stock. If a quorum is not met, a subsequent meeting may be called at which resolutions may be taken by the majority of the shares present, regardless of the percentage of outstanding shares represented at such meeting. The quorum for extraordinary shareholders’ meetings is at least 75% of the outstanding shares, but if a quorum is not present a subsequent meeting may be called. The quorum for such subsequent meeting is at least 50% of the outstanding shares. Resolutions at an extraordinary general shareholders’ meeting must be taken by the vote of at least 50% of the outstanding shares (including any taken at an extraordinary shareholders’ meeting called following the adjournment of a prior meeting for lack of quorum).

Shareholders’ meetings may be called by:

· the Board of Directors or the Audit and Corporate Practices Committee or their respective chairman;

the shareholder representing at least 10% of the outstanding shares upon request to the chairman of the Board of Directors or of · the Audit and Corporate Practices Committee to have such a meeting;

A Mexican court in the event the Board of Directors or the Audit and Corporate Practices Committee does not comply with a valid · request of the shareholders as described in the immediately preceding bullet point; and

the Board of Directors or a Mexican court, at any shareholder’s request, provided that no ordinary meeting has been held for two · consecutive years to deal with the appointment of directors and the annual reports of the Chief Executive Officer, the Board of Directors and the Audit and Corporate Practices Committee.

Notices for meetings must be published in the official gazette of our corporate domicile or in a newspaper of general circulation in our corporate domicile with 15 days and 7 days notice, respectively for the first and second calls of general ordinary, extraordinary or special shareholders’ meetings. Notices for meetings must contain the meeting’s agenda and must be signed by the person or entity who called the meeting. In order to be admitted to a shareholders’ meeting, the shareholders must be registered in our stock registry book and request the corresponding admittance letter to the meeting from the secretary of the Board of Directors. In exchange for the admittance letter, the shareholders must deposit their share certificates at our offices or present a receipt from any Indeval Participant indicating ownership by such person. A shareholder may be represented by an attorney-in-fact with a proxy letter issued in a special format according to Article 49 of the Mexican Securities Market Law.

Minutes of shareholders’ meetings shall be signed by the president, the appointed examiners and the secretary of the meeting, and shall be recorded in the relevant minute book or, in the event that such recording is not possible, the minutes of shareholders’ meeting must be formalized before a notary public. In any case, extraordinary meeting resolutions must always be formalized before a notary public and registered at the Public Registry of Commerce of Monterrey, Nuevo León.

Dividend and Liquidation Rights

Prior to any distribution of dividends, 5% of our net earnings must be allocated to a legal reserve fund, until such fund is equal to at least 20% of our paid-in capital stock. Additional amounts may be allocated to other reserve funds as the shareholders may determine, including the amount allocated by the shareholders’ meeting for the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document repurchase of shares. The remaining balance, if any, may be distributed as dividends. Cash dividends on shares not held through Indeval will be paid against delivery of the respective dividend coupon, if any.

To the extent that we declare and pay dividends on our Shares, dividends will be payable in Pesos. The Depositary will covert Pesos received with respect to Series B shares underlying CPOs deposited with it into U.S. Dollars and distribute U.S. dollars to ADS holders, after deduction or upon payment of applicable fees and expenses, of the Depositary. Currently, there is no Mexican withholding tax or other Mexican tax levied on holders of Shares purchased outside Mexico on dividends paid in respect of such Shares. See “Taxation—Mexican Taxation.”

Upon our dissolution, one or more liquidators must be appointed by an extraordinary general shareholders’ meeting to wind up our affairs. All fully paid and outstanding shares will be entitled to participate equally in any distribution upon liquidation.

Purchase of Shares by Our Subsidiaries

Any company or entity of which we are the owner of the majority of its equity interest may not purchase, directly or indirectly, our Shares or shares of companies holding the majority of our Shares.

Antitakeover Protections

General. Our by-laws provide that, subject to certain exceptions, (i) any person that individually or together with one or more related persons wishes to acquire shares or beneficial ownership of shares, directly or indirectly, in one or more transactions, without limitation as to time, resulting in such person holding, individually and/or together with such other related persons, shares representing 15% or more of the outstanding Series A or Series B shares, as the case may be, must obtain the prior written approval of our Board of Directors and/or, at the discretion of the Board of Directors, our shareholders meeting, as the case may be; (ii) any person that individually or together with one or more related persons holds 15% or more of the outstanding Series A or Series B shares and wishes to acquire shares or beneficial ownership of shares, directly or indirectly, in one or more transactions, without limitation as to time, resulting in such person, individually or together with other related persons, holding 25% or more of the outstanding Series A or Series B shares as the case may be, must obtain the prior written approval of our Board of Directors and/or, at the discretion of the Board of Directors, our shareholders meeting, as the case may be; (iii) any person that individually or together with one or more related persons holds 25% or more of the outstanding Series A or Series B shares and wishes to acquire shares or beneficial ownership of shares, directly or indirectly, in one or more transactions, without limitation as to time, resulting in such person, individually or together with other persons, holding 35% or more of the outstanding Series A or Series B shares as the case may be, must obtain the prior written approval of our Board of Directors and/or, at the discretion of the Board of Directors, our shareholders meeting, as the case may be; (iv) any person that individually or together with one or more related persons holds 35% or more of the outstanding Series A or Series B shares and wishes to acquire shares or beneficial ownership of shares, directly or indirectly, in one or more transactions, without limitation as to time, resulting in such person, individually or together with other persons, holding 45% or more of the outstanding Series A or Series B shares as the case may be, must obtain the prior written approval of our Board of Directors and/ or, at the discretion of the Board of Directors, our shareholders meeting, as the case may be; and (v) and person that is our competitor or a competitor of any of our subsidiaries that individually or together with one or more related persons wishes to acquire shares or beneficial ownership of shares, directly or indirectly, in one or more transactions, without limitation as to time, resulting in such person, individually or together with other related persons holding 5% or more of the outstanding Series A or Series B shares as the case may be, must obtain the prior written approval of our Board of Directors and/or, at the discretion of the Board of Directors, our shareholders’ meeting, as the case may be.

Any person that acquires shares in violation of our antitakeover provision will not be recognized as owner or beneficial owner of such shares under our bylaws and will not be registered in our stock registry book. As a result, the violating shareholder will not be able to vote such shares or receive any dividends, distributions or other rights in respect of these shares. For purposes of this provision, pursuant to our bylaws the term “shares” includes instruments or securities that represent our shares, including CPOs and ADSs, and the term “competitor” means any

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document person engaged, directly or indirectly, (i) in the business of fixed or wireless telephony in any form and/or (ii) in any activity in which we or any of our subsidiaries are engaged that represents 5% or more of our or our subsidiaries’ consolidated income. The Board of Directors may authorize exceptions to the definition of “competitor.”

Board of Directors and Shareholders Meetings Requirements and Approvals. To obtain the prior approval of our Board, a potential acquirer must properly deliver a written authorization request containing certain specific information regarding the proposed transaction. During the authorization process, certain terms will have to be complied with. Our Board of Directors may, without liability, refer the acquisition for the approval to our shareholders meeting. The determination of the Board of Directors to refer the decision to our shareholders meeting will be based on different factors such as potential conflicts of interest, fairness of the proposed price or the inability of the Board of Directors to meet having been called more than two times, among others. The Board of Directors may revoke any authorization previously granted prior to the date on which the transaction takes place if an offer which is better for our shareholders is received.

Mandatory Tender Offers in the Case of Certain Acquisitions. If either our Board of Directors or our shareholders at a general extraordinary shareholders’ meeting, as the case may be, authorize an acquisition of our shares which results in an acquisition of at least 20% but not more than 40% of our capital stock, notwithstanding such authorization, then the acquirer must effect the acquisition by way of a cash tender offer for a specified number of shares equal to the amount authorized plus additional shares equal to 10% of the company’s capital stock, to the extent that such acquisition does not exceed 50% of the common voting shares or triggers a change of control. In the event that our Board of Directors or our shareholders at a general extraordinary shareholders’ meeting, as the case may be, approve an acquisition that would result in a change of control, the acquirer must effect the acquisition by way of a cash tender offer for 100% minus one share of our total outstanding capital stock at a price which cannot be lower than the highest of the following: (i) the book value of the shares as reported on the last quarterly income statement approved by the Board of Directors; or (ii) the highest closing price of the shares, on any stock exchange during any of the three hundred sixty-five (365) days preceding the date of the Board of Directors’ resolution approving the acquisition; or (iii) the highest price paid for any shares, at any time, by the acquirer that individually or collectively, directly or indirectly, acquires the shares approved by the Board of Directors. Any tender offer to be conducted in accordance with the above will be subject to certain specific requirements. All holders of our shares must be paid the same price for their shares at a tender offer. The provisions of our bylaws summarized above regarding mandatory tender offers in the case of certain acquisitions are generally more stringent than those provided for under the Mexican Securities Market Law. Some of our by-laws provisions regarding mandatory tender offers in the case of certain acquisitions may differ from the requirements set forth in the Securities Market Law, provided that those provisions are more protective to minority shareholders than those afforded by law. In these cases, the relevant by-laws provisions, and not the relevant provisions of the Securities Market Law, will apply to certain acquisitions specified therein.

Exceptions. The provisions of our bylaws summarized above will not apply to certain specific acquisitions, such as those resulting from inheritance, those conducted by the person or persons controlling us, and those conducted by us, our subsidiaries or affiliates or any trust created by us or any of our subsidiaries, among others.

Amendments to the Antitakeover Provisions. Any amendments to these antitakeover provisions must be authorized by the CNBV and registered before the Public Registry of Commerce at our corporate domicile.

Other Provisions

Duration

Our corporate life under our bylaws is indefinite.

Appraisal Rights and Other Minority Protections

If and when our shareholders approve any change of our corporate purpose, jurisdiction of incorporation or corporate form, any shareholder who has voted against such change has the right to withdraw and receive the book

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document value of his or her shares (as set forth in the latest balance sheet approved by the shareholders), if the request is made during the 15-day period following the adjournment of the meeting at which such action was approved.

Pursuant to the Mexican Securities Market Law, we are subject to a number of minority protections. These minority protections include provisions that permit:

· holders of at least 10% of our outstanding share capital to convene a shareholders’ meeting in which they are entitled to vote;

holders of at least 5% of our outstanding share capital to bring an action for civil liabilities against our directors, subject to · certain requirements under Mexican law;

holders of at least 10% of our Shares who are entitled to vote and are represented at a shareholders’ meeting to request that · resolutions with respect to any matter on which they were not sufficiently informed be postponed; and

holders of at least 20% of our outstanding share capital to contest and suspend any shareholder resolution, subject to certain · requirements under Mexican law.

In addition pursuant to the Mexican Securities Market Law we are also subject to certain corporate governance requirements, including the requirement to maintain an audit committee and to elect independent directors.

The protections afforded to minority shareholders and the fiduciary duties of officers and directors under Mexican law are generally different from, and not as comprehensive as, those in the United States and many other jurisdictions. The Mexican legal regime concerning director fiduciary duties has not been extensively interpreted by Mexican courts, unlike many states in the United States where duties of care and loyalty established by court decisions have helped to shape the rights of minority shareholders. Mexican civil procedure does not contemplate class action lawsuits or shareholder derivative actions, which allow shareholders in the United States to bring actions on behalf of other shareholders or to enforce rights of the corporation itself. Shareholders in Mexico cannot challenge corporate actions taken at shareholders’ meetings unless they meet stringent procedural requirements. As a result of these factors, it is generally more difficult for our minority shareholders to enforce rights against us or our directors or principal shareholders than it is for shareholders of a U.S. company.

Actions Against Directors, Statutory Auditors and Members of Our Audit Committee

Actions against any director, statutory auditor or member of our audit and corporate practices committee may be initiated by resolutions passed at an ordinary shareholders’ meeting. In the event our shareholders decide to initiate such action, the respective person immediately ceases to be in office. Additionally, shareholders representing not less than 5% of our outstanding shares may directly bring a civil liability action against any director or member of our audit and corporate practices committee, in accordance with Article 38 of the Mexican Securities Market Law. Any recovered damages with respect to the action will be for our benefit and not directly for the benefit of the shareholders bringing the action. There are no shareholders’ class actions available under Mexican law.

Conflicts of Interest

A shareholder that votes on a business transaction having a conflict of interest may be liable for losses and damages to us, but only if the action could not have been approved without such shareholder’s vote. Additionally, a member of the Board of Directors or a member of our audit and corporate practices committee having a conflict of interest must disclose such conflict and abstain from any deliberation or vote in connection therewith. A breach by any member of the Board of Directors or member of our audit and corporate practices committee to such obligations may result in such director being liable for damages and losses.

Holders of 20% of our outstanding shares may oppose any resolution adopted by a shareholders’ meeting and file a petition for a court order for the temporary suspension of said resolution, within 15 days after the adjournment of the meeting at which the action was taken, if the challenged resolution violates Mexican law or our bylaws and opposing shareholders neither attended the meeting nor voted against the challenged resolution.

Foreign Investment Regulations

Foreign investment in the capital stock of Mexican companies is regulated by the Foreign Investment Law and the regulations thereto, or the Mexican Foreign Investment Regulations. The Mexican Commission of Foreign Investment and the Mexican Registry of Foreign Investments (the “Registro Nacional de Inversiones Extranjeras”) are responsible for the administration of the Foreign Investment Law and the Mexican Foreign Investment Regulations.

As a general rule, the Foreign Investment Law allows foreign investment in up to 100% of the capital stock of Mexican companies except for those engaged in certain specified restricted industries. Foreign investment in our capital stock is restricted.

Under the Federal Telecommunications Law and the Foreign Investment Law, basic telephony concessions may be granted only to:

· 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.

Pursuant to the Foreign Investment Law, the Mexican Ministry of Economy may also authorize the issuance of nonvoting or limited voting stock (also known as “neutral shares”) that are not counted for purposes of determining the foreign investment percentage of a Mexican corporation under the Mexican Foreign Investment Law. Any share transfers resulting in a violation of these foreign ownership requirements are invalid under Mexican law.

Forfeiture of Shares

As required by Mexican law, our bylaws provide that, upon acquiring our shares, non-Mexican shareholders agree (i) to be considered as Mexicans with respect to their shares as well as to the property, rights, concessions, participations or interests owned by us or to the rights and obligations derived from any agreements that we may have with the Mexican federal government and (ii) not to invoke the protection of their own government. If a shareholder should invoke such governmental protection in violation of this agreement, their shares would be forfeited to the Mexican federal government. This prohibition does not apply to actions before courts of law of foreign countries.

Submission to Jurisdiction

Our bylaws provide that in connection with any controversy between our shareholders and us, or between our shareholders in connection with any matter related to us, both we and our shareholders shall submit to the jurisdiction of the courts of Monterrey, Nuevo León, Mexico.

Exhibit 4.16 - acquisition of Avantel,

Exhibit 4.17 - Avantel and Telmex Agreements,

Exhibit 4.18 - Bridge Credit Agreement, and

Exhibit 4.19 - Term Loan Agreement.

D. Exchange Controls

There are currently no exchange controls in Mexico.

E. Taxation

Income tax rate in Mexico is 28%. Mexican regulations allow companies to deduct tax losses against income tax, potentially reducing tax payments. All interest payments we make under the senior notes, the bridge loan, the syndicated term loan and all other existing indebtedness with a foreign counterpart, are made free and clear of and without deduction or withholding taxes.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

Where You May Find More Information

We file reports and other information with the SEC. You may review copies of any documents that we file with the SEC, including their exhibits and schedules, at the SEC’s public reference room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You may also get copies of all or any portion of the documents that we file from the public reference room, the regional offices or by calling the SEC at 1-800-SEC-0330 or by writing the SEC, upon payment of a prescribed fee. Our SEC filings are also available to you on the SEC’s web site at http://www.sec.gov.

I. Subsidiary Information

Not applicable.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company and its subsidiaries are exposed, by their normal business relations, to some financial risks denominated as rate risks and currency exchange rate risks, principally. To mitigate the exposure to those risks the Company and its subsidiaries use financial derivative instruments.

By using derivative financial instruments to hedge exposures to changes in currency exchange rates fluctuations, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit counterparty risk for the Company. When the fair value of a

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality foreign financial counterparties.

In the operations with financial derivative instruments that are registered as hedging activities we establish a hedging program, in which the Company and its subsidiaries formally establish the objective of the hedging, the strategy of administration of risks, the instrument of hedging, or the transaction covered, the nature of the risk that its being hedged, how the effectiveness of the financial instrument will be proved to compensate the risk covered and the methodology to measure the effectiveness of hedging.

The Company and its subsidiaries realize proves of effectiveness, prospective and retrospective, to watch in every moment that the relations of hedging keep a high effectiveness according to accounting standards. At the moment that ineffectiveness is detected the Company will register that amount in the results as part of the CFR.

Financial derivative instruments registered with hedging purposes

According to the accounting models for hedging activities that are permitted by financial standards, the dimension, risks and estimated impact in balance sheet or income statement of the following financial derivative instruments are presented below. Contrarily to financial instruments with trading purposes, the derivatives with hedging purpose will not generate volatility in the income statement, as long as they accomplish in all the term, with the requirements of the financial standards to keep the classification of hedging activities:

Fair value hedge

On March 22, 2007, the Company contracted a CCS (Currency Swap) to cover the risk of exchange rate generated by the syndicated term loan for U.S. $110.2 million in which the Company will receive payments of 3 month Libor plus 150 basis points a) over U.S. $110.2 million notional and will pay a monthly rate of TIIE 28 days plus 135 basis points over Ps. 1,215,508 notional which includes the amortizations of principal. This transaction is under the fair value hedge accounting model.

Currencies Interest Rates Notional amount Axtel Axtel Estimated fair Maturity date Notional amount (USD) (MXP) receives pays value

February 29, 2012 U.S. $ 110.23 Ps. 1,216 Libor + 1.5 TIIE +1.35 U.S. $(2.4)

For the year ended December 31, 2007 the change in the fair value of the hedging activity of the syndicated term loan resulted in an unrealized loss amount of U.S.$3.1 million recognized in the comprehensive financial result, compensated by the change in the fair value of the debt valuated at December 31, 2007 in U.S.$2.9 million.

Cash flow hedge

On March 29, 2004, the Company entered into a derivative a Ps-USD CCS to hedge a portion of its U.S. dollar foreign exchange exposure resulting from the issuance of the U.S. $175 million 11% senior notes, which matures in 2013. Under this a) CCS transactions, Axtel will receive semiannual payments calculated based on the aggregate notional amount of U.S. $113.75 million at an annual U.S. rate of 11%, and the Company will make semiannual payments calculated based on the aggregate of Ps.1,270,019 (nominal value) at annual rate of 12.30%.

Derived from the reopening of the issuance on March 2005 for U.S. $75 million and as a complement of the hedge strategy b) mentioned above, on June 6, 2005, the Company entered into a new derivative a Ps-USD CCS. The purpose of this agreement was to hedge the remaining portion of its U.S. dollar

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document foreign exchange exposure resulting from the first issuance, and the totality of its U.S. $75 million issuance. Under this agreement, Axtel will receive semiannual payments calculated based on the aggregate notional amount of U.S. $136.25 million at an annual rate of 11%, and the Company will make semiannual payments calculated based on the aggregate of Ps.1,480,356 (nominal value) at annual rate of 12.26%.

On February 3, 2007, the Company entered into a new derivative IOS (“Interest Only Swap”). The purpose of this agreement was to hedge the debt service from its new U.S. dollar bond issuance. Under this agreement, Axtel will receive semiannual payments c) calculated based on the aggregate notional amount of U.S. $275 million at a fixed annual rate of 7.625%, and the Company will make semiannual payments calculated based on the aggregate of Ps.3,038,750 (nominal value) at a fixed annual rate of 8.54%.

As of December 31, 2007, the CCS information is as follows:

(Amounts in charts are expressed in millions)

Currencies Interest Rates Notional amount Axtel Axtel (nominal value) receives pays Estimated Fair Maturity date Notional amount (USD) (MXP) (USD) (MXP) Value Dec 15, 2008 U.S. $ 113.75 Ps. 1,270 11.00% 12.30% U.S.$ (1.6) Dec 15, 2008 U.S. $ 136.25 Ps. 1,480 11.00% 12.26% U.S.$ (1.5) Feb 1, 2012 U.S. $ 275.00 Ps. 3,039 7.86% 8.54% U.S.$ (4.2)

For the year ended December 31, 2007, the change in the fair value of these CCS is an unrealized loss amount of U.S. $1.7 million. This gain was recognized within the other comprehensive income section of equity, net of deferred taxes.

Derivatives registered as trading

The Company does not enter into any financial derivative instrument with any other purpose but hedging. The Company does not speculate using financial instruments.

However, the Company redeemed 35% of the issuance of U.S. $250 million derived from the issuances of debt of December, 2003 and March, 2005. In the face of this situation and originated by the closing of Swaps described in sections a) and b) from the paragraph “Cash flow hedges”, the Company stayed with an “over-hedge” in these derivatives therefore it decided to cover this excess of hedge with an inverse operation, having the volatility of this portion being registered in the CFR. This operation is a CCSS (Currency Swap), in this transaction the Company receives 12.26% over a notional amount of Ps. 950.7 million and pays 11% over the notional amount of U.S. $87.5 million. According to the financial reporting standards this Swap does not comply with the requirements to be registered as a risk hedge; however it is considered as an economic hedge by the Company. The CCS information is as follows:

Currencies Interest Rates Axtel Axtel Notional amount receives pays Estimated fair Maturity date Notional amount (USD) (MXP) (USD) (MXP) value

December 15, 2008 U.S. $ 87.50 Ps. 950.7 12.26% 11.0% U.S. $0.9

For the year ended December 31, 2007 the added value of U.S. $1.0 million of this operation was registered in the comprehensive financial result.

Embedded derivatives

The Company has conducted an initiative to identify, analyze and segregate if applicable, those contractual terms and clauses that implicitly or explicitly embed derivatives characteristics within financial or non financial agreements. These instruments are commonly known as embedded derivatives and do follow the same accounting treatment as of those free-standing contractual derivatives. Based on the above, the Company identified and recognized an amount of Ps. 1,261 from embedded derivatives effects during 2007 in the accounting records..

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

Part II

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

Item 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

We maintain a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in report that it files or submits under the U.S. Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the rules promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document principles. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Under the supervision and with the participation of our management, including our Chief Executive Officer and principal financial and accounting officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The evaluation included a review of the documentation of controls, evaluation of the design effectiveness of controls, and testing of the operating effectiveness of controls.

Based on this evaluation, our management concluded that internal control over financial reporting was effective as of December 31, 2007.

Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Bernardo Guerra Treviño has the attributes of an ‘‘audit committee financial expert’’ as defined by the SEC. See “Item 6A. Directors and Senior Management.”

Item 16B. CODE OF ETHICS

We have established a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, principal accounting officer and other corporate and divisional employees. However, our board of directors has not, as of yet made a determination whether modification of our code of ethics will be required to comply with SEC requirements. We will provide to any person without charge, upon request, a copy of such code of ethics. Such requests shall be made in writing to the attention of Adrian de los Santos at Axtel, S.A.B. de C.V., Blvd. Gustavo Díaz Ordaz 3.33 No. L-1, Col. Unidad San Pedro, San Pedro Garza García, N.L., México, CP 66215.

Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG Cardenas Dosal S.C. (“KPMG”) served as our auditors for the years ended December 31, 2007 and 2006. The following table sets forth the fees paid to KPMG for the financial years ended December 31, 2007 and 2006.

Year ended December 31 2007 2006 (in millions of (in millions nominal of nominal pesos) pesos)

Audit Fees (1) Ps. 5.9 Ps. 4.5 Tax Fees (2) 0.5 0.2 All Other Fees (3)(4) 1.3 1.4 Total Fees 7.7 6.1 ______

Audit fees include fees associated with the annual audit of our consolidated financial statements. Audit fees also include fees (1) associated with various audit requirements relating to SEC filing requirements. (2)Tax fees include fees principally incurred for assistance with VAT reimbursements and compliance matters. (3) Audit related fees include fees associated with audit and revisions needed regarding the acquisition of Avantel. (4) Introduction to bulletin C-10.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We have introduced procedures for the review and pre-approval of any services performed by KPMG. The procedures require that all proposed engagements of KPMG for audit and permitted non-audit services are submitted to the audit committee for approval prior to the beginning of any such services.

The audit committee selects the company’s auditor on an annual basis. The auditor presents a detail business plan which is reviewed and agreed by the company, and occasionally complemented with additional activities requested by the management or the Board of Directors. Every year, the company performs an evaluation of the auditors’ prestige, experience, fairness, position among the top 4 auditing firms and the economic proposal is within market standards, among others. Once the company has made this evaluation and agreed on the auditors business plan, the management recommends the auditing firm to the audit committee.

We did not have an audit committee prior to January 2004.

Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED

PURCHASERS

Not applicable.

Part III

Item 17. FINANCIAL STATEMENTS

The Company has responded to Item 18 in lieu of this item.

Item 18. FINANCIAL STATEMENTS

See pages F-1 through F-68.

Item 19. EXHIBITS

Exhibit Number Description 1.1 Corporate By-laws (Estatutos Sociales) of Axtel, S.A. de C.V. (“Axtel”), together with an English translation (incorporated herein by reference to Exhibit 3.1 of our Registration Statement on Form F-4, File No. 333-114196)

1.2 English summary of Amended Corporate By-laws (Estatutos Sociales) and Articles of Incorporation of Axtel, S.A.B de C.V. (incorporated by reference to Exhibit 1.2 of our submission of Form 20-F for the fiscal year ended December 31, 2006. File No. 333-114196).

2.1 Indenture, dated as of December 16, 2003, among Axtel, the Subsidiary Guarantors named therein and The Bank of New York, as Trustee, governing Axtel’s $175,000,000 aggregate principal amount of 11% Senior Notes due 2013 (incorporated herein by reference to Exhibit 4.1 of our Registration Statement on Form F-4, File No. 333-114196).

2.2 Specimen Global Note representing Axtel’s 11% Senior Notes due 2013 (incorporated herein by reference to Exhibit 4.2 of our Registration Statement on Form F-4, File No. 333-114196).

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2.3 Form of Specimen Global Note representing the exchange notes (incorporated herein by reference to Exhibit 4.3 of our Registration Statement on Form F-4, File No. 333-114196).

2.4 Registration Rights Agreement, dated as of December 16, 2003 among Axtel, the Subsidiary Guarantors named therein and Credit Suisse First Boston LLC (incorporated herein by reference to Exhibit 4.4 of our Registration Statement on Form F-4, File No. 333-114196).

2.5 Registration Rights Agreement dated as of January 13, 2005, among Axtel, the Subsidiary Guarantors named therein and Credit Suisse First Boston LLC (incorporated herein by reference to Exhibit 4.4 of our Registration Statement on Form F-4, File No. 333-123608).

4.1 Unanimous Shareholders Agreement, dated as of October 6, 1997, among Bell Canada International (Mexico Telecom) Limited, Telinor Telefonia, S.A. de C.V. (“Telinor”), Worldtel Mexico Telecom Ltd. And Axtel (formerly known as Telefonia Inalambrica Del Norte, S.A. de C.V.) (incorporated herein by reference to Exhibit 9.1 of our Registration Statement on Form F-4, File No. 333-114196).

4.2 Joinder Agreement, dated as of March 20, 2003, among Axtel and Nortel Networks Limited (incorporated herein by reference to Exhibit 9.2 of our Registration Statement on Form F-4, File No. 333-114196).

4.3 Concession title granted by the Mexican Ministry of Communications and Transportation (the “Ministry”) in favor of Axtel (formerly known as Telefonia Inalambrica Del Norte, S.A. de C.V.), dated June 17, 1996, together with an English translation of such concession title (incorporated herein by reference to Exhibit 10.1 of our Registration Statement on Form F-4, File No. 333-114196).

4.4 Amendment, dated December 19, 2002, of concession title granted by the Ministry in favor of Axtel, dated June 17, 1996, together with an English translation of such amendment (incorporated herein by reference to Exhibit 10.2 of our Registration Statement on Form F-4, File No. 333-114196).

4.5 Concession title granted by the Ministry in favor of Axtel, dated October 7, 1998, together with an English translation of such concession title (incorporated herein by reference to Exhibit 10.3 of our Registration Statement on Form F-4, File No. 333-114196).

4.6 Concession title granted by the Ministry in favor of Axtel, dated April 1, 1998, together with an English translation of such concession title (incorporated herein by reference to Exhibit 10.4 of our Registration Statement on Form F-4, File No. 333-114196).

4.7 Concession title granted by the Ministry in favor of Axtel, dated June 4, 1998, together with an English translation of such concession title (incorporated herein by reference to Exhibit 10.5 of our Registration Statement on Form F-4, File No. 333-114196).

4.8 Engagement Letter, dated as of May 15, 2002, by and among Axtel and The Blackstone Group L.P. (incorporated herein by reference to Exhibit 10.6 of our Registration Statement on Form F-4, File No. 333-114196).

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4.9 Restructuring Agreement, dated as of March 20, 2003 by and among Axtel, Nortel Networks Limited, Nortel Networks de Mexico, S.A. de C.V. and Toronto Dominion (Texas), Inc. (incorporated herein by reference to Exhibit 10.7 of our Registration Statement on Form F-4, File No. 333-114196).

4.10 Master Agreement for the Provision of Local Interconnection Services, dated as of February 25, 1999, entered into by and between Telefonos de Mexico, S.A. de C.V., Telefonia Inalambrica Del Norte, S.A. de C.V. (predecessor company to Axtel, S.A. de C.V.) (incorporated herein by reference to Exhibit 10.9 of our Registration Statement on Form F-4, File No. 333-114196).

4.11 Technical Assistance Support Services Agreement for FWA Equipment, dated as of March 20, 2003, among Nortel Networks UK Limited and Axtel (incorporated herein by reference to Exhibit 10.11 of our Registration Statement on Form F-4, File No. 333-114196).

4.12 FWA Technology License Agreement, dated as of March 20, 2003, among Nortel Networks Limited and Axtel (incorporated herein by reference to Exhibit 10.12 of our Registration Statement on Form F-4, File No. 333-114196).

4.13 FWA Special Agreement, dated as of September 30, 2003, among Nortel Networks UK Limited and Axtel (incorporated herein by reference to Exhibit 10.13 of our Registration Statement on Form F-4, File No. 333-114196).

4.14 Purchase and License Agreement for FWA Equipment and the Technical Assistance Support Services Agreement for FWA Equipment, dated as of December 28, 2004, between Airspan Communications Limited and Axtel (incorporated herein by reference to Exhibit 10.12 of our Registration Statement on Form F-4, File No. 333-123608) (certain portions of Exhibit 10.12 have been omitted pursuant to a request for confidential treatment).

4.15 Amendment No.3 to the Technical Assistance Support Services Agreement for FWA Equipment, dated as of December 28, 2004, between Airspan Communications Limited and Axtel (incorporated herein by reference to Exhibit 10.13 of our Registration Statement on Form F-4, File No. 333-123608) (certain portions of Exhibit 10.13 have been omitted pursuant to a request for confidential treatment).

4.16 Summary of Avantel acquisition documents (Master Agreement, Asset Purchase Agreement, Partnership Interest Purchase Agreement) (incorporated by reference to Exhibit 4.16 of our submission of Form 20-F for the fiscal year ended December 31, 2006. File No. 333-114196).

4.17 Summary of Avantel agreement entered into with Telmex and Telnor (Long Distance Interconnection Agreement, Agreement for 800 numbers access toll free service, Local Interconnection Agreement, Settlement Agreement, Capacity Lease Agreement) (incorporated by reference to Exhibit 4.17 of our submission of Form 20-F for the fiscal year ended December 31, 2006. File No. 333-114196).

4.18 Bridge Credit Agreement entered into with Credit Suisse, Cayman Islands Branch, acting as the Administrative Agent, various financial institutions and Axtel on November 30, 2006 (incorporated by reference to Exhibit 4.18 of our submission of Form 20-F for the fiscal year ended December 31, 2006. File No. 333-114196).

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4.19 Term Loan Agreement entered into with Citibank, N.A. as the Administrative Agent and Banco Nacional de México, S.A. Integrante del Grupo Financiero Banamex, as the Peso Agent, various Financial Institutions, and Axtel on November 30, 2006(incorporated by reference to Exhibit 4.19 of our submission of Form 20-F for the fiscal year ended December 31, 2006. File No. 333-114196).

4.20 Amended and Restated Credit Agreement dated as of November 30, 2006, as amended and restated as of February 23, 2007, among AXTEL, S.A.B. DE C.V., as Borrower, certain subsidiaries of the Borrower, as Guarantors, various financial institutions, as Lenders, CITIBANK, N.A., as the Administrative Agent, and BANCO NACIONAL DE MÉXICO, S.A., INTEGRANTE DEL GRUPO FINANCIERO BANAMEX, as the Peso Agent.

7.1 Statement regarding computation of ratio of earnings to fixed charges (according to Mexican GAAP).

7.2 Statement regarding computation of ratio of earnings to fixed charges (according to U.S. GAAP).

8.1 List of Axtel Subsidiaries including the Avantel companies.

12.1 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Axtel, S.A.B. de C.V.

/s/ Patricio Jiménez Barrera Patricio Jiménez Barrera Chief Financial Officer January 21, 2009

Audited Consolidated Financial Statements Report of Independent Auditors F-1 Consolidated Balance Sheet as of December 31, 2007 and 2006 F-2 Consolidated Statement of Operations for the fiscal years ended December 31, 2007, 2006 and 2005 F-3 Consolidated Statement of Changes in Financial Position for the fiscal years ended December 31, 2007, 2006 and 2005 F-4 Consolidated Statement of Changes in Stockholders’ Equity for the fiscal years ended December 31, 2007, 2006 and 2005 F-5 Notes to the Audited Consolidated Financial Statements F-6

Consolidated Financial Statements

December 31, 2007

(With comparative figures for 2006 and 2005)

(With Report of Independent Registered Public Accounting Firm)

The Board of Directors and Stockholders Axtel, S.A.B. de C.V.:

We have audited the accompanying consolidated balance sheets of Axtel, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ equity, and changes in financial position for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in accordance with Mexican Financial Reporting Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the reporting standards used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Axtel, S.A.B. de C.V. and its subsidiaries as of December 31, 2007 and 2006, and the consolidated results of their operations, the changes in their stockholders’ equity and the changes in their financial position for each of the years in the three-year period ended December 31, 2007, in conformity with Mexican Financial Reporting Standards.

Mexican Financial Reporting Standards vary in certain significant respects from U.S. generally accepted accounting principles information relating to the nature and effect of such differences is presented in note 25 to the consolidated financial statements.

As described in note 25(l), certain information regarding subsidiary guarantors has been corrected.

KPMG Cárdenas Dosal, S.C.

/s/ Leandro Castillo Parada Leandro Castillo Parada

Monterrey, N,L., México February 25, 2008, except for note 24 which is as of April 23, 2008, note 25 which is as of April 29, 2008 and note 25(l) which is as of January 15, 2009

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AXTEL, S. A. B. DE C. V. AND SUBSIDIARIES Consolidated Balance Sheets (Thousands pesos of constant purchasing power as of December 31, 2007)

December 31, Assets 2007 2006

Current assets: Cash and cash equivalents Ps. 1,573,877 1,222,145 Accounts receivable (note 7) 1,822,349 1,660,560 Refundable taxes and other accounts receivable 113,148 252,662 Prepaid expenses 45,657 43,862 Inventories (note 10) 167,889 103,070

Total current assets 3,722,920 3,282,299

Long-term accounts receivable 18,254 20,686 Property, systems and equipment, net (notes 11 and 16) 13,679,871 14,036,601 Intangible assets (note 14) 1,058,204 1,422,814 Pre-operating expenses, net (note 12) 111,897 159,591 Deferred income taxes (note 19) 936,089 620,877 Deferred employee's profit sharing (note 19) 14,180 27,774 Investment in shares of associated company (note 13) 15,249 14,127 Other assets, net (note 15) 274,013 309,207

Total assets Ps. 19,830,677 19,893,976

Liabilities and Stockholders’ Equity

Current liabilities: Accounts payable and accrued liabilities Ps. 1,848,934 1,919,175 Accrued interest 111,849 16,446 Taxes payable 136,556 62,624 Current maturities of long-term debt (note 16) 160,163 163,207 Other accounts payable (note 17) 394,006 511,205 Deferred revenue (note 9) 583,052 614,551 Derivative financial instruments (note 8) 93,861 68,541

Total current liabilities 3,328,421 3,355,749

Long-term debt, excluding current maturities (note 16) 7,484,955 8,294,282 Other long-term accounts payable 6,215 3,014 Severance, seniority premiums and other post retirements benefits (note 18) 57,514 85,506 Deferred revenue (note 9) 203,226 271,103

Total liabilities 11,080,331 12,009,654

Stockholders’ equity (note 20): Common stock 8,870,062 8,677,782 Additional paid-in capital 741,671 547,131 Deficit (949,610 ) (1,440,606 ) Cumulative deferred income tax effect 132,168 132,168 Change in the fair value of derivative instruments (note 8) (43,945 ) (32,153 )

Total stockholders’ equity 8,750,346 7,884,322

Commitments and contingencies (note 22)

The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AXTEL, S. A. B. DE C. V. AND SUBSIDIARIES Consolidated Statements of Operations For the years ended December 31, 2007, 2006 and 2005 (Thousands pesos of constant purchasing power as of December 31, 2007)

Years ended December 31, 2007 2006 2005 Telephone services and related revenues (note 21) Ps. 12,190,610 6,675,712 5,362,393

Operating costs and expenses: Cost of revenues and services (4,504,713 ) (2,104,361 ) (1,673,995 ) Selling and administrative expenses (3,601,427 ) (2,260,105 ) (1,821,849 ) Depreciation and amortization (2,690,687 ) (1,560,054 ) (1,220,253 )

(10,796,827 ) (5,924,520 ) (4,716,097 )

Operating income 1,393,783 751,192 646,296

Comprehensive financing result: Interest expense (925,049 ) (482,735 ) (411,207 ) Interest income 134,441 92,135 61,275 Foreign exchange gain, net 972 23,700 112,129 Change in the fair value of derivative instruments 19,942 (24,808 ) - Monetary position gain 268,797 11,467 58,733

Comprehensive financing result, net (500,897 ) (380,241 ) (179,070 )

Employee’s profit sharing (note 19) (6,088 ) (1,570 ) - Deferred employee’s profit sharing (note 19) (13,594 ) 4,699 - Other (expenses) income, net (438 ) (35,770 ) 7,735

Other (expenses) income, net (20,120 ) (32,641 ) 7.735

Income before income taxes and equity in results of associated company 872,766 338,310 474,961

Income tax expense (note 19) (98,819 ) (4,894 ) - Deferred tax expense (note 19) (284,381 ) (112,656 ) (167,881 ) Total income tax expense (383,200 ) (117,550 ) (167,881 )

Equity in earnings of associated company (note 13) 1,430 1,652 -

Net income Ps. 490,996 222,412 307,080

Weighted average common shares outstanding 8,754,493,119 8,522,810,598 8,522,810,598

Basic and diluted earnings per share (pesos) Ps. 0.06 0.03 0.04

The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AXTEL, 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 pesos of constant purchasing power as of December 31, 2007)

Years ended December 31, 2007 2006 2005 Operating activities: Net income Ps. 490,996 222,412 307,080 Add charges (deduct credits) to operations not requiring (providing) resources: Depreciation 2,299,574 1,413,288 1,098,350 Amortization 391,113 146,766 121,903 Accrual for seniority premiums and severance payments 11,324 12,474 8,233 Deferred income tax and employee’s profit sharing 297,975 107,957 167,881 Equity in earnings of associated company (1,430 ) (1,652 ) -

Resources provided by operations 3,489,552 1,901,245 1,703,447

(Investment in) net financing from operations (262,804 ) 630,851 (179,342 )

Resources provided by operating activities 3,226,748 2,532,096 1,524,105

Financing activities: Increase in common stock 192,280 - 751,832 Additional paid-in capital 194,540 (9,804 ) 400,108 (Payments) proceeds from loans, net (812,371 ) 5,409,926 612,213 Restricted cash - 37,225 (37,225 ) Accrued interest 95,403 2,680 1,633 Other accounts payable 11,523 8,986 (3,485 )

Resources (used in) provided by financing activities (318,625 ) 5,449,013 1,725,076

Investing activities: Acquisition and construction of property, systems and equipment, net (2,486,093 ) (7,854,529 ) (1,767,092 ) Pre-operating expenses - (13,991 ) (11,049 ) Investment in shares of associated company - (12,474 ) - Intangible assets - (752,082 ) - Other assets (70,298 ) (167,551 ) (47,687 )

Resources used in investing activities (2,556,391 ) (8,800,627 ) (1,825,828 )

Increase (decrease) in cash and cash equivalents 351,732 (819,518 ) 1,423,353

Cash and cash equivalents at beginning of year 1,222,145 2,041,663 618,310

Cash and cash equivalents at end of year Ps. 1,573,877 1,222,145 2,041,663

The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AXTEL, S. A. B. DE C. V. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity For the years ended December 31, 2007, 2006 and 2005 (Thousands pesos of constant purchasing power as of December 31, 2007)

Cumulative Change in Additional deferred the fair value Total Common paid-in income tax of derivative stockholders’ stock capital Deficit effect instruments equity

Balances as of December 31, 2004 Ps. 7,925,950 156,827 (1,970,098 ) 132,168 (333 ) 6,244,514

Issuance of common stock (note 20a) 751,832 400,108 - - - 1,151,940

Comprehensive income (note 20c) - - 307,080 - (62,428 ) 244,652

Balances as of December 31, 2005 8,677,782 556,935 (1,663,018 ) 132,168 (62,761 ) 7,641,106

Issuance costs - (9,804 ) - - - (9,804 )

Comprehensive income (note 20c) - - 222,412 - 30,608 253,020

Balances as of December 31, 2006 8,677,782 547,131 (1,440,606 ) 132,168 (32,153 ) 7,884,322

Issuance of common stock (note 20a) 192,280 194,540 - - - 386,820

Comprehensive income (note 20c) - - 490,996 - (11,792 ) 479,204

Balances as of December 31, 2007 Ps. 8,870,062 741,671 (949,610 ) 132,168 (43,945 ) 8,750,346

The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AXTEL, S. A. B. DE C. V. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Thousands pesos of constant purchasing power as of December 31, 2007)

(1) Basis of presentation

On February 25, 2008, the Administration of the Company authorized the issuance of the accompanying consolidated financial statements and related footnotes.

According to Mexican General Corporation Law and the Company statutes, the stockholders’ have the right to change the financial statements after their issuance. The accompanying financial statements will have to be approved at the next Stockholders’ Meeting.

The accompanying consolidated financial statements have been prepared in accordance with Mexican Financial Reporting Standards (FRS).

(2) Organization, description of business and salient events

Axtel, S.A.B. de C.V. and subsidiaries (the Company or AXTEL) is a Mexican corporation engaged in operating and/or exploiting a public telecommunication network to provide voice, sound, data, text, and image conducting services, and local, national, and international long-distance calls. To provide these services and carry out the Company’s activity, a concession is required (see note 22e). In June 1996, the Company obtained a concession from the Mexican Federal Government to install, operate and exploit public telecommunication networks for an initial period of thirty years.

AXTEL offers different access technologies, including fixed wireless access, point-to-point, point-to-multipoint radio links, WiMAX, fiber optic and copper technology, which are used depending on the communication needs of the clients.

On August 31, 2007, the stockholders’ approved a three-for-one stock split (the split). The split became effective on October 8, 2007. The proportional equity interest participation of existing stockholders did not change as a result of the split. For comparison purposes, the number of shares in note 20 have been adjusted for the effects of the split for all periods presented.

On February 2, 2007, the Company issued U.S. $275 million of 10-year unsecured senior notes. This issuance matures on February 1, 5 2017. The interest will be payable semiannually and the senior notes bear interest at 7 /8 % beginning on August 1, 2007. The proceeds of this issuance were used to prepay the bridge financing related to the December 2006 acquisition of Avantel (see note 16).

As described in note 20, on January 4, 2007 Telecomunicaciones Holding Mx, S. de R.L. de C.V. (“Tel Holding”) subscribed and paid 246,453,963 Series B shares (represented by 35,207,709 CPOs) through the Instituto Nacional de Valores (“INDEVAL”), in relation to the subscription agreement.

As described in note 5, on November 27, 2006 the Company signed an agreement with Banco Nacional de Mexico, S.A. (“Banamex”) and Tel Holding to acquire all the assets and shares of Avantel Infraestructura, S. de R.L. de C.V. and Avantel, S. de R.L. de C.V. therefore the results of operations have been included in the Company’s consolidated statement of operations since December 1, 2006. As described in note 16 the acquisition transaction was financed through various loans amounting to approximately U.S. $515 million.

-1-

On February 22, 2006 the Company redeemed U.S. $87,500,000 aggregate principal amount of its 11% senior notes due 2013, or 35% of the U.S. $250,000,000 original aggregate principal amount of the notes. The redemption was made at a price of 111% of the principal amount of the notes, plus accrued and unpaid interest through the redemption date. The premium paid on this transaction amounted to approximately U.S. $9.6 million, and is included in the statement of operations as part of the comprehensive financing result. In relation with this transaction, deferred financing cost amounting to Ps. 28,441 were amortized.

(3) Summary of significant accounting policies

The accounting policies and practices followed by the Company in the preparation of the consolidated financial statements are described below:

(a) Use of estimates

The preparation of consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, valuation allowances for receivables, inventories and deferred income tax assets; valuation of derivative instruments; and assets and obligations related to employee benefits. Actual results could differ from these estimates and assumptions.

For purposes of disclosure in the notes to the consolidated financial statements, references to pesos or “Ps.”, are to Mexican pesos; likewise, references to dollars or U.S. $, are to dollars of the United States of America.

(b) Recognition of the effects of inflation

The accompanying consolidated financial statements have been prepared in accordance with Financial Reporting Standards in Mexico (FRS), which include the recognition of the effects of inflation on the financial information, and are expressed in thousands of Mexican pesos at the constant purchasing power of December 31, 2007 based upon the National Consumer Price Index (NCPI) published by Banco de Mexico. The indexes used in recognizing the effects of inflation were as follows:

Inflation NCPI %

December 2007 459.101 3.76 December 2006 442.468 4.05 December 2005 425.232 3.30

-2-

The consolidated financial statements include the financial statements of Axtel and the subsidiaries mentioned below. All accounts and intercompany transactions have been eliminated in the preparation of the consolidated financial statements. The consolidation was made based on audited financial statements of each of the subsidiaries, which were prepared in accordance with FRS.

The Company owns, directly or indirectly, 100% of the following subsidiaries:

Subsidiary Main activity

Instalaciones y Contrataciones, S. A. de C. V. (“Icosa”) Administrative services Impulsora e Inmobiliaria Regional, S. A. de C. V. (“Inmobiliaria”) Property management Servicios Axtel, S. A. de C. V. (“Servicios Axtel”) Administrative services Avantel, S. de R.L. de C.V. (“Avantel”)* Telecommunications services Avantel Infraestructura S. de R.L. de C.V. (“Avantel Infraestructura”)* Telecommunications services Adequip, S.A. Fiber optic rings leasing Avantel Recursos, S.A. de C.V. (“Recursos”) Administrative services Avantel Servicios, S.A. de C.V. (“Servicios”) Administrative services Telecom. Network, Inc. (“Telecom”) Telecommunications services

* On June 30, 2005, Avantel Infraestructura and certain subsidiaries as partners, together with Avantel as a representative partner of the Joint Venture, entered into a Joint Venture agreement to permit Avantel provide services and operate Avantel Infraestructura’s public telecommunications network. Under this agreement, Avantel Infraestructura contributed the concessioned network, and the other associates contributed the customer agreements, as well as support and human resources services.

As a result of the above, Avantel Infraestructura entered into an agreement with Avantel to transfer the concession rights granted by the Secretaria de Comunicaciones y Transportes (“SCT”).

(d) Cash equivalents

Cash equivalents of Ps. 1,390,858 and Ps. 948,961 at December 31, 2007 and 2006, respectively, consist of overnight repurchase agreements and certificates of deposit with an initial term of less than three months. Cash equivalents are carried at the lower of acquisition cost plus accrued interest as of the most recent balance sheet date or net estimated realizable value. Interest and foreign currency exchange fluctuation are included in the statements of operations as part of the comprehensive financing result.

-3-

(e) Trade accounts receivable

Trade accounts receivable includes the amount billed to customers and a provision for services rendered at the balance sheet date but not billed. Amounts billed are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is considered remote.

(f) Investment in shares of associated company

The investment in shares of associated company is accounted by the equity method when AXTEL has the ability to exercise significant influence but does not control the associated company. Th e ability to exercise significant influence is presumed where AXTEL owns more than 20%, but less than 50% of the voting shares of an associated company. AXTEL’s investments in associated companies are carried in the balance sheet at an amount that reflects AXTEL’s share of the net assets of the associates.

(g) Inventories and cost of sales

Inventories are carried at the lower of restated cost and net realizable value and are accounted using the average cost method. The restated cost is determined by application of the NCPI factor to current costs.

(h) Property, systems and equipment

Property, systems and equipment are recorded at acquisition cost and restated by NCPI factors. Property under capital leases are stated at the present value of minimum lease payments.

Starting January 1, 2007, the acquisitions of assets in period of construction or installation include the corresponding comprehensive financing result as part of the assets value.

Comprehensive financing results incurred up to June 1999 during construction or installation periods were capitalized as part of the cost of the assets that were acquired during the pre-operating stage. Since that date, comprehensive financing results have been recognized as part of the results of the year in which they are incurred.

Depreciation of property, systems and equipment is calculated using the straight-line method, based on useful lives estimated by management. Useful lives are described in note 11.

Leasehold improvements are amortized over the shorter of the useful life of the improvement or the lease term.

Maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments are expensed as incurred and charged principally to selling and administrative expenses.

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(i) Telephone concession rights

Telephone concession rights that are included within intangible assets, are restated by NCPI factors and amortized under the straight- line method over a period of 20 to 30 years (the initial term of the concession rights). Avantel’s telephone concession rights are amortized over the remaining term of life.

(j) Pre-operating expenses

Pre-operating expenses include administrative services, technological advice and comprehensive financing results incurred through June 1999 and also the expenses incurred during 2000, 2004, 2005 and 2006 in opening offices in other cities throughout the country. These expenses were capitalized, and restated by NCPI factors and are amortized under the straight-line method over a period of 10 years (see note 12).

(k) Other and intangible assets

Other assets mainly include costs related to Telmex / Telnor infrastructure costs and notes issuance costs. Other assets also include guarantee deposits and, beginning 2005, the intangible asset related to the labor obligations (see note 15). These assets are restated by NCPI factors and amortized on a straight-line basis.

As a consequence of the acquisition of Avantel and based upon calculations prepared by an independent expert appraiser, the Company recognized intangible assets as follows: trade name, customer relationships and concession rights (see note 14).

(l) Seniority premiums, severance payments and post employment benefits

Seniority premium benefits, and, beginning 2005, severance compensation for reasons other than restructuring, to which employees are entitled in accordance with the Federal Labor Law are charged to expense based on actuarial computations of the present value of this obligation. Amortization of prior service costs is based on the estimated average service lives of existing personnel. As of December 31, 2007, the average service life of employees entitled to plan benefits approximates 16 years.

(m) Derivative financial instruments

The Company accounts for derivatives and hedging activities in accordance with Bulletin C-10 for Mexican GAAP and FASB Statement No. 133, for US GAAP, “Accounting for Derivate Instruments and Certain Hedging Activities,” as amended (FAS 133), which require that all derivative instruments be recorded on the balance sheet date at their respective fair values, including those derivatives embedded in financial or non financial contractual agreements.

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The Company uses financial derivative instruments in order to manage financial exposures, especially risks associated with foreign currency and interest rates. In accordance with Bulletin C-10 and FAS 133, the Company may apply hedge accounting to such instruments if it meets certain requirements and assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. The Company accounts for the financial derivative instruments designated as hedging activities into two main classifications: (i) Fair value hedging and (ii) Cash flows hedging.

In addition, the Company has accounted for certain financial derivative instruments under the classification of trade, that did not meet the requirements for hedge accounting at fair value in the balance sheet with changes in fair value recognized directly in the income statement, even though these instruments are highly effective.

For financial derivative instruments that are designated as fair value hedges, the changes in the fair value of those instruments and the changes in the fair value of the hedged item are recorded in the income statement. Changes in the fair value of financial derivative instruments that are highly effective and that are designated and qualify as cash flow hedges are recorded in comprehensive income to the extent that the derivative is effective as a hedge, until earnings are affected by the variability of the designated hedged item.

The ineffectiveness portion of the change in the fair value of a derivative instrument that qualifies as a hedge is reported in the income statement.

The Company will discontinue hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised. In all situations in which hedge accounting is discontinued and the derivative is retained, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in the fair value of the financial instrument directly in the income statement. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes immediately in earnings gains and losses that were accumulated in comprehensive income (see note 8).

(n) Income tax (IT), tax on assets (TA) and employee’s statutory profit sharing (ESPS)

IT is accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred ESPS is recognized for timing differences arising from the reconciliation of book income to income for profit sharing purposes with respect to which it may reasonably be estimated that a future liability or benefit will arise and there is no indication that the liabilities or benefits will not materialize.

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(o) Inflation adjustment of common stock, other contributions and deficit

This adjustment is determined by multiplying stockholder contributions and deficit by NCPI factors, which measure accumulated inflation from the dates contributions were made and losses arising through the most recent year end. The resulting amounts represent the constant value of stockholders’ equity.

(p) Comprehensive income (loss)

The comprehensive income (loss) represents the net income or loss for the year plus the effect of those items reflected directly in stockholders’ equity, other than capital contributions, reductions and distributions.

(q) Cumulative deferred income tax effect

This amount represents the cumulative effects of deferred taxes as of the date of adoption of the FRS D-4.

(r) Comprehensive financing result (CFR)

The CFR includes interest income and expense, foreign exchange gain and loss, the monetary position gain and valuation effects of financial instruments, less the amounts capitalized, as part of property, systems and equipment and pre-operating expenses.

Foreign currency transactions are recorded at the rate of exchange prevailing on the date of execution or settlement. Foreign currency assets and liabilities are translated at the exchange rate in force at the balance sheet date. Exchange differences arising from assets and liabilities denominated in foreign currencies are recognized in the results of operations.

Monetary position gains and losses are determined by multiplying the difference between monetary assets and liabilities at the beginning of each month, including the deferred taxes, by inflation factors through year-end. The aggregate of these results represents the monetary gain or loss for the year arising from inflation, which is recognized in the CFR.

(s) Revenue recognition

The Company’s revenues are recognized when the service has been provided and the collection for such service is reasonably assured, as follows:

Telephony Services –The Company generates revenue by enabling our customers to originate and receive an unlimited number of calls. Customers are charged a flat monthly fee for basic service, a per call fee for local calls (“measured service”), a per minute usage fee for calls completed on a cellular line (“calling party pays” or “CPP calls”) and national and international long · distance calls, and a monthly fee for value-added services and internet services when requested by the customer. The costs related to the termination of our customers’ cellular and long distance calls on other carriers’ networks are charged to cost in the same month that the revenue is earned.

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Activation - At the moment of installing the service when the customer has a contract with indefinite term; otherwise is · recognized according to the term of the contract between the customer and the Company.

Equipment. At the moment of selling the equipment and when the customer acquires the property of the equipment and · assumed all risks.

· Integrated services. At the moment when the client receives the service.

(t) Business and risk concentration

The Company rendered services to one client that represents approximately 11%, 16% and 17% of total net rental, installation, service and other revenues during 2007, 2006 and 2005, respectively. The Company provides an allowance for doubtful accounts based on management’s analyses and estimations. The allowance expense is included as selling and administrative expenses in the consolidated statement of operations.

(u) Contingencies

Liabilities for loss contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. When a reasonable estimation can not be made, qualitative disclosure is provided in the notes to the consolidated financial statements. Contingent revenues, earnings or assets are not recognized until their realization is virtually assured.

(v) Impairment of property, systems and equipment and other non-current assets

(w) Segment information

The Company believes that it operates in one business segment. Management does view the business as consisting of two revenues streams (Mass market and Business Market); however it is not possible to attribute direct or indirect costs to the individual streams other than selling expenses.

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(4) Accounting changes

The FRS B-3, Statement of Income, issued by the Mexican Board for Research and Development of Financial Reporting Standards (Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera or CINIF) became effective beginning January 1, 2007. Accordingly, the accompanying statement of income for 2006, has been modified for reporting as provided under this FRS, which together with the Interpretation of Financial Reporting Standards (INIF) 4, modified the general rules for the presentation and structure of the statement of income, eliminating the special and extraordinary items classifications, and requiring that the employee statutory profit sharing be reported under other expenses and income, rather than being presented in a line following tax on earnings, and additionally requiring that income, costs and expenses be classified as follows:

Ordinary – Those related to the entity’s line of business, i.e., those arising from or inherent to its primary activities, i) representing the principal sources of revenue, whether frequent or not.

Non-ordinary – Those arising from activities which do not represent the entity’s principal sources of revenue, which are ii) generally infrequent.

In addition, this FRS requires that ordinary costs and expenses be classified based on their nature, function, or a combination of both. Since the Company is a service entity, ordinary costs and expenses are classified in order to present a clearer understanding of the financial information.

FRS D-6, “Capitalization of the Comprehensive Financial Results (CFR)”, issued by the CINIF, became effective for the fiscal year beginning January 1, 2007. This FRS establishes the requirement to capitalize CFR attributable to certain assets having an extended acquisition period prior to being put into use. The effects of adopting this FRS are disclosed in note 11.

(5) Acquisition of Avantel

On November 27, 2006, the Company signed an agreement with Banamex, and Tel Holding, former controlling stockholders of Avantel, to purchase substantially all of the assets of Avantel Infraestructura, S. de R.L. de C.V. (‘‘Avantel Infraestructura’’) for U.S. $485 million. The Company also agreed to purchase the equity interests of Avantel Infraestructura and Avantel, S. de R.L. de C.V. (‘‘Avantel Concesionaria,’’ both companies together being referred to as ‘‘Avantel’’) and each of Avantel’s subsidiaries for U.S. $31 million. After obtaining all required approvals from AXTEL’s stockholders and government regulators, the Company completed the acquisition on December 4, 2006. The operating results of Avantel are included in the consolidated financial statements of the Company from the date of purchase.

(a) Description of Avantel

Avantel Concesionaria and Avantel Infraestructura are affiliated companies and participate in a joint venture. Through this vehicle, the companies offer services of local telephony, domestic and international long distance and data services in Mexico.

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Avantel provides telecommunication services to business, government and residential customers in Mexico. Avantel is Mexico’s second largest provider of domestic and international long distance telephone services based on revenues and, recently, has increased its participation in the Internet and data transmission markets. Avantel operates a fiber optic network of approximately 7,700 kilometers that reaches over 200 cities in Mexico.

Avantel is one of the leading providers of Internet-Protocol (IP) solutions in Mexico. Avantel’s IP solutions are especially tailored to meet the diverse needs of companies of all sizes and sectors, and their scope ranges from intelligent voice and data transmission to virtual private networks, or VPN´s, integrated telecommunications packages and managed services.

(b) Transaction objective

The main objective of the transaction is to create an added value for the stockholders of the Company through the projected benefits of synergies, more strength by increasing the size of the Company, more presence on nation wide coverage and more efficiency for the expansion in new cities, among others, which will traduce in an increase of our competitive advantages that Axtel keeps against its actual and future competitors.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The acquisition cost of Avantel was approximately U.S. $520 million (Ps. 5,928,967). This amount includes certain costs and expenses associated with the transaction, such as financial advisory costs, lawyers, independent experts of valuation, among others.

After the recognition of the effects of FRS B-7, an excess in the value of the net assets acquired over the cost of the transaction was recognized of approximately Ps. 1,157,926, and following the rules of the FRS B-7, the excess was proportionally applied to reduce the property, systems and equipment and intangible assets.

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As of November 30, 2007, the effect of the assets acquired and liabilities assumed after the adjustments made during 2007 are as follows:

Preliminary Definitive Balance Sheet: Value Adjustments Value

Current assets Ps. 1,242,121 - 1,242,121 Property, systems and equipments, net 6,568,961 (597,333 ) 5,971,628 Intangible assets 831,100 (122,870 ) 708,230 Deferred income tax 748,093 595,007 1,343,100 Others 84,604 - 84,604

Total of assets acquired 9,474,879 (125,196 ) 9,349,683

Current liabilities 2,455,832 (107,687 ) 2,348,145 Long term liabilities 867,201 (17,509 ) 849,692

Total of liabilities assumed 3,323,033 (125,196 ) 3,179,837

Net assets acquired Ps. 6,151,846 - 6,151,846

As of December 31, 2006 the revenues and costs of Avantel that were included in the consolidated financial statements amounted to Ps. 689,835 and Ps. 567,793, respectively.

The main adjustments are detailed as follows: Property, systems and equipment: The additional adjustments during the period were related with the final appraisal realized · by independent experts, cancellation of systems that will not be used anymore and will be replaced by systems of Axtel and the effects of the of negative goodwill.

Intangible assets: The additional adjustments during the period were related with the final appraisal realized by independent · experts and the effects of the negative goodwill.

Deferred income taxes: The adjustments were related mainly to the cancellation of reserves of tax loss carryforwards from · Avantel subsidiaries for better results than they were expected in 2006, and the effect derived from the other adjustments mentioned above.

Current liabilities: These adjustments correspond to the elimination of the accrual created in connection to the early · termination of links leased by Avantel. The terminated contracts did not have any cost associated.

· Long-term liabilities: This adjustment corresponds to the cancellation of the pension plan as mentioned in note 18.

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(d) Pro forma financial information

We derived the summary unaudited pro forma financial information from our consolidated financial statements of Axtel, S.A.B. de C.V. and Subsidiaries and the combined financial statements of Avantel Infraestructura, S. de R.L. de C.V. and Subsidiaries and Avantel, S. de R.L. de C.V. adjusted to give effects to the purchase method of accounting for the acquisition described above and the results of operations as through the combination had been completed at the beginning of 2005 and 2006.

The Company provides the unaudited pro forma financial information for informational purposes only. They do not purport to indicate the operating results or financial position that would have been achieved if the acquisition had occurred on the assumed dates, nor do they purport to indicate our future operating results or financial position.

The unaudited consolidated pro forma financial information is as follows:

Years ended December 31: 2006 2005 (Unaudited) (Unaudited)

Revenues Ps. 12,202,687 11,701,269 Costs of revenues and services (4,917,435 ) (4,873,823 ) Selling and administrative expenses (3,782,407 ) (3,931,166 ) Depreciation and amortization (2,676,745 ) (2,513,591 ) Operating income 826,100 382,687 Net income (loss) 10,527 (113,052 ) Earnings (loss) per share 0.00 (0.04 )

(6) Foreign currency exposure

Monetary assets and liabilities denominated in dollars as of December 31, 2007 and 2006 are as follows:

(Thousands of dollars) 2007 2006

Current assets 125,138 120,606 Current liabilities (82,750 ) (85,125 ) Long-term liabilities (552,826) (587,343) Foreign currency liability position, net (510,438) (551,862)

The U.S. dollar exchange rates as of December 31, 2007 and 2006 were Ps. 10.86 and Ps. 10.88, respectively. As of February 25, 2008, the exchange rate was Ps. 10.80 to $1.

As of December 31, 2007, the Company had foreign exchange derivative instruments (see note 8).

As of December 31, 2007 and 2006, the Company had the following non-monetary assets of foreign origin, the replacement cost of which may only be determined in dollars:

(Thousands of dollars) 2007 2006 Inventories 11,602 4,154 Systems and equipment, gross 1,172,351 1,164,437 1,183,953 1,168,591

Following is a summary for the years ended December 31, 2007, 2006 and 2005, of transactions carried out with foreign entities, excluding imports and exports of systems and equipment:

(Thousands of dollars) 2007 2006 2005

Telephone services 79,996 7,505 - Interest expense 61,493 34,569 30,869 Commissions 6 21 223 Administrative and technical advisory services 4,107 1,336 1,311 Cost of services 1,115 591 -

146,717 44,022 32,403

(7) Accounts receivable

Accounts receivable consist of the following:

2007 2006 Trade Ps. 3,188,094 2,880,468 Less allowance for doubt accounts 1,365,745 1,219,908 Accounts receivable, net Ps. 1,822,349 1,660,560

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The activity in the allowance for doubtful accounts for the years ended December 31, 2007, 2006 and 2005 was as follows:

2007 2006 2005

Balances at beginning of year Ps. 1,175,711 179,043 100,219 Bad debt expense 190,034 119,563 78,873 Write-offs - (13 ) (49 ) Avantel - 877,118 -

Balances at end of year not adjusted for inflation 1,365,745 1,175,711 179,043

Effects of inflation - 44,197 14,260

Balances at year end at constant pesos Ps. 1,365,745 1,219,908 193,303

(8) Derivative instruments and hedging activities

The Company and its subsidiaries are exposed, by their normal business relations, to some financial risks such as interest rate risks and foreign exchange rate risks, principally. To mitigate the exposure to those risks, the Company and its subsidiaries use financial derivative instruments.

By using derivative financial instruments to hedge exposures to foreign exchange rate fluctuations, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit counterparty risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality foreign financial counterparties.

For financial derivative instruments that are designated as hedging activities, the Company and its subsidiaries formally document the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed and the methodology to measure the ineffectiveness.

The Company and its subsidiaries assess, prospectively and retrospectively, at inception and on an ongoing basis whether the derivatives used in hedging transactions are highly effective according to accounting standards. The ineffective portion of the change in fair value of a derivative instrument is recorded in the results as part of the CFR.

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Financial derivative instruments designated as hedges

According to the accounting models for hedging activities that are permitted by financial accounting standards, the dimension, risks and estimated impact in the balance sheet or income statement of the following financial derivative instruments are presented below. Contrarily to financial instruments with trading purposes, the derivatives designated as hedges will not generate volatility in the income statement, as long as the instruments are highly effective and continue to meet the financial accounting standards to keep the classification as hedging activities:

Fair value hedge

(Amounts in charts are expressed in million)

Currencies Interest Rates Notional amount Axtel Axtel Estimated fair Maturity date Notional amount (USD) (MXP) receives pays value

February 29, 2012 U.S. $ 110.23 Ps. 1,216 Libor + 1.5 TIIE +1.35 U.S. $(2.4)

For the year ended December 31, 2007 the change in the fair value of the hedging activity of the syndicated term loan resulted in an unrealized loss amount of U.S. $3.1 million recognized in the comprehensive financial result, compensates by the change in the fair value of the debt valuated at December 31, 2007 in U.S. $2.9 million.

Cash flow hedge

On March 29, 2004, the Company entered into a derivative a Ps-USD CCS to hedge a portion of its U.S. dollar foreign exchange exposure resulting from the issuance of the U.S. $175 million 11% senior notes, which matures in 2013. Under this a) CCS transactions, Axtel will receive semiannual payments calculated based on the aggregate notional amount of U.S. $113.75 million at an annual U.S. rate of 11%, and the Company will make semiannual payments calculated based on the aggregate of Ps. 1,270,019 (nominal value) at annual rate of 12.30%.

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Derived from the reopening of the issuance on March 2005 for U.S. $75 million and as a complement of the hedge strategy mentioned above, on June 6, 2005, the Company entered into a new derivative a Ps-USD CCS. The purpose of this agreement was to hedge the remaining portion of its U.S. dollar foreign exchange exposure resulting from the first issuance, and the b) totality of its U.S. $75 million issuance. Under this agreement, Axtel will receive semiannual payments calculated based on the aggregate notional amount of U.S. $136.25 million at an annual rate of 11%, and the Company will make semiannual payments calculated based on the aggregate of Ps. 1,480,356 (nominal value) at annual rate of 12.26%.

On February 3, 2007, the Company entered into a new derivative IOS (“Interest Only Swap”). The purpose of this agreement was to hedge the debt service from its new U.S. dollar bond issuance. Under this agreement, Axtel will receive semiannual c) payments calculated based on the aggregate notional amount of U.S. $275 million at a fixed annual rate of 7.625%, and the Company will make semiannual payments calculated based on the aggregate of Ps. 3,038,750 (nominal value) at a fixed annual rate of 8.54%.

As of December 31, 2007, the CCS information is as follows:

(Amounts in charts are expressed in million)

Currencies Interest Rates Notional amount Axtel Axtel Notional amount (nominal value) Receives pays Estimated fair Maturity date (USD) (MXP) (USD) (MXP) value

December 15, 2008 U.S. $ 113.75 Ps. 1,270 11.00% 12.30% U.S.$ (1.6) December 15, 2008 U.S. $ 136.25 Ps. 1,480 11.00% 12.26% U.S.$ (1.5) February 1, 2012 U.S. $ 275.00 Ps. 3,039 7.86% 8.54% U.S.$ (4.2)

Derivatives designated as trading

The Company only enters into financial derivative instrument that it intends to mitigate a forecasted transaction or the unpredictability of cash flows to be received or paid related to a recognized asset or liability. The Company does not speculate using financial instruments.

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However, the Company redeemed 35% of the issuance of U.S. $250 million derived from the issuances of debt of December, 2003 and March, 2005. In the face of this situation and originated by the closing of Swaps described in sections a) and b) from the paragraph “Cash flow hedges”, the Company stayed with an “over-hedge” in these derivatives therefore it decided to cover this excess of hedge with an inverse operation having the volatility of this portion being registered in the CFR. This operation is a CCSS (Currency Swap), in this transaction the Company receives 12.26% over a notional amount of Ps. 950.7 million and pays 11% over the notional amount of U.S. $87.5 million. According to the financial reporting standards this Swap does not comply with the requirements to be registered as a risk hedge, however it is considered as an economic hedge by the Company. The CCS information is as follows:

(Amounts in charts are expressed in million)

Currencies Interest Rates Axtel Axtel Notional amount Notional amount receives pays Estimated fair Maturity date (USD) (MXP) (MXP) (USD) value

December 15, 2008 U.S. $ 87.50 Ps. 950.7 12.26% 11.0% U.S. $0.9

For the year ended December 31, 2007 the added value of U.S. $1.0 million of this operation was registered in the comprehensive financial result.

Embedded derivatives

(9) Related parties transactions

The main transactions with related parties, during the years ended December 31, 2007, 2006 and 2005 are as follows:

2007 2006 2005

Telephone services Ps. 595,055 94,309 - Commissions and administrative services Banamex 19,490 5,801 - Interest expense 146,894 12,757 - Commissions for debt restructure - 41,016 - Lease expense 24,198 24,452 46,845 Banamex deferred revenue 437,918 724,767 - Installations services expense 7,429 6,425 6,238 Others 2,594 - 9,692

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During December 2006, Avantel received from Banamex approximately U.S. $40 million in relation to diverse contracts of services between them. One of the contracts is to provide services of technical support on site during 60 months and the second contract consists in the prepayment of 13 months of recurring telephony services for three years. During 2007, Avantel received from Banamex approximately U.S. $39 million in relation to the contract of the prepayment of 13 months of recurring telephony services.

In 2005, the Company entered into a service agreement for marketing and advertising inside a theme park.

In March and May 2000, the Company entered into a lease agreement with Gemini, S.A. de C.V. for the lease of land and property on which the corporate offices and certain infrastructure are located.

In April 2002, the Company signed a service agreement with Instalaciones y Desconexiones Especializadas, S.A. de C.V. for the provision of installation services with regard to customer premise equipment.

The due from and due to balances with related parties as of December 31, 2007 and 2006 are as follows:

2007 2006

Due from: Operadora de Parques y Servicios, S.A. de C.V. Ps. 1,996 4,942

2007 2006

Due to: GEN Industrial, S.A. de C.V. Ps. 45 - Instalaciones y Desconexiones Especializadas, S.A. de C.V. 329 - Neoris de Mexico, S.A. de C.V. 8,423 - Total Ps. 8,797 -

As of December 31, 2007 the Company has debt with Citibank, N.A. and Banamex, S.A. as described in note 16.

(10) Inventories

Inventories consist of the following:

2007 2006 Telephones and caller identification devices Ps. 17,308 32,643 Installation material 18,653 10,220 Tools 11,240 9,164 Network spare parts 54,313 35,613 Other 66,375 15,430 Total inventories Ps. 167,889 103,070

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(11) Property, systems and equipment

Property, systems and equipment are as follows:

Useful 2007 2006 lives

Land Ps. 162,100 168,202 Building 344,377 355,908 25 years Computer and electronic equipment 1,849,492 1,542,930 3 years Transportation equipment 88,791 107,764 4 years Furniture and fixtures 138,060 120,733 10 years Network equipment 18,070,984 16,376,096 6 to 28 years Leasehold improvements 244,930 198,324 5 to 14 years Construction in progress 1,475,384 1,130,535 Advances to suppliers 19,646 28,501

22,393,764 20,028,993 Less accumulated depreciation 8,713,893 5,992,392

Property, systems and equipment, net Ps. 13,679,871 14,036,601

The Company has capitalized CFR in construction in progress as a complement of the acquisition cost, for an accumulated amount of Ps. 13,006, as of December 31, 2007. The CFR capitalized during 2007 amounted to Ps. 10,545. During 2006 the Company did not capitalized CFR.

(12) Pre-operating expenses, net

The capitalized pre-operating expenses incurred up to June 1999 and expenses incurred during 2000, 2004, 2005 and 2006 in opening new operations are as follows:

2007 2006

Salaries Ps. 231,963 231,963 Legal and financial advisory 118,238 118,238 Operating expenses 96,649 96,649 Depreciation 10,275 10,275 Comprehensive financing result (25,929 ) (25,929 ) Service and other revenues (14,657 ) (14,657 ) Other 40,880 40,880 457,419 457,419 Less accumulated amortization 345,522 297,828

Pre-operating expenses, net Ps. 111,897 159,591

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(13) Investment in shares of associated company

As of December 31, 2007 and 2006, the investment in shares of associated company through Avantel is represented by a non-controlling 50% interest in the equity shares of Conectividad Inalámbrica 7GHZ, S. de R.L. (Conectividad Inalámbrica). The operation of this company consists in providing radio communication services in Mexico under the concession granted by the SCT. Such concession places certain performance conditions and commitments to this company, such as (i) filing annual reports with the SCT, including identifying main stockholders of the Company, (ii) reporting any increase in common stock, (iii) providing continuous services with certain technical specifications, (iv) to present a code of marketing strategies, (v) to register rates of service, (vi) to provide a bond and (vii) fulfilling the program of investments presented when the company solicited the concession.

Since the Company does not have effective control, this investment is accounted for under the equity method.

Condensed financial information of the associated company as of December 31, 2007 and 2006 is as follows:

Balance Sheet: 2007 2006

Current assets Ps. 12,972 7,955 Intangible assets 17,586 20,909

Total assets 30,558 28,864

Total liabilities 60 611

Stockholders’ equity Ps. 30,498 28,253

50% equity interest Ps. 15,249 14,127

Statement of operations:

Revenues from rent of frequency bands Ps. 5,602 503 Costs of services and operating expenses (2,088 ) (151 )

Operating income 3,514 352

Comprehensive financial results (368 ) 2,953

Deferred income tax (287 ) -

Net income Ps. 2,859 3,305

Equity in income of associated company Ps. 1,430 1,652

As of December 31, 2007 and 2006, the liabilities of the Company with Conectividad Inalámbrica were Ps. 5,194 and Ps. 853, respectively.

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(14) Intangible assets

Intangible assets consist of the following:

2007 2006

Telephone concession rights AXTEL Ps. 1,073,135 1,073,135 Telephone concession rights Avantel 114,336 150,417 Customer list 324,183 401,111 Trade name “Avantel” 186,074 200,555

1,697,728 1,825,218 Less accumulated amortization 639,524 402,404

Intangible assets, net Ps. 1,058,204 1,422,814

Concessions rights of the Company

The Company has either obtained concessions as described below to offer telecommunications services or auctioned the following licenses over the spectrum of frequencies necessary to provide the services:

On June, 1996 Axtel obtained a concession to offer local and long distance telephony services, for a period of thirty years. To maintain this concession the Company needs to comply with certain conditions. It can be renewed for another period of thirty years;

On September 15, 1995 Avantel obtained a concession to offer local and long distance telephony services, for a period of thirty years. · To maintain this concession the Company needs to comply with certain conditions. It can be renewed for another period of thirty years;

· Two concessions in 929 MHz to offer mobile paging services;

50MHz in the 3.4GHz band. The licenses obtained allow nationwide coverage. The investment was Ps. 831,043 for a period of twenty · years with an extension option;

56 MHz in the 7 GHz band, countrywide coverage, for a point-to-point transport (through the property of 50% of Conectividad · Inalámbrica 7GHz, S. de R.L.);

60MHz for Point-to-Multi-Point in the 10.5GHz band nationwide. The acquisition of these twenty-year concessions, with an extension · option, represented an investment of Ps. 160,931 for the Company;

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· 120 MHz in three regions in 10.5 GHz band, for point-to-multi-point access (Concession originally granted to Avantel);

112MHz for Point-to-Point in the 15GHz band and a 100MHz in the 23GHz band, both with nationwide coverage. The acquisition of · these twenty-year concessions, with an extension option, represented an investment of Ps. 81,161 for the Company;

· 56 MHz in the 15 GHz band, nationwide coverage, for point-to-point access and transport (Concession originally granted to Avantel);

· 268 MHz in the 23 GHz band, nationwide coverage, for point-to-point access and transport (Concession originally granted to Avantel);

· 112 MHz in the 37 to 38.6 GHz band, in 5 regions, for point-to-point transport (Concession originally granted to Avantel).

Each license of spectrum has a period of life of 20 years and it can be renovated for additional periods of 20 years as long as Axtel complies with all of its obligations, with all conditions imposed by the law and with any other condition that SCT imposes.

The concessions allow the Company to offer the following services:

· Local telephony service; · National long distance telephony service; Selling or leasing of network capacity for the generation, transmission or reception of data, signs, images, voice, sounds and other type · of information of any kind; · Selling or leasing network capacity from other countries, including the leasing of digital circuits; · Value added services; · Operator services; · Mobile paging services; Data services, video, audio conferences and videoconferences, except to restricted TV, continuous services of music or digital audio · services; and · Prepaid phone cards or credit phone cards.

In November 2006, SCT granted us, as part of the concession of Axtel, a new permission to provide SMS (short messaging system) to our customers.

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Intangible assets from the acquisition of Avantel

Derived from the acquisition of Avantel, the Company recorded certain intangibles assets such as: trade name “Avantel”, customer relationships and telephone concession rights, whose value was determined by using independent external expert appraiser in accordance with FRS B-7 and FAS 141. The trade name and the customer relationships that will be amortized over three to five years using the sum of the years’ digits method, which we believe best reflects the estimated pattern in which the economic benefits of those relationships will be consumed. The telephone concession right will be amortized over the remaining term of the concession on a straight-line basis.

For the mentioned above intangibles assets we will assess whether any indicators of impairment exist that would trigger a test of any of these definite lived intangible assets, including, but not limited to, a significant decrease in the market price of the asset or cash flows, or a significant change in the extent or manner in which the asset is used. We will also evaluate the remaining useful lives of our definite lived intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization, which would be addressed prospectively. For example, we review certain trends such as customer churn, average revenue per user, revenue, our future plans regarding the network and changes in marketing strategies, among others.

(15) Other assets

Other assets consist of the following:

2007 2006

Notes issuance costs Ps. 143,730 99,533 Deferred financing costs 41,016 89,826 Telmex / Telnor infrastructure costs 68,279 68,279 WTC concession rights 22,474 22,474 Guarantee deposits 35,572 44,737 Other 97,196 49,585

408,267 374,434 Less accumulated amortization 134,254 65,227

Other assets, net Ps. 274,013 309,207

Notes issuance costs

Notes issuance costs mainly consists of legal and audit fees, documentation, advising, printing, rating agencies, registration fees and out of pocket expenses incurred in relation to the issuance of notes payable and are amortized on a straight line basis over the life of the related debt.

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Telmex / Telnor infrastructure costs

As part of the opening of the telecommunications market in Mexico, new telecommunications companies must have interconnection with Teléfonos de Mexico (Telmex) and Teléfonos del Noroeste (Telnor). These two companies made agreements with the new entrants by which they must compensate Telmex and Telnor for their investment in infrastructure that Telmex / Telnor made in order to provide interconnection for the new telephone companies in Mexico.

During 2005, the Company recognized the remaining portion of the amount related to the infrastructure costs. These costs will be amortized on a straight line method over a period of fifteen years, the estimated useful life of this infrastructure.

Deferred financing costs related with the acquisition of Avantel

The deferred financing costs incurred in the acquisition of Avantel will be amortized based upon the terms of the loans that they are related using the effective interest method.

World Trade Center (WTC) concession rights

Represent the amount paid for obtain concession rights to operate in the WTC building located in Mexico City. This right is amortized over a ten year period which is the length of the agreement.

(16) Long-term debt

Long-term debt as of December 31, 2007 and 2006 consist of the following:

2007 2006 5 U.S. $275,000,000 in aggregate principal amount of 7 /8 % Senior Unsecured Notes due 2017. Interest is payable semiannually in February 1 and August 1 of each year. Ps. 2,988,205 -

U.S. $162,500,000 in aggregate principal amount of 11% Senior Unsecured Notes due 2013. Interest is payable semiannually in arrears on June 15, and December 15 of each year. 1,765,758 1,834,631

Premium on Senior Notes issuance 27,291 32,319

Unsecured Bridge Loan with Credit Suisse, Cayman Island Branch, as the administrative agent, for an aggregate amount of U.S. $310.9 million, with an interest rate of LIBOR + 125 basis points, maturing in May 2008. - 3,510,636

Unsecured Syndicated Loan with Citibank, N.A., as the administrative agent, and Banamex as the peso agent, with a peso tranche in the aggregate amount of Ps. 1,042.4 and a U.S. dollar tranche in the aggregate amount of U.S. $110.2. The final maturity date is February 2012, with quarterly principal repayments starting February 2010, with an interest rate for the tranche in pesos of TIIE + 150 basis points, and the tranche in U.S. dollar of LIBOR + 150 basis points. 2,240,091 2,325,992

Change in the fair value of syndicated loan (31,023) -

Capacity lease agreement with Teléfonos de Mexico, S.A.B. de C.V. of approximately Ps. 800,000 payable monthly and expiring in 2011. 534,271 593,702

Other long-term financing with several credit institutions with interest rates fluctuating between 6.0% and 7.5% for those denominated in dollars and TIIE (Mexican average interbank rate) plus three percentage points for those denominated in pesos. 120,525 160,209

Less current maturities 160,163 163,207

Long-term debt, excluding current maturities Ps. 7,484,955 8,294,282

Annual installments of long-term debt are as follows:

Year Amount

2009 Ps. 40,561 2010 1,060,740 2011 1,057,763 2012 and thereafter 5,325,891

Ps. 7,484,955

As of December 31, 2007 and 2006 long-term debt principal characteristics are as follows:

On February 2, 2007, the Company issued U.S. $275 million of 10-year unsecured senior notes. This issuance matures on February 1, 5 2017. Interest will be payable semiannually and the senior notes bear interest at 7 /8 % beginning on August 1, 2007. The proceeds of this issuance were used to prepay the bridge financing related to the December 2006 acquisition of Avantel.

On December 4, 2006, the Company entered into an Unsecured Bridge Loan Facility with Credit Suisse, Cayman Island Branch, as the Administrative Agent, for an aggregate amount of U.S. $310,950,000. The bridge loan facility matures eighteen months after the initial drawdown date. With an interest rate of LIBOR +125 basis points. This loan was prepaid on February 2, 2007. Certain subsidiaries of the Company guaranteed this facility.

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On December 4, 2006, The Company entered into an Unsecured Credit Agreement with Citibank, N.A. as the Administrative Agent and Banamex as the Peso Agent, and it was modified later on February 23, 2007, with a peso tranche in the aggregate amount of Ps. 1,042,362,416 and a U.S. dollar tranche in the aggregate amount of U.S. $110,225,133. The credit agreements bear interest rate at LIBOR + 150 basis points for the tranche in U.S. dollar and TIIE + 150 basis points for the peso tranche. Avantel, S de R.L. de C.V., Avantel Infraestructura, S. de R.L. de C.V. and Adequip, S.A. guarantee this credit agreement.

On February 22, 2006 the Company redeemed U.S. $87,500,000 aggregate principal amount of its 11% senior notes due 2013, or 35% of the U.S. $250,000,000 original aggregate principal amount of the notes. The redemption was made at a price of 111% of the principal amount of the notes, plus accrued and unpaid interest to the redemption date. The premium paid on this transaction was U.S. $9.6 million, which was recorded in the statement of operations as part of the comprehensive financing result.

On October 1, 2006, Avantel Infraestructura, S. de R.L. a subsidiary of Axtel S.A.B. de C.V. from December 4, 2006 entered into a capacity lease agreement with Teléfonos de México, S.A.B. de C.V. for purposes of connecting the installations of Avantel and those of Telmex in certain cities by using dedicated links of data for an amount of approximately Ps. 800,000. The monthly lease payment for this contract is approximately Ps. 15 million. The Company evaluated this lease agreement and determined that the present value of the minimum future payments is substantially equal to the market value of the infrastructure and dedicated equipment. Such market value was determined by an independent expert telecommunications appraiser registered within the COFETEL. The Company recorded the lease as a capital lease according to FRS.

Avantel evaluated this lease agreement and determined that the present value of the minimum future payments is substantially equal to the market value of the infrastructure and dedicated equipment. Such market value was determined by an independent expert telecommunications appraiser registered within the COFETEL. Avantel recorded the lease as a capital lease according to FRS D-5.

Some of the debt agreements that remain outstanding establish certain covenants, the most significant of which refer to limitations on dividend payments and comprehensive insurance on pledged assets. For the year ended December 31, 2007, the Company was in compliance with all of its covenants.

(17) Other accounts payable

As of December 31, 2007 and 2006 other accounts payable consist of the following:

2007 2006

Guarantee deposits (note 22(a)) Ps. 141,261 146,770 Interest payable (note 22(a)) 72,430 58,598 Labor reserves 3,701 122,955 Guarantee deposit (SR Telecom) 69,631 - Other 106,983 182,882

Ps. 394,006 511,205

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(18) Labor obligations

The cost of the obligations and other elements of seniority premiums, severance payments and pensions mentioned in note 3(l) have been determined based on independent actuarial calculations as of December 31, 2007 and 2006.

The components of the net periodic cost for the years ended December 31, 2007, 2006 and 2005 are as follows:

2007 2006 2005 Seniority Severance Seniority Severance Seniority Severance Premium payments Premium payments Pensions premium payments Net periodic cost: Labor cost Ps. 1,677 6,019 975 4,156 - 752 4,558 Financial cost 281 1,296 151 772 - 106 766 Amortization of transition obligation 1 3,453 1 3,446 - 1 1,649 Variances in assumptions and experience adjustments (53 ) (1,782 ) 47 72 - 15 - Inflationary effect 71 359 48 338 - 34 353 Net periodic cost before Avantel’s acquisition Ps. 1,977 9,345 1,222 8,784 - 908 7,326 Labor cost of Avantel - - 46 338 2,085 - - Net periodic cost Ps. 1,977 9,345 1,268 9,122 2,085 908 7,326

The actuarial present value of plan benefit obligations is as follows:

2007 2006 Seniority Severance Seniority Severance premium payments premium payments Pension

Present benefit obligation Ps. 10,931 41,429 4,567 24,004 - Present value of benefits attributable to future salary increases 662 1,843 331 1,075 - Projected benefit obligation (PBO) 11,593 43,272 4,898 25,079 - Items pending amortization: Variances in assumptions and experience adjustments (548 ) 14,631 (1,179 ) (3,087 ) - Transition liability (3 ) (11,502 ) (5 ) (15,059 ) - Minimum additional liability 71 - 852 17,070 - Net projected liability recognized on the consolidated balance sheet before Avantel’s acquisition 11,113 46,401 4,566 24,003 - Obligations from Avantel’s acquisition - - 7,757 32,766 35,145 Labor periodic cost - - 46 338 2,085 Reclassification to reserve for personal restructuring - - (2,190 ) (9,813 ) (9,197 )

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The most significant assumptions used in the determination of the net periodic cost of plan are the following:

Discount rate used to reflect the present value of obligations 4.00% 4.00% 4.00% -5.00% 4.00% -5.00% 5.00% Rate of increase in future salary levels 1.00% 1.00% 0.75% -1.00% 0.75% -1.00% 0.75% Amortization period of the transition liability 16 years 6 years 17 years 6 years 20.37 years

On May 1, 2007, all the personnel of Avantel Recursos, S.A. de C.V. and Avantel Servicios, S.A. de C.V. were transferred to Servicios Axtel, S.A. de C.V. and Instalaciones y Contrataciones, S.A. de C.V., respectively, transferring with it, all the obligations and rights in labor matters that the personnel had until such date on each of the companies substituted. As part of the standardization of benefits, the pension plan belonging to personnel transferred was concluded.

(19) Income tax (IT), tax on assets (TA), employee statutory profit sharing (ESPS) and tax loss carryforwards

The parent company and its subsidiaries file their tax returns on a stand-alone basis, and the consolidated financial statements show the aggregate of the amounts determined by each company.

In accordance with the current tax legislation prior to the enactment of the new tax laws in October 2007 described below, companies must pay either the IT or TA, whichever is greater. Both taxes recognize the effects of inflation, in a manner different from financial reporting standards.

On October 1, 2007, new tax laws were published, a number of tax laws were revised, and additionally a presidential decree was issued on November 5, 2007, which was effective on January 1, 2008. The most important changes are: (i) elimination of the Asset Tax Law and (ii) the introduction of a new tax (Flat Rate Business Tax or IETU), which is based on cash flows and limits certain deductions; additionally, certain tax credits are granted mainly with respect to inventories, salaries taxed for IT purposes and social security contributions, tax losses arising from accelerated deductions, recoverable asset tax (AT), and deductions related to investments in fixed assets, deferred charges and expenses. The IETU rate is 16.5% for 2008, 17% for 2009, and 17.5% for 2010 and thereafter.

Accordingly, beginning in 2008, companies will be required to pay the greater of IETU or IT. If, IETU results, the payment will be considered final and not subject to recovery in subsequent years (with certain exceptions).

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At December 31, 2007, the Company has evaluated according to Financial Reporting Standards Interpretation (INIF-8 “Efectos del Impuesto Empresarial a Tasa Unica”) and after the evaluation, the Company estimated that the tax payable in future years will be IT. Deferred tax effects as of December 31, 2007 have been recorded on the IT basis using a tax rate of 28%.

The TA law establishes a 1.8% tax on assets adjusted for inflation in the case of inventory, property, systems and equipment and net of certain liabilities in accordance with the law. TA levied in excess of IT for the year can be recovered in the succeeding ten years, updated for inflation, provided that in any of such years IT exceeds TA.

Effective January 1, 2002, a new Income Tax Law had been enacted, which provided for a 1% annual reduction in the income tax rate beginning in 2003, so that the income tax rate would have been 32% in 2005. In December 2004, the Mexican Congress approved changes to the Income Tax Law where the tax rate for 2005 was further reduced to 30%. Also, for years 2006 and 2007, the tax rates will decrease to 29% and 28%, respectively. Consequently, the deferred tax assets and liabilities as of December 31, 2007 were calculated using a 28% tax rate. The effects of the reduction in the deferred income tax calculation for 2006 and 2005 were Ps. 12,055 and Ps. 10,924, respectively.

The income tax expense attributable to the income before IT differed from the amount computed by applying the tax rate of 28% in 2007, 29% in 2006 and 30% in 2005 to pretax income, as a result of the items mentioned below:

2007 2006 2005

Computed “expected” income tax (expense) Ps. (244,374 ) (98,110 ) (142,488 ) (Increase) decrease in income tax expense resulting from: Effects of inflation, net (1,432 ) (9,179 ) (1,867 ) Change in valuation allowance (101,463 ) 2,649 (3,346 ) Deferred employee’s profit sharing 3,806 - - Adjustments to deferred tax assets and liabilities for enacted changes in tax rates - 12,055 10,924 Accelerated tax depreciation effects (43,550 ) (37,688 ) - (Non-deductible expenses) non-taxable income (5,757 ) 5,530 (23,473 ) Other 9,570 7,193 (7,631 )

Income tax expense Ps. (383,200 ) (117,550 ) (167,881 )

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2007 and 2006 are presented below:

2007 2006 Deferred tax assets: Net operating loss carryforwards Ps. 968,090 1,426,521 Allowance for doubtful accounts 126,117 84,496 Accrued liabilities 368,420 226,386 Recoverable AT 418,851 332,540 Premium on bond issuance 10,179 12,719 Fair value of derivative instruments 17,090 12,504

Total gross deferred tax assets 1,908,747 2,095,166

Less valuation allowance 530,355 428,892

Net deferred tax assets 1,378,392 1,666,274

Deferred tax liabilities: Property, systems and equipment 63,486 507,118 Telephone concession rights 171,848 232,207 Intangible and other assets 206,969 306,072

Total gross deferred tax liabilities 442,303 1,045,397

Net deferred tax assets Ps. 936,089 620,877

The rollforward for the net deferred tax asset for the years ended December 31, 2007 and 2006 is presented below:

2007 2006

Balances at beginning of year Ps. 620,877 18,562 Deferred IT expense (284,381 ) (112,656 ) Deferred IT of derivative financial instruments in stockholders’ equity 4,586 (11,903 ) Deferred IT from Avantel acquisition 595,007 726,874

Balances at end of year Ps. 936,089 620,877

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In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax-planning strategies in making this assessment. In order to fully realize the deferred tax asset as of December 31, 2007, the Company will need to generate future taxable income prior to the expiration of the net operating loss carryforwards in various dates as disclosed below. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2007. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. As of December 31, 2007, a valuation allowance was primarily established for the deferred tax assets related to TA, tax loss carryforwards of the Company’s subsidiaries and allowance for doubtful accounts.

According to the IT law, the tax loss carryforwards and TA carryforwards of each year, restated by inflation, may be carried to the succeeding ten years to offset IT only. As of December 31, 2007, the tax loss carryforwards and recoverable TA expire as follows:

Inflation-adjusted tax loss Year carryforwards Recoverable TA

2008 Ps. 1,177,505 - 2009 463,804 - 2010 367,233 - 2011 146,863 70,004 2012 663,555 50,451 2013 454,992 76,966 2014 92,634 72,514 2015 11,489 31,307 2016 75,263 31,298 2017 4,128 86,311

Ps. 3,457,466 418,851

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The tax effects of temporary differences that give rise to deferred employee’s profit sharing as of December 31, 2007 and 2006 are presented below:

2007 2006 Deferred ESPS assets: Accrued liabilities Ps. 2,013 13,793 Accrued for labor obligations 6,554 13,871 Other payroll accruals 7,489 5,526

Net deferred ESPS asset 16,056 33,190

Deferred ESPS liabilities: Deferred income 1,876 3,942 Other - 1,474

Total deferred ESPS liability 1,876 5,416

Deferred ESPS asset, net Ps. 14,180 27,774

The rollforward for the net deferred employee's profit sharing asset for the years ended December 31, 2007 and 2006 is presented below:

2007 2006

Balances at beginning of year Ps. 27,774 - Deferred ESPS (expense) benefit (13,594 ) 4,699 Deferred ESPS for acquisition of Avantel - 23,075

Balances at end of year Ps. 14,180 27,774

Total ESPS expense was calculated from the individual net income of each subsidiary that has employees. The tax profit for ESPS effects of these companies for the year ended December 31, 2007 and 2006 were Ps. 60,880 and Ps. 15,700, respectively.

(20) Stockholders’ equity

The principal characteristics of stockholders’ equity are described below:

(a) Common stock structure

At December 31, 2007, the Company has 8,769,353,223 shares issued and outstanding. Company’s shares are divided in two Series: Series A and B; both Series have two type of classes, Class “I” and Class “II”, with no par value. From the total shares, 96,636,627 shares are Series A and 8,672,716.596 shares are Series B. At December 31, 2007 the Company has only issued Class “I” shares. Also, at December 31, 2007 all shares issued are part of the fixed portion.

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On August 31, 2007, the stockholders’ approved a three-for-one stock split (the split). The split became effective on October 8, 2007. The proportional equity interest participation of existing stockholders did not change as a result of the split. For comparison purposes, the number of shares is presented adjusted for the effects of the split. Following table shows the effects of the split:

Number of Shares before the Number of Shares after the Split Split

Series A Shares 32,212,209 96,636,627

Series B Shares 2,890,905,532 8,672,716,596

Total of Shares 2,923,117,741 8,769,353,223

The percentages of shares holding did not change as a result of the split. For comparability the number of shares have been adjusted for the split in all periods presented.

The following represents a rollforward of Company’s shares for the years ended December 31, 2007, 2006 and 2005, after considering the effects of the split:

Issued and subscribed Additional paid- shares Common stock in capital

Balances as of December 31, 2004 7,601,120,598 Ps. 7,925,950 156,827

Shares issued and subscribed 921,690,000 751,832 400,108

Balances as of December 31, 2005 8,522,810,598 8,677,782 556,935

Issuance costs - - (9,804)

Balances as of December 31, 2006 8,522,810,598 8,677,782 547,131

Shares issued and subscribed 246,542,625 192,280 194,540

Balances as of December 31, 2007 8,769,353,223 Ps. 8,870,062 741,671

As of December 31, 2007, the common stock of the Company is Ps. 6,625,536 (nominal value), represented by 96,636,627 common shares, with no nominal value, Class “I”, “A” Series, subscribed and paid, and 8,672,716,596 common shares, with no nominal value, Class “I”, “B” Series, subscribed and paid.

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In relation to our acquisition of Avantel also included a Series B Shares Subscription Agreement (‘‘Subscription Agreement’’) with Tel Holding, an indirect subsidiary of Citigroup, Inc., for an amount equivalent to up to 10% of Axtel’s common stock. To give effect to the above, we obtained stockholder approval (i) to increase our capital by issuing Series B Shares in a number that was sufficient for Tel Holding to subscribe and pay for Series B Shares (in the form of CPOs) representing up to a 10% equity participation in Axtel; and (ii) for the subscription and payment of the Series B Shares that represented the shares subscribed for by Tel Holding and any shares subscribed for by stockholders that elected to subscribe and pay for additional Series B Shares in exercise of their preferential right granted by the Mexican General Corporation Law.

On December 22, 2006 pursuant to the Subscription Agreement, we received a notice from Tel Holding confirming that it acquired 533,976,744 Series B Shares (represented by 76,282,392 CPOs) from the Mexican Stock Exchange (Bolsa Mexicana de Valores, or ‘‘BMV’’) and confirming its intention to subscribe and pay for 246,453,963 new Series B Shares (represented by 35,207,709 CPOs). The new Series B Shares were subscribed and paid for, which we refer to herein as the ‘‘Equity Subscription,’’ by Tel Holding through the CPOs Trust on January 4, 2007. Tel Holding may not, subject to certain exceptions, transfer CPOs purchased in the Equity Subscription until January 3, 2008. The price per share acquired by Tel Holding amounted to Ps. 4.56 per share (nominal value), which was the market value at the date of the subscription.

(b) Stockholders’ equity restrictions

Stockholders’ contributions, restated for inflation as provided in the tax law, totaling Ps. 6,981,059 may be refunded to stockholders tax-free.

No dividends may be paid while the Company has a deficit. Some of the debt agreements mentioned in note 16 establish limitations on dividend payments.

The comprehensive income reported on the statements of stockholders’ equity represents the results of the total performance of the Company during the year, and includes the items mentioned below which, in accordance with Mexican FRS, are reported directly in stockholders’ equity, except for net income.

2007 2006 2005

Net income Ps. 490,996 222,412 307,080 Fair value of derivative instruments (16,378 ) 42,511 (86,832 ) Deferred IT of derivative financial instruments 4,586 (11,903 ) 24,406

Comprehensive income (loss) Ps. 479,204 253,020 244,652

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(21) Telephone services and related revenues

Revenues consist of the following:

2007 2006 2005

Local calling services Ps. 5,336,628 4,330,038 3,770,802 Long distance services 1,532,176 583,605 487,895 Data services 2,513,751 459,063 215,652 International Traffic 1,210,233 552,791 509,266 Other services 1,597,822 750,215 378,778

Ps. 12,190,610 6,675,712 5,362,393

(22) Commitments and contingencies

As of December 31, 2007, the Company has the following commitments and contingencies:

On January 24, 2001 a contract was signed with Global Towers Communications Mexico, S. de R.L. de C.V. (Formerly Spectrasite Communications Mexico, S. de R.L. de C.V.) expiring on January 24, 2004, to provide the Company with services to locate, (a)construct, set up and sell sites within the Mexican territory. As part of the operation, the Company agreed to build 650 sites, subject to approval and acceptance by Global Towers Communications Mexico, S. de R.L. de C.V. (Global Towers) and, in turn, sell or lease them under an operating lease plan.

On January 24, 2001, the Company received 13 million dollars from Global Towers to secure the acquisition of the 650 sites at 20,000 dollars per site. These funds are not subject to restriction as per the contract for use and destination. However, the contract provides for the payment of interest at a Prime Rate in favor of Global Towers on the amount corresponding to the number of sites that as of June 24, 2004 had not been sold or leased in accordance with the terms of the contract. The Company has recognized a liability to cover such interest for Ps. 72,430 and Ps. 58,621, respectively, included within other accounts payable in the balance sheet as of December 31, 2007 and 2006, respectively.

During 2002, Global Towers filed an Ordinary Mercantile Trial against the Company before the Thirtieth Civil Court of Mexico City, demanding the refund of the guarantee deposit mentioned above, plus interest and trial-related expenses. The Company countersued Global Towers for unilateral rescission of the contract. As of December 31, 2007, the trial is at a stage where evidence is being shown.

On December 14, 2007, the Company subscribed an agreement with Metronet, S.A. de C.V., terminating the lawsuit that Metronet (b) filed against the Company. From this date there is neither a contingency nor a liability for this matter.

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The Company is involved in a number of lawsuits and claims arising in the normal course of business. It is expected that the final (c) outcome of these matters will not have significant adverse effects on the Company’s financial position and results of operations.

In compliance with commitments made in the acquisition of concession rights, the Company has granted surety bonds to the (d) Federal Treasury and to the Ministry of Communication and Transportation amounting to Ps. 1,214 and to other service providers amounting to Ps. 819,648.

The concessions granted by the Ministry of Communications and Transportation (SCT), mentioned in note 2, establish certain obligations to the Company, including, but not limited to: (i) filing annual reports with the SCT, including identifying main (e) stockholders of the Company, (ii) reporting any increase in common stock, (iii) providing continuous services with certain technical specifications, (iv) filing monthly reports about disruptions, (v) filing the services’ tariff, and (vi) providing a bond.

In September and November 2005, Avantel Infraestructura filed before the Federal Court of Tax and Administrative Justice a lawsuit claiming the lack of answer to a petition previously filed by Avantel Infraestructura requesting confirmation of a criterion. This petition was based on the fact that Avantel is not obligated to pay for some governmental services established under article 232, (f)fraction I, of the Federal Rights Law, with respect to the use of exclusive economic geographic zone in Mexico related to certain landing points in “Playa Niño”, region 86, Benito Juarez Itancah Tulum, Carrillo Puerto, and Quintana Roo. The file was turned for study and resolution to the 5th Metropolitan Regional Court of the Federal Court of Tax and Administrative Justice, which is still pending to be admitted.

The Company leases some equipment and facilities under operating leases. Some of these leases have renewal clauses. Lease (g) expense for 2007, 2006 and 2005 was Ps. 457,457, Ps. 397,591 and Ps. 374,245, respectively.

The annual payments under these leases as of December 31, 2007 are as follows:

Contracts in: Pesos (thousands) Dollars (thousands)

2008 Ps. 150,868 $ 9,352 2009 136,816 7,658 2010 106,682 6,214 2011 84,823 5,637 2012 65,974 5,039 Thereafter 338,001 14,761 Ps. 883,164 $ 48,661

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As of December 31, 2007, the Company has placed purchase orders which are pending delivery from suppliers for approximately (h) Ps. 1,334,617.

In connection to one of the contracts that Avantel signed with Telmex on October 2006, Avantel should issue a letter of credit in case of change of control in Avantel, situation that occurred during the month of November, at the moment that Axtel acquired the (i) shares from Tel Holding and Banamex. The amount of this instrument is U.S. $60 million. Axtel is a guarantor of this instrument with Banamex, which issued the letter of credit.

(23) Recently issued accounting standards

The CINIF has issued the following FRS, effective for years beginning after December 31, 2007, and which do not provide for earlier application.

FRS B-10 “Effects of inflation”- FRS B-10 supersedes Bulletin B-10 and its five amendments, as well as the related circulars and INIF (Interpretation of Financial Reporting Standards) 2. The principal considerations established by this FRS are: (i) the change in the value of the Investment Unit (UDI) may be used for determining the inflation for a given period; (ii) the election to use inventory replacement costs as well as specific indexation for fixed assets, is eliminated; (iii) an entity is only required (a) to recognize the effects of inflation when operating in an inflationary economic environment (accumulated inflation equal to or higher than 26% in the most recent three-year period); and (iv) the accounts of Gain or Loss from Holding Non-monetary Assets (RETANM - Spanish abbreviation), Monetary Position Gains or Losses (REPOMO - Spanish abbreviation), and Deficit/ Excess in Equity Restatement, will be reclassified to retained earnings, when the unrealized portion is not identified.

Management is still evaluating the impact of this FRS.

FRS D-3 “Employee benefits”- FRS supersedes Bulletin D-3, the portion applicable to Employee Statutory Profit Sharing (ESPS) of Bulletin D-4 and INIF (Interpretation of Financial Reporting Standards) 4. The principal considerations established by this FRS are: (i) a maximum of five years is established for amortizing unrecognized/unamortized items, and the option is provided for immediate recognition of actuarial gains or losses in results of operations; (ii) the recognition of an additional (b) liability and related intangible asset and any related item as a separate element of stockholders’ equity, is eliminated; (iii) severance benefits are to be recognized directly in results of operations; and (iv) ESPS, including deferred ESPS, is to be presented in the statement of income as ordinary operations. Furthermore, FRS D-3 establishes that the asset and liability method required by FRS D-4 should be used for determining deferred ESPS, stating that any effects arising from the change are to be recognized in retained earnings, with no restatement of prior years’ financial statements.

Management estimates that the initial effects of this new FRS will not be material.

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FRS D-4 “Tax on earnings”- FRS supersedes Bulletin D-4 and Circulars 53 and 54. The principal considerations established by this FRS are: (i) the balance of the cumulative IT effects resulting from the initial adoption of Bulletin D-4 in 2000 is (c) reclassified to retained earnings; (ii) AT is recognized as a tax credit (benefit), rather than as a tax prepayment; and (iii) the accounting treatment of ESPS incurred and deferred is transferred to FRS D-3, as mentioned in paragraph (b) above.

Management estimates that the initial effects of this new FRS will not be material.

(d) FRS B-2 “Statement of cash flows”- FRS supersedes Bulletin B-12 and paragraph 33 of Bulletin B-16. The principal considerations established by this FRS are: (i) the statement of cash flows replaces the statement of changes in financial position; (ii) cash inflows and cash outflows are reported in nominal currency units i.e. the effects of inflation are not included; (iii) two alternative preparation methods (direct and indirect) are established, without stating preference for either method. Furthermore, cash flows from operating activities are to be reported first, followed by cash flows from investing activities and lastly cash flows from financing activities; (iv) captions of principal items are to be reported gross; and (v) disclosure of the composition of those items considered cash equivalents is required.

(24) Subsequent event

a) On April 23, 2008, Company’s shareholders approved a shares buy-back program for up to Ps. 440 million.

Regarding the legal dispute against Global Towers Communications Mexico S. de R.L. de C.V. mentioned in note 22(a), on April b) 1, 2008, the trial court ruled against us ordering Axtel to return the deposit and applicable interests. The Company will appeal the trial court’s order before the Superior Court of Appeal.

(25) Differences between Mexican and United States accounting principles

The consolidated financial statements of the Company are prepared according to Financial Reporting Standards in Mexico (Mexican GAAP), which differ in certain significant respects from those, applicable in the United States of America (U.S. GAAP).

The consolidated financial statements under Mexican GAAP include the effects of inflation provided for by Bulletin B-10, whereas the financial statements prepared under U.S. GAAP are presented on a historical cost basis. The following reconciliation does not eliminate the inflation adjustments for Mexican GAAP, since they represent an integral measurement of the effects of the changes in the price levels in the Mexican economy and, as such, are considered a more meaningful presentation than the financial reports based on historic costs for book purposes for Mexico and the United States of America.

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The main differences between Mexican GAAP and U.S. GAAP and their effect on consolidated net income and stockholders’ equity as of December 31, 2007, 2006 and 2005 is presented below, with an explanation of the adjustments.

Year ended December 31, 2007 2006 2005 Net income reported under Mexican GAAP Ps. 490,996 222,412 307,080

U.S. GAAP adjustments 1. Deferred income taxes (see 24a) 741,404 1,912 226,971 2. Amortization of start-up cost (see 24c) ... 47,694 46,745 44,684 3. Start-up costs of the year (see 24c) - (13,991 ) (11,049 ) 4. Allowance for post retirement benefits (see 24d) 25,391 (5,875 ) 6,101 5. Revenue recognition (see 24b) (2,292 ) (29,103 ) (35,447 ) 6. Capitalized interest (see 24e) (11,540 ) (9,548 ) (882 ) 7. Additional depreciation (see 24 h) (171,152 ) - - Total U.S. GAAP adjustments 629,505 (9,860 ) 230,378 Net income under U.S. GAAP Ps. 1,120,501 212,552 537,458

Year ended December 31, 2007 2006 Total stockholders’ equity reported under Mexican GAAP Ps. 8,750,346 7,884,322

U.S. GAAP adjustments 1. Deferred income taxes (see 24a) 832,023 93,956 2. Start up costs (see 24c) c (111,897) (159,591) 3. Revenue recognition (see 24b) (159,933) (157,641) 4. Allowance for post retirement benefits (see 24d) 1,793 (35,516) 5. Capitalized interest (see 24e) 5,639 17,179 6. SAB 108 adjustment (see 24f) 109,874 109,874 7. Additional depreciation expense (see 24 h) (171,151) - Total U.S. GAAP adjustments 506,348 (131,739) Total stockholders’ equity under U.S. GAAP Ps. 9,256,694 7,752,583

The term “SFAS” as used in this document refers to Statement of Financial Accounting Standards.

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(a) Deferred income taxes (IT)

For Mexican GAAP, deferred IT are accounted for under the asset and liability method.

For U.S. GAAP purposes, the Company accounts for IT under SFAS 109 “Accounting for Income Taxes,” which uses the asset and liability method to account for deferred tax assets and liabilities. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences of the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the tax loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax effect of a change in the tax rate is recognized in the results of operations of the period in which the change is enacted. The amount of deferred income taxes charged or credited to the operations in each period, for U.S. GAAP purposes, is based on the difference between the beginning and ending balances of the deferred tax assets and liabilities for each period, expressed in nominal pesos.

All of the Company’s pretax income and reported income tax expense is derived from domestic operations. The income tax (expense) benefit attributable to the income before IT under U.S. GAAP differed from the amount computed by applying the tax rate of 28% in 2007, 29% in 2006 and 30% in 2005 to pretax income, as a result of the items mentioned below:

2007 2006 2005

Computed “expected” income tax (expense) Ps. (220,069 ) (94,696 ) (143,510 ) (Increase) decrease in income tax expense resulting from: Effects of inflation, net 21,431 (7,878 ) (1,867 ) Change in valuation allowance 567,678 2,649 229,264 Deferred employee’s profit sharing 3,806 - - Adjustments to deferred tax assets and liabilities for enacted changes in tax rates - 12,055 6,479 Accelerated tax depreciation effects (43,550 ) (37,692 ) - (Non-deductible expenses) non-taxable income (5,757 ) 5,530 (25,807 ) Other 9,572 4,393 (5,469 )

Income tax benefit (expense) Ps. 333,111 (115,639 ) 59,090

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The rollforward for the net deferred tax asset under U.S. GAAP for the years ended December 31, 2007 and 2006 is presented below:

2007 2006

Balance at the beginning of the year Ps. (469,011 ) 107,195 Deferred IT benefit (expense) 457,023 (110,745 ) Deferred IT effects from Avantel’s acquisition 851,620 (456,920 ) Stockholders’ equity Post retirement benefits (3,462 ) 3,462 Fair value of derivative financial instruments 4,586 (11,903 )

Balance at the end of the year Ps. 840,756 (469,011 )

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31, 2007 and 2006 under U.S. GAAP are presented below:

2007 2006 Deferred tax assets: Net operating loss carryforwards Ps. 968,090 1,426,521 Allowance for doubtful accounts 126,117 84,496 Accrued liabilities 412,699 382,772 Premium on bond issuance 10,179 12,719 Fair value of derivative instruments 17,090 12,504 Recoverable AT 418,851 332,540

Total gross deferred tax assets 1,953,026 2,251,552

Less valuation allowance 530,355 1,406,881

Net deferred tax assets 1,422,671 844,671

Deferred tax liabilities: Property, systems and equipment 410,067 796,402 Telephone concession rights 171,848 232,207 Intangible and other assets - 285,073

Total gross deferred tax liabilities 581,915 1,313,682

Net deferred tax asset (liability) under U.S. GAAP 840,756 (469,011 )

Effects from Avantel acquisition 927,356 1,183,844 Less net deferred tax assets recognized under Mexican GAAP 936,089 620,877

U.S. GAAP adjustment to stockholders’ equity Ps. 832,023 93,956

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Balance sheet classification under US GAAP is as follows:

2007 2006 Ps. Deferred tax assets – current Ps. 541,150 275,122 Deferred tax assets – long – term 299,606 - Deferred tax liabilities – long – term - (744,133 )

Net deferred tax asset (liability) under U.S. GAAP Ps. 840,756 (469,011 )

During 2007, the Company made a release of the valuation allowance previously recognized at the Avantel acquisition date in the amount of Ps. 1,219,967. In accordance with SFAS 109, the recognized tax benefit in the reduction of the valuation allowance after the acquisition date was allocated to reduce the intangibles related to that acquisition amounting to Ps. 765,036, less deferred tax effects of Ps. 214,210. The remaining portion amounting to Ps. 669,141 was recorded as a reduction of the income tax expense.

The Company adopted the provisions of FIN 48 on January 1, 2007, and there was no material effect on the consolidated financial statements. As a result, the Company did not record any cumulative effect adjustment related to adopting FIN 48.

As of January 1, 2007, and for the 12-month period ended December 31, 2007, the Company did not have any material unrecognized tax benefits and thus, no interest and penalties related to unrecognized tax benefits were recognized. The Company did not record interest and penalties related to unrecognized tax benefits in the consolidated statements of operations. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months.

The Company and its subsidiaries file standalone income tax returns in Mexico only. With a few exceptions, the Mexican income tax returns of the Company and its subsidiaries are open to examination by the relevant local tax authorities for the tax years beginning in 2002.

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(b) Revenue recognition

On December 17, 2003, the SEC issued Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (SAB 104). This bulletin summarizes the point of view of the SEC in the recognition of revenues in the financial statements according to U.S. GAAP. The SEC concluded that only when all the following conditions are met is revenue recognition appropriate:

a) there is persuasive evidence of an agreement; b) the delivery was made or the services rendered; c) the sales price to the purchaser is fixed or determinable; and d) collection is reasonable assured.

SAB 104, specifically in Topic 13A, discusses the situation of recognizing as revenue certain non-refundable up front fees. SAB 104 provides that the seller should not recognize non-refundable charges generated in certain transactions when there is continuous involvement by the vendor.

Based on the provisions and interpretations of SAB 104, for purposes of the U.S. GAAP reconciliation, the Company has deferred the activation revenues over a three-year period starting in the month such charge is originated. This period was determined based on Company’s experience with customer retention. The net effect of the deferral and amortization of activation revenues is presented in the U.S. GAAP reconciliation.

In April 1998, the AICPA issued Statement of Position 98-5, “Report of Start-up Costs” (SOP 98-5), which requires start-up costs, including organization costs, to be expensed as incurred. SOP 98-5 is effective, except for certain investment companies, for fiscal years beginning after December 15, 1998. Under Mexican GAAP, these costs were recognized when incurred as a deferred asset and amortized over a period of 10 years. The Company has reversed the amortization expense of Ps. 47,694, Ps. 46,745 and Ps. 44,684 in 2007, 2006 and 2005, as shown in the U.S. GAAP reconciliation, and has reduced stockholders’ equity by Ps. 111,897 and Ps. 159,591 to write-off the unamortized balance at each year end. For U.S. GAAP purposes during 2006 and 2005, the Company expensed Ps. 13,991 and Ps. 11,049, respectively of start-up costs capitalized in those periods under Mex GAAP.

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(d) Allowance for post retirement benefits

For the years ended December 31, 2004 and before, under Mexican GAAP (Bulletin D-3), severance payments were recognized in earnings in the period in which they were paid, unless such payments were used by an entity as a substitution of pension benefits, in which case, they were considered as a pension plan. Starting January 1, 2005, the new Bulletin D-3 replaces the issue of unforeseen payments with the one relating to “Payments Upon Terminations of the Labor Relationship” and establishes certain valuation and disclosure requirements for those payments for reasons other than restructuring, which are the same as those for pension and seniority premium payments. Under U.S. GAAP, post-employment benefits for former or inactive employees, excluding retirement benefits, are accounted for under the provisions of SFAS 112 and SFAS 158, which requires recognition of certain benefits, including severance, over an employee's service life. For the years ended December 31, 2007, 2006 and 2005 the Company recorded a (decrease) increase in net income of Ps. 25,391, Ps. (5,875) and Ps. 6,101, respectively; and for 2006 the Company cancelled a deferred charge of Ps. 17,071, as recorded under Mexican GAAP. The US GAAP liability amounts to Ps. 44,608 and Ps. 65,740 as of December 31, 2007 and 2006, respectively.

Effective December 31, 2006, the Company adopted the recognition and disclosure provisions of FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). SFAS 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net asset or liability and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income to the extent those changes are not included in the net periodic cost. The funded status reported on the balance sheet as of December 31, 2007 and 2006 under SFAS 158 was measured as the difference between the fair value of plan assets and the benefit obligation on a plan- by-plan basis. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. The incremental effect of applying SFAS 158 on the Company’s financial position as of December 31, 2007 for items not yet recognized as a component of net periodic cost that were recognized in accumulated other comprehensive income was as follows:

Before After Application Application of of SFAS 158 Adjustments SFAS 158

Severance, seniority premiums and other post retirements benefits long term portion Ps. 47,257 (2,649 ) 44,608 Deferred income taxes assets (noncurrent) (13,232 ) 742 (12,490 )

Total liabilities Ps. 34,025 (1,907 ) 32,118

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(e) Capitalized interest

Under Mexican GAAP, the Company capitalizes interest on property, systems and equipment under construction. The amount of financing cost to be capitalized is comprehensively measured in order to include properly the effects of inflation. Therefore, the amount capitalized includes: (i) the interest cost of the debt incurred, plus (ii) any foreign currency fluctuations that result from the related debt, and less (iii) the monetary position gain recognized on the related debt. Under U.S. GAAP, only interest is considered an additional cost of constructed assets to be capitalized and depreciated over the lives of the related assets.

The U.S. GAAP reconciliation removes the foreign currency gain or loss and the monetary position gain capitalized for Mexican GAAP derived from borrowings denominated in foreign currency.

(f) Staff Accounting Bulletin 108

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” that provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. There are two widely recognized methods for quantifying the effects of financial statement misstatements: the “rollover” or income statement method and the “iron curtain” or balance sheet method. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach (“dual method”) and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 permits companies to apply its provisions initially by either (i) restating prior financial statements as if the provisions had always been applied or (ii) recording the cumulative effect of initially applying SAB 108 as adjustments to the carrying value of assets and liabilities as of the beginning of 2006 with an offsetting adjustment recorded to the opening balance of stockholders’ equity. Upon adoption of SAB 108, we recorded a one-time cumulative effect adjustment to increase the beginning-of-year balance of stockholders’ equity of Ps. 109,874 for prior year misstatements that previously had been considered immaterial. The Company believes its prior period assessments of uncorrected misstatements and the conclusions reached regarding its quantitative and qualitative assessments of materiality of such items, both individually and in the aggregate, were appropriate. In accordance with SAB 108, the Company has adjusted its opening stockholders’ equity for 2006 for the items described below:

Capitalized Interest: The Company adjusted its beginning stockholders’ equity for 2006 related to recording interest capitalized taken directly to interest expense rather than being shown as an increase in property, systems and equipment. It was determined that the Company had improperly excluded approximately Ps. 186,954 which should have been shown as an increase in property, systems and equipment.

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Capitalized Costs: The Company adjusted its beginning stockholders’ equity for 2006 related to historical capitalization of certain costs considered immaterial under the previously established policy of capitalizing costs. It was determined that the Company had improperly recorded an increase in property systems and equipment for Ps. (77,078).

The cumulative effects of the items noted above for 2006 beginning balances are presented below:

Property, Systems and Deferred Stockholders’ Description Equipment Taxes Equity Property, systems and equipment Ps. 164,036 - 164,036 Deferred taxes - (54,162 ) (54,162 ) Total Ps. 164,036 (54,162 ) 109,874

(g) Supplemental cash flow information under U.S. GAAP

Under Mexican GAAP, statements of changes in financial position identify the sources and uses of resources based on the differences between beginning and ending consolidated financial statement balances in constant pesos. Monetary position results and unrealized foreign exchange results are treated as cash items in the determination of resources provided by operations. Under U.S. GAAP (SFAS 95), statements of cash flows present only cash items and exclude non-cash items. SFAS 95 does not provide guidance with respect to inflation-adjusted financial statements. The differences between Mexican GAAP and U.S. GAAP in the amounts reported are mainly due to: (i) elimination of inflationary effects of monetary assets and liabilities from financing and investing activities against the corresponding monetary position result in operating activities, (ii) elimination of foreign exchange results from financing and investing activities against the corresponding unrealized foreign exchange result included in operating activities, and (iii) the recognition in operating, financing and investing activities of the U.S. GAAP adjustments.

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The following table summarizes the cash flow items as required under SFAS 95 provided by operating, financing and investing activities, giving effect to the U.S. GAAP adjustments, excluding the effects of inflation required by Bulletin B-10. The following information is presented in thousands of pesos on a historical peso basis and is not presented in pesos of constant purchasing power:

Years ended December 31, 2007 2006 2005 Operating activities: Net income Ps. 1,120,501 204,851 497,809 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 2,507,636 1,365,621 1,018,138 Amortization 343,419 96,398 71,523 Allowance for severance and seniority premiums (12,779 ) 17,684 (4,117 ) Income tax and employees’ profit sharing expense (benefit) (443,429 ) 112,567 (54,731 ) Bad debt expense 194,108 119,563 80,274 Monetary position gain (279,985 ) (15,524 ) (57,846 ) Exchange (gain) loss (19,942 ) 1,067 (103,857 ) Equity in results of associated company (1,430 ) (1,592 ) - Change in accounts receivable (416,058 ) (1,066,703 ) (225,946 ) Changes in inventory (68,553 ) (37,970 ) (3,116 ) Changes in other assets 101,791 (918,191 ) 16,980 Changes in accounts payable 135,840 1,275,156 (141,724 ) Changes in other accounts payable (27,915 ) 928,348 26,437 Change in deferred revenues (59,286 ) 294,156 - Changes in allowance for severance and seniority premiums (14,175 ) 48,603 2,743

Net cash provided by operating activities 3,059,743 2,424,034 1,122,567

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Financing activities:

Proceeds from sale of common stock 374,730 - 1,045,093 Costs incurred in sale of common stock - (12,764) - Proceeds from loans 3,102,308 6,521,438 996,530 Payments of loans (3,527,584) (1,209,831) (251,696) Deferred financing costs - (86,572) - Restricted cash - 34,479 (34,479) Notes issuance costs - - (18,483) Other accounts payable 3,310 (47,360) 34,921

Net cash (used in) provided by financing activities (47,236) 5,199,390 1,771,886

Investing activities: Acquisition of property, systems and equipment (2,534,481) (2,389,380) (1,548,316) Acquisition of Avantel, net of cash acquired - (5,133,226) - Intangible assets - (724,834) - Investment in shares of associated company - (12,023) - Other assets (82,016) (77,139) (9,493)

Net cash used in investing activities (2,616,497) (8,336,602) (1,557,809)

Net increase (decrease) in cash and cash equivalents 396,010 (713,178) 1,336,644

Cash and cash equivalents at beginning of year 1,177,867 1,891,045 554,401

Cash and cash equivalents at end of year Ps. 1,573,877 1,177,867 1,891,045

Non-cash operating and investing activities: For the years ended December 31, 2007, 2006 and 2005 the Company has Ps. 99,275, Ps. 69,775 and Ps. 95,375 in accounts payable for acquisition of property, systems and equipment, respectively. Additionally, the Company adopted the guidelines of SFAS 158. The net effects of the recognition of the statement amounted to Ps. 8,581 in allowance for post retirement benefits and accumulated other comprehensive income.

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Non-cash financing and investing activities:

Net cash flows provided from operating activities reflect cash payments for interest and income taxes as follows:

Years Ended December 31, 2007 2006 2005 Interest paid Ps. 1,190,221 252,129 314,181 Income taxes paid 101,305 3,598 2,170

(h) Condensed financial information under U.S. GAAP

The following table presents consolidated condensed statements of operations for the years ended December 31, 2007, 2006 and 2005, prepared under U.S. GAAP, and includes all differences described in note 24 as required for purposes of U.S. GAAP:

Years Ended December 31, Statements of operations 2007 2006 2005 Revenues Ps. 12,182,607 6,641,601 5,323,973 Operating income 1,207,064 682,781 645,982 Comprehensive financing result (420,666 ) (320,473 ) (175,349 ) Other (expenses) income, net (438 ) (35,770 ) 7,735 Income before taxes and equity in income of associated company 785,960 326,538 478,368 Income tax benefit (expense) benefit 333,111 (115,639 ) 59,090 Equity in income of associated company 1,430 1,653 - Consolidated net income Ps. 1,120,501 212,552 537,458

The following table presents consolidated condensed balance sheets as of December 31, 2007 and 2006, prepared under U.S. GAAP, including all differences and reclassification pertaining to the presentation of deferred income taxes, as compared to Mexican GAAP described in this note 24:

As of December 31, Balance sheets 2007 2006 Current assets Ps. 4,264,070 3,282,299 Property, systems and equipment 14,996,050 15,075,296 Other assets 1,235,045 2,049,740 Total assets Ps. 20,495,165 20,407,335 Current liabilities Ps. 3,328,421 3,355,751 Long-term debt 7,484,955 8,294,282 Other non-current liabilities 425,095 1,004,719 Total liabilities 11,238,471 12,654,752 Stockholders' equity 9,256,694 7,752,583 Total liabilities and stockholders' equity Ps. 20,495,165 20,407,335

-48-

In connection with the preliminary purchase price allocation to the assets and liabilities acquired in the Avantel acquisition, certain differences occurred between Mexican reporting standards and U.S. GAAP. For U.S. GAAP purposes goodwill which is included as part of other assets, amounting to Ps. 168,525 was initially recognized as a result of the acquisition of Avantel in accordance with FASB 141 “Business Combinations”. During the year the adjustments recorded to the preliminary purchase price allocation to the assets and liabilities were as follows:

Preliminary Definitive Value Adjustments Value Balance Sheet:

Current assets Ps. 1,242,121 - 1,242,121 Property, systems and equipments, net 7,426,445 216,293 7,642,738 Intangible assets 939,899 (174,863 ) 765,036 Goodwill 168,525 (168,525 ) - Others 84,604 - 84,604

Total of assets acquired 9,861,594 (127,095 ) 9,734,499

Current liabilities 2,455,832 (109,586 ) 2,346,246 Deferred income tax 381,715 381,715 Long term liabilities 867,201 (17,509 ) 849,692

Total of liabilities assumed 3,704,748 (127,095 ) 3,577,653

Net assets acquired Ps. 6,156,846 6,156,846

The main adjustments are detailed as follows:

Property, systems and equipment: The additional adjustments during the period were related with the final appraisal realized by independent experts, cancellation of systems that will not be used anymore and will be replaced by systems of Axtel and · the effects of the of negative goodwill. Because the value of property, systems and equipment under US GAAP is higher than under Mexican GAAP and additional depreciation expense amounting to Ps. 171,151 was recorded.

Intangible assets: The additional adjustments during the period were related with the final appraisal realized by independent · experts and the effects of the negative goodwill.

· Long-term liabilities: This adjustment corresponds to the cancellation of the pension plan as mentioned in note 18.

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(i) Fair value of financial instruments

The carrying amount of cash, trade accounts receivable, other accounts receivable, trade accounts payable, other accounts payable and accrued expenses and short-term debt, approximates fair value because of the short-term maturity of these financial assets and liabilities.

The carrying value of the Company's long-term debt and the related fair value based on quoted market prices for the same or similar instruments or on current rates offered to the Company for debt of the same remaining maturities (or determined by discounting future cash flows using borrowing rates currently available to the Company) as of December 31, 2013 is summarized as follows:

Carrying Estimated amount fair value Long-term debt 654,744 623,961

(j) Segment information

(k) Recently Issued Accounting Standards

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (Statement 159). Statement 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value that are not currently required to be measured at fair value. If the fair value option is elected, changes in fair value would be recorded in earnings at each subsequent reporting date. SFAS 159 is effective for the Company’s 2008 fiscal year. The Company does not expect that this will have a material impact in the financial statements.

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(l) Guaranteed debt

On December 16, 2003, the Company completed an offering of senior unsecured notes, for a value of U.S. $175 million maturing on December 15, 2013. In addition, during January 2005, the Company re-opened its bond issuance program, issuing U.S. $75 million under the 2003 indenture. Interest on the notes are payable semiannually at annual rate of 11%, since June 15, 2004.

Each of the Company’s consolidated subsidiaries described in note 3(c) are guaranteeing the notes with unconditional guaranties that are unsecured. Each of the subsidiaries guarantors are 100% owned by Axtel, S.A. de C.V. All guarantees are full and unconditional and are joint and several.

AXTEL is eligible, under Adopting Release (nos. 33-7878 and 34-43124), for presenting the condensed consolidating financial information of its subsidiaries in accordance with Rule 3-10 (f) of Regulation S-X.

5 This note reflects the fact that all the subsidiaries of Axtel currently guarantee Axtel’s 11% senior notes due 2013 and 7 /8% senior notes due 2017. In 2006, there were only three subsidiaries that were providing guarantees to the Company’s senior notes previously described. Note 25(l) in the Form 20-F incorrectly stated that Axtel’s 11% senior notes due 2013 were guaranteed by only three subsidiaries of Axtel.

For the purpose of the accompanying condensed consolidating balance sheets, income statements and changes in financial position under Mexican GAAP, the first column “AXTEL” corresponds to the parent company issuer. The second column, “Combined Guarantors”, represents the combined amounts of Instalaciones, Impulsora and Servicios for 2006 and all subsidiaries for 2007, after adjustments and eliminations relating to their combination. The third column “Combined non-guarantors” represents the combined amounts of AXTEL’s non-guarantors subsidiaries for 2006, after adjustments and eliminations relating to their combination. The fourth column, “Adjustments and Eliminations”, includes all amounts resulting from the consolidation of AXTEL, the guarantors and the non-guarantors subsidiaries. The fifth column, “AXTEL Consolidated”, represents the Company’s consolidated amounts as reported in the audited consolidated financial statements. Additionally, all amounts presented under the line item “Investments in subsidiaries” for both the balance sheet and the income statement are accounted for by the equity method.

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The condensed consolidating financial information is as follows:

Condensed consolidating balance sheets:

Combined Adjustments Combined Non- and AXTEL As of December 31, 2007 AXTEL Guarantors guarantors Eliminations Consolidated

Current assets Ps. 2,621,784 2,131,002 - (1,029,866 ) 3,722,920 Property, systems and equipment, net 12,759,605 920,717 - (451 ) 13,679,871 Concession rights, pre-operating expenses and deferred taxes 1,065,811 1,145,808 - (91,249 ) 2,120,370 Investment in subsidiaries 1,279,191 15,249 - (1,279,191 ) 15,249 Other-non current assets and long-term receivable 228,231 64.036 - - 292,267

Total assets Ps. 17,954,622 4,276,812 - (2,400,757 ) 19,830,677

Current liabilities Ps. 2,062,722 2,295,565 - (1,029,866 ) 3,328,421 Long-term debt 7,069,771 415,184 - - 7,484,955 Other non-current liabilities 71,783 260,740 - (65,568 ) 266,955

Total liabilities 9,204,276 2,971,489 - (1,095,434 ) 11,080,331

Total stockholders equity 8,750,346 1,305,323 - (1,305,323 ) 8,750,346

Total liabilities and stockholders equity Ps. 17,954,622 4,276,812 - (2,400,757 ) 19,830,677

As of December 31, 2006

Current assets Ps. 2,742,457 216,933 1,988,110 (1,665,201 ) 3,282,299 Property, systems and equipment, net 13,214,169 8,900 814,297 (765 ) 14,036,601 Concession rights, pre-operating expenses and deferred taxes 1,431,989 20,662 1,289,347 (510,942 ) 2,231,056 Investment in subsidiaries 366,803 - 14,127 (366,803 ) 14,127 Other non-current assets and long-term receivable 256,493 18,115 55,285 - 329,893

Total assets Ps. 18,011,911 264,610 4,161,166 (2,543,711 ) 19,893,976

Current liabilities Ps. 1,867,927 179,837 2,973,186 (1,665,201 ) 3,355,749 Long-term debt 7,745,706 - 548,576 - 8,294,282 Other non-current liabilities 513,956 28,571 328,038 (510,942 ) 359,623

Total liabilities 10,127,589 208,408 3,849,800 (2,176,143 ) 12,009,654

Total stockholders equity 7,884,322 56,202 311,366 (367,568 ) 7,884,322

Total liabilities and stockholders equity Ps. 18,011,911 264,610 4,161,166 (2,543,711 ) 19,893,976

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Condensed consolidating income statements:

Adjustments Combined Combined and AXTEL Non- For the year ended December 31, 2007 AXTEL Guarantors guarantors Eliminations Consolidated

Telephone services and related revenues Ps. 7,613,558 7,611,597 - (3,034,545 ) 12,190,610 Cost of revenues and services (1,919,571 ) (3,806,717 ) - 1,221,575 (4,504,713 ) Selling and administrative expenses (2,687,835 ) (2,726,562 ) - 1,812,970 (3,601,427 ) Depreciation and amortization (2,431,430 ) (262,047 ) - 2,790 (2,690,687 ) Operating income 574,722 816,271 - 2,790 1,393,783 Comprehensive financing result, net (445,793 ) (55,861 ) - 757 (500,897 ) Other (expenses) income, net (36,000 ) 184,454 - (168,574 ) (20,120 ) Income tax (72,984 ) (120,667 ) - (189,549 ) (383,200 ) Investment in subsidiaries 471.051 1,430 - (471,051 ) 1,430 Net income (loss) Ps. 490,996 825,627 - (825,627 ) 490,996

For the year ended December 31, 2006

Telephone services and related revenues Ps. 6,160,475 1,353,883 689,836 (1,528,482 ) 6,675,712 Cost of revenues and services (1,811,343 ) - (361,034 ) 68,016 (2,104,361 ) Selling and administrative expenses (2,154,854 ) (1,361,461 ) (204,256 ) 1,460,466 (2,260,105 ) Depreciation and amortization (1,557,081 ) (470 ) (2,503 ) - (1,560,054 ) Operating income (loss) 637,197 (8,048 ) 122,043 - 751,192 Comprehensive financing result, net (281,859 ) (2,784 ) (96,792 ) 1,194 (380,241 ) Other income, net (28,564 ) 3,368 (6,251 ) (1,194 ) (32,641 ) Income tax (125,984 ) 2,793 5,641 - (117,550 ) Investment in subsidiaries 21,622 - 1,652 (21,622 ) 1,652 Net income (loss) Ps. 222,412 (4,671 ) 26,293 (21,622 ) 222,412

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Adjustments Combined Combined and AXTEL Non- For the year ended December 31, 2005 AXTEL Guarantors guarantors Eliminations Consolidated

Telephone services and related revenues Ps. 5,362,393 1,092,908 - (1,092,908 ) 5,362,393 Cost of revenues and services (1,673,995 ) - - - (1,673,995 ) Selling and administrative expenses (1,799,405 ) (1,115,352 ) - 1,092,908 (1,821,849 ) Depreciation and amortization (1,219,741 ) (512 ) - - (1,220,253 ) Operating income (loss) 669,252 (22,956 ) - - 646,296 Comprehensive financing result, net (178,373 ) (2,191 ) - 1,494 (179,070 ) Other income, net 7,579 1,650 - (1,494 ) 7,735 Income tax (171,422 ) 3,541 - - (167,881 ) Investment in subsidiaries (19,956 ) - - 19,956 - Net income (loss) Ps. 307,080 (19,956 ) - 19,956 307,080

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Condensed consolidating statements of changes in financial position:

Combined Adjustments AXTEL Combined Non- and For the year ended December 31, 2007 AXTEL Guarantors guarantors Eliminations Consolidated

Operating activities: Net income (loss) Ps. 490,996 825,627 - (825,627 ) 490,996 Charges (credits) to operations not requiring (providing) resources 2,033,363 283,412 - 681,781 2,998,556 Resources provided by (used in) operations 2,524,359 1,109,039 - (143,846 ) 3,489,552 Net financing from (investment in) operations (242,211 ) (402,241 ) - 381,648 (262,804 ) Resources provided by (used in) operating activities 2,282,148 706,798 - 237,802 3,226,748

Financing activities: Increase in common stock 192,280 - - - 192,280 Additional paid-in capital 194,540 - - - 194,540 Proceeds (payments of) from loans, net (678,946 ) (134,060 ) - 635 (812,371 ) Restricted cash and other accounts payable 106,926 - - - 106,926 Resources provided by financing activities (185,200 ) (134,060 ) - 635 (318,625 )

Investing activities: Acquisition and construction of property, systems and equipment, net (2,175,318 ) (102,829 ) - (207,946 ) (2,486,093 ) Increase in investment in subsidiaries - - - - - Other assets (51,252 ) 11,445 - (30,491 ) (70,298 ) Resources used in investing activities (2,226,570 ) (91,384 ) - (238,437 ) (2,556,391 )

(Decrease) increase in cash and equivalents (129,622 ) 481,354 - - 351,732 Cash and equivalents at the beginning of the year 912,799 309,346 - - 1,222,145 Cash and equivalents at the end of the year Ps. 783,177 790,700 - - 1,573,877

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Combined Adjustments Combined Non- and AXTEL For the year ended December 31, 2006 AXTEL Guarantors guarantors Eliminations Consolidated

Operating activities: Net income (loss) Ps. 222,412 (4,671 ) 26,293 (21,622 ) 222,412 Charges (credits) to operations not requiring (providing) resources 1,661,446 (95 ) (6,223 ) 23,705 1,678,833 Resources provided by (used in) operations 1,883,858 (4,766 ) 20,070 2,083 1,901,245 Net financing from (investment in) operations 288,377 (21,400 ) (366,427 ) (2,553 ) 630,851 Resources provided by (used in) operating activities 2,172,235 (26,166 ) 386,497 (470 ) 2,532,096

Financing activities: Increase in common stock - 24,439 285,075 (309,514 ) - Additional paid-in capital (9,804 ) - - - (9,804 ) Proceeds (payments of) from loans, net 4,742,230 (470 ) 667,696 470 5,409,926 Restricted cash and other accounts payable 48,891 - - - 48,891 Resources provided by financing activities 4,781,317 23,969 952,771 (309,044 ) 5,449,013

Investing activities: Acquisition and construction of property, systems and equipment, net (7,037,705 ) (24 ) (816,800 ) - (7,854,529 ) Increase in investment in subsidiaries (309,514 ) - (12,474 ) 309,514 (12,474 ) Other assets (731,473 ) 3,550 (205,701 ) - (933,624 ) Resources used in investing activities (8,078,692 ) 3,526 (1,034,975 ) 309,514 (8,800,627 )

(Decrease) increase in cash and equivalents (1,125,140 ) 1,329 304,293 - (819,518 ) Cash and equivalents at the beginning of the year 2,037,939 3,724 - - 2,041,663 Cash and equivalents at the end of the year Ps. 912,799 5,053 304,293 - 1,222,145

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Adjustments Combined and AXTEL For the year ended December 31, 2005 AXTEL Guarantors Eliminations Consolidated

Operating activities: Net income (loss) Ps. 307,080 (19,956 ) 19,956 307,080 Charges (credits) to operations not requiring (providing) resources 1,411,118 5,205 (19,956 ) 1,396,367 Resources provided by (used in( operations 1,718,198 (14,751 ) - 1,703,447 Net investment in operations (184,236 ) 5,600 (706 ) (179,342 ) Resources provided by (used in) operating activities 1,533,962 (9,151 ) (706 ) 1,524,105

Financing activities: Increase in common stock 751,832 28,628 (28,628 ) 751,832 Additional paid-in capital 400,108 - - 400,108 Payments of loans, net 612,213 (706 ) 706 612,213 Others (39,077 ) - - (39,077 ) Resources provided by financing activities 1,725,076 27,922 (27,922 ) 1,725,076

Investing activities: Acquisition and construction of property, systems and equipment, net (1,767,041 ) (51 ) - (1,767,092 ) Investment in subsidiaries (28,628 ) - 28,628 - Other assets (41,498 ) (17,238 ) - (58,736 ) Resources used in investing activities (1,837,167 ) (17,289 ) 28,628 (1,825,828 )

(Decrease) increase in cash and equivalents 1,421,871 1,482 - 1,423,353 Cash and equivalents at the beginning of the year 616,068 2,242 - 618,310 Cash and equivalents at the end of the year Ps. 2,037,939 3,724 - 2,041,663

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The tables below present combined balance sheets as of December 31, 2007 and 2006, and income statements and statements of changes in financial position for each of the years in the three-year period ended December 31, 2007 for the Guarantors. Such information presents in separate columns each individual Guarantor, consolidation adjustments and eliminations, and the combined guarantors. All significant related parties’ balances and transactions between the Guarantors have been eliminated in the “Combined Guarantors” column.

The amounts presented in the column “Combined Guarantors” are readily comparable with the information of the Guarantors included in the condensed consolidated financial information.

Guarantors’ Combined Balance Sheets:

As of December 31, 2007

Adjustments Avantel Avantel Avantel Avantel Avantel Telecom Avantel, and Combined Assets Icosa Inmobiliaria Servicios Infraestructura Adequip Equipos Telecomunicaciones Recursos Servicios Networks S. de R. L. Eliminations Guarantors Cash and cash 579,548 543 47 47 2,636 384 93 205,497 equivalents Ps. 513 24 1,370 - 790,700 Accounts receivable - - - 137,590 ------765,283 - 902,874 Related parties 1,275,450 186,080 261,270 13,822 1,241 36,816 receivables 42,882 - 271,742 - - (1,982,927) 106,377

Inventories - - - 35,674 ------35,674 Refundable taxes and 19,654 10,384 1 2,308 268 223,340 other accounts receivable 1,410 1,206 36,806 - - - 295,377 Total current 2,047,916 197,007 47 48 266,214 14,474 1,334 1,230,936 assets 44,805 1,230 309,918 (1,982,927) 2,131,002 Investment in 1,158 - 15,249 subsidiaries ------(1,158) 15,249 Property, systems 192,683 53,154 746 665,976 and equipment, net - 8,158 ------920,717 Intangible assets ------165,268 (35,297) 129,971 Deferred income 755,496 211,925 taxes 3,172 - 50,416 ------(5,172) 1,015,837 Other non- current 42,231 20,875 assets 403 123 404 ------64,036

Total assetsPs.48,380 9,511 360,738 3,039,484 250,161 47 48 266,214 14,474 2,080 2,310,229 (2,024,554) 4,276,812

Liabilities and stockholders’ equity Adjustments Avantel Avantel Avantel Avantel Avantel Telecom Avantel, and Combined Icosa Inmobiliaria Servicios Infraestructura Adequip Equipos Telecomunicaciones Recursos Servicios Networks S. de R. L. Eliminations Guarantors Account payable and accrued liabilities Ps. 729 - 98,504 136,967 52 - - - - - 10,136 450,477 - 696,865 Current portion of long debt ------119,087 - 119,087 Taxes payable 22,602 14 116,005 53,275 31,218 - - 2,575 7,995 - 18,012 - 251,696 Related parties payables - 7,772 4 1,251,773 - 3 4 467 2,390 217 1,270,882 (1,982,927 ) 550,585 Other accounts payable 4,569 - 86,191 71,147 - - - 2,820 239 - 512,366 - 677,332 Total current liabilities 27,900 7,786 300,704 1,513,162 31,270 3 4 5,862 10,624 10,353 2,370,824 (1,982,927 ) 2,295,565 Long term debt ------415,184 - 415,184 Deferred income tax - 107 - - 5,065 ------(5,172 ) - Other non- current liabilities 6,270 - 51,244 22,376 ------180,850 - 260,740 Total liabilities 34,170 7,893 351,948 1,535,538 36,335 3 4 5,862 10,624 10,353 2,966,858 (5,172 ) 2,971,489

Equity 13,415 1,476 40,998 737,578 214,810 49 49 160,247 (491 ) (7,729 ) (745,092 ) 64,386 479,696 Net income (loss) 795 142 (32,208 ) 766,368 (984 ) (5 ) (5 ) 100,105 4,341 (544 ) 88,463 (100,841 ) 825,627 Total stockholders equity 14,210 1,618 8,790 1,503,946 213,826 44 44 260,352 3,850 (8,273 ) (656,629 ) (36,455 ) 1,305,323

Total liabilities and stockholders’ equity Ps. 48,380 9,511 360,738 3,039,484 250,161 47 48 266,214 14,474 2,080 2,310,229 (2,024,554 ) 4,276,812

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As of December 31, 2006 Adjustments Servicios and Combined Assets Icosa Inmobiliaria Axtel Eliminations Guarantors

Cash and cash equivalents Ps. 482 8 4,563 - 5,053 Accounts receivable - - - - - Related parties receivables 25,950 - 170,633 - 196,583 Refundable taxes and other accounts receivable 1,360 1,310 12,627 - 15,297

Total current assets 27,792 1,318 187,823 - 216,933

Property, systems and equipment, net - 8,900 - - 8,900 Deferred income taxes 1,111 - 19,702 (151 ) 20,662 Other non-current assets 1,695 128 16,292 - 18,115

Total assets Ps. 30,598 10,346 223,817 (151 ) 264,610

Liabilities and Stockholders’ Equity

Account payable and accrued liabilities Ps. 221 - 32,866 - 33,087 Taxes payable 11,059 - 73,095 - 84,154 Related parties payables - 8,407 - - 8,407 Other accounts payable 2,678 - 51,511 - 54,189

Total current liabilities 13,958 8,407 157,472 - 179,837

Deferred income taxes - 151 - (151 ) - Other non-current liabilities 3,225 - 25,346 - 28,571

Total liabilities 17,183 8,558 182,818 (151 ) 208,408

Equity 12,349 1,501 47,023 - 60,873 Net income (loss) 1,066 287 (6,024 ) - (4,671 )

Total stockholders’ equity 13,415 1,788 40,999 - 56,202

Total liabilities and stockholders equity Ps. 30,598 10,346 223,817 (151 ) 264,610

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Guarantors’ Combined Income Statements:

For the year ended Adjustments December 31, Avantel Avantel Avantel Avantel Avantel Telecom Avantel, and Combined 2007 Icosa Inmobiliaria Servicios Infraestructura Adequip Equipos Telecomunicaciones Recursos Servicios Networks S de R. L. Eliminations Guarantors

Rental, service and other revenues Ps. 287,005 2,110 1,989,594 2,883,548 48,356 - - 214,601 26,567 56,580 5,400,619 (3,297,383) 7,611,597

Cost of sales and services - - - (1,325,713) - - - (1,816) - (56,620) (3,985,524) 1,562,956 (3,806,717) Administrative expenses (279,934) (500) (1,977,871) (975,310) (3) (3) (3) (183,371) (25,359) (692) (1,019,132) 1,735,616 (2,726,562) Depreciation and amortization - (430) (3) (29,286) (32,059) - - - - (187) (202,043) 1,961 (262,047) Operating income (loss) 7,071 1,180 11,720 553,239 16,294 (3) (3) 29,414 1,208 (919) 193,920 3,150 816,271 Other expenses, net (4,014) - (58,154) 29,386 310 - - 81,546 3,624 - 115,101 16,655 184,454

Comprehensive financing result, net (850) (915) (797) 3,646 (8,799) (2) (2) (7,446) (133) 375 (23,200) (17,738) (55,861) Income (loss) before 586,271 7,805 (5) (5) 103,514 4,699 (544) 285,821 income taxes 2,207 265 (47,231) 2,067 944,864

Income taxes (1,412) (123) 15,023 5,027 (8,789) - - (3,409) (358) - (126,626) - (120,667)

Equity in results of subsidiaries and associated company - - - 175,070 ------1,430 (175,070) 1,430

Minority interest ------(72,162) 72,162 -

Net income (loss) Ps. 795 142 (32,208) 766,368 (984) (5) (5) 100,105 4,341 (544) 88,463 (100,841) 825,627

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For the year ended December 31, 2006

Rental, installation service and other revenues Ps. 167,577 2,106 1,184,200 - 1,353,883

Administrative expenses (165,872 ) (519 ) (1,195,589 ) 519 (1,361,461 )

Depreciation and amortization - (446 ) (24 ) - (470 )

Operating income (loss) 1,705 1,141 (11,413 ) 519 (8,048 )

Comprehensive financing result, net (462 ) (918 ) (1,404 ) - (2,784 )

Other (expenses) income, net (223 ) - 4,110 (519 ) 3,368

Income (loss) before income taxes 1,020 223 (8,707 ) - (7,464 )

Income taxes 46 64 2,683 - 2,793

Net income (loss) Ps. 1,066 287 (6,024 ) - (4,671 )

Adjustments Servicios and Combined For the year ended December 31, 2005 Icosa Inmobiliaria Axtel Eliminations Guarantors

Rental, installation service and other revenues Ps. 116,745 2,112 974,051 - 1,092,908

Administrative expenses (118,329 ) (259 ) (997,023 ) 259 (1,115,352 )

Depreciation and amortization - (461 ) (51 ) - (512 )

Operating (loss) income (1,584 ) 1,392 (23,023 ) 259 (22,956 )

Comprehensive financing result, net (236 ) (1,244 ) (711 ) - (2,191 )

Other income, net 19 - 1,890 (259 ) 1,650

(Loss) income before income taxes (1,801 ) 148 (21,844 ) - (23,497 )

Income taxes 172 42 3,327 - 3,541

Net (loss) income Ps. (1,629 ) 190 (18,517 ) - (19,956 )

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Guarantors’ Combined Statements of Changes in Financial Position:

For the year ended Avantel, Adjustments December 31, Avantel Avantel Avantel Avantel Avantel Telecom S. de R. and Combined 2007 Icosa Inmobiliaria Servicios Infraestructura Adequip Equipos Telecomunicaciones Recursos Servicios Networks L. Eliminations Guarantors

Operating activities: Net income (loss) Ps. 795 142 (32,208) 766,368 (984) (5) (5) 100,105 4,341 (544) 88,463 (100,841) 825,627

Non-cash items 2,685 384 14,217 154,812 32,269 - - (68,135) (3,844) 187 361,547 (210,710) 283,412 Resources provided by 921,180 31,285 (5) (5) 31,970 497 (357) 450,010 operations 3,480 526 (17,991) (311,551) 1,109,039

Net investment in operations, net (4,741) 120 (1,089) (1,059,283) 654,485 4 3 1,654 4,221 (2,327) (306,839) 311,551 (402,241)

Resources (used in) provided by (138,103) 685,770 (1) (2) 33,624 4,718 (2,684) 143,171 operations, net (1,261) 646 (19,080) - 706,798

Financing activities: Increase in capital - - stock - - - (670,000) - - - - - 670,000 Loans payments, net - (635) - (73,994) ------(59,431) - (134,060)

Resources used in (73,994) (59,431) financing activities - (635) - (670,000) - - - - - 670,000 (134,060)

Investing activities: Property, system and equipment, net - - (3) (23,139) ------(79,687) - (102,829) Investment in 670,000 - - - - subsidiaries - - - - - (670,000) -

Other assets 1,292 5 15,889 77,691 (16,851) - - (31,048) (768) 2,382 (37,147) - 11,445

Resources provided by 724,552 (16,851) (31,048) (768) 2,382 (116,834) investing activities 1,292 5 15,886 - - (670,000) (91,384)

Increase (decrease) in cash 512,455 (1,081) (1) (2) 2,576 3,950 (302) (33,094) and equivalents 31 16 (3,194) - 481,354

Cash and equivalents at 483 8 4,563 67.092 1,622 48 49 60 (3,566) 395 238,591 - 309,345

Cash and equivalents at the 579,547 542 47 47 2,636 384 93 205,497 end of the period Ps. 514 24 1,369 - 790,700

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Servicios Combined For the year ended December 31, 2006 Icosa Inmobiliaria Axtel Guarantors

Operating activities: Net (loss) income Ps. (1,066 ) 287 (6,024 ) (4,671 ) Non-cash items 527 381 (1,003 ) (95 )

Resources provided by (used in) operations 1,593 668 (7,027 ) (4,766 )

(Investment in) financing from operations, net (8,475 ) (74 ) (12,851 ) (21,400 )

Resources (used in) provided by operations, net (6,882 ) 594 (19,878 ) (26,166 )

Financing activities: Increase in common stock 6,800 - 17,639 24,439 Loans payments, net - (470 ) - (470 )

Resources provided by (used in) financing activities 6,800 (470 ) 17,639 23,969

Investing activities: Property system and equipment, net - - (24 ) (24 ) Other assets 109 (128 ) 3,569 3,550

Resources used in investing activities 109 (128 ) 3,545 3,526

Increase (decrease) in cash and equivalents 27 (4 ) 1,306 1,329

Cash and equivalents at the beginning of the year 455 12 3,257 3,724

Cash and equivalents at the end of the year Ps. 482 8 4,563 5,053

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Adjustments Servicios and Combined For the year ended December 31, 2005 Icosa Inmobiliaria Axtel Eliminations Guarantors

Operating activities: Net (loss) income Ps. (1,629 ) 190 (18,517 ) - (19,956 ) Non-cash items 799 420 3,986 - 5,205

Resources (used in) provided by operations (830 ) 610 (14,531 ) - (14,751 )

Net (investment in) financing from operations, net (1,502 ) 94 7,008 - 5,600

Resources (used in) provided by operations, net (2,332 ) 704 (7,523 ) - (9,151 )

Financing activities: Increase in common stock 3,039 - 25,589 - 28,628 Loans payment - (706 ) - - (706 )

Resources provided by (used in) financing activities 3,039 (706 ) 25,589 - 27,922

Investing activities: Property system and equipment, net - - (51 ) - (51 ) Other assets (908 ) - (16,330 ) - (17,238 )

Resources used in investing activities (908 ) - (16,381 ) - (17,289 )

(Decrease) increase in cash and equivalents (201 ) (2 ) 1,685 - 1,482

Cash and equivalents at the beginning of the year 656 14 1,572 - 2,242

Cash and equivalents at the end of the year Ps. 455 12 3,257 - 3,724

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AXTEL, S.A. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Thousand pesos of constant purchasing power as of December 31, 2007)

Guarantors – U.S. GAAP reconciliation of net income and stockholders’ equity:

As discussed at the beginning of this note 24, the following reconciliation to U.S. GAAP does not eliminate the inflation adjustments for Mexican GAAP, since they represent an integral measurement of the effects of the changes in the price levels in the Mexican economy and, as such, are considered a more meaningful presentation than the financial reports based on historic costs for book purposes for Mexico and the United States.

The main differences between Mexican GAAP and U.S. GAAP and their effect on combined guarantors’ net loss and stockholders’ equity as of December 31, 2007, 2006 and 2005 is presented below, with an explanation of the adjustments.

Year ended December 31, 2007 2006 2005

Net income(loss) reported Ps. under Mexican GAAP 825,627 (4,671) (19,956)

U.S. GAAP adjustments 1. Deferred income taxes (A) (7,109) 1,647 11,347 2. Allowance for post retirement benefits (B) 25,391 (5,875) 6,101 Total U.S. GAAP adjustments 18,282 (4,228) 17,448 Net loss under U.S. GAAP Ps. 843,909 (8,899) (2,508)

Year ended December 31, 2007 2006

Total stockholders’ equity reported under Mexican GAAP Ps. 1,305,323 56,202

U.S. GAAP adjustments 1. Deferred income taxes (A) 502 6,876 2. Allowance for post retirement benefits (B) (1,793 ) (24,557) Total U.S. GAAP adjustments 1,291 (17,681) Total stockholders’ equity under U.S. GAAP Ps. 1,306,614 38,521

Guarantors-Notes to the U.S. GAAP reconciliation

A. Deferred income taxes

Deferred income taxes adjustment in the stockholders’ equity reconciliation to U.S. GAAP, as of December 31, 2007 and 2006, represented a decrease and increase of Ps. (502) and Ps. 6,876, respectively, as shown in the U.S. GAAP reconciliation.

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B. Allowance for post retirement benefits

For the years ended December 31, 2004 and before, under Mexican GAAP (Bulletin D-3), severance payments were recognized in earnings in the period in which they were paid, unless such payments were used by an entity as a substitution of pension benefits, in which case, they were considered as a pension plan. Starting January 1, 2005, the new Bulletin D-3 replaces the issue of unforeseen payments with the one relating to “Payments Upon Termination of the Labor Relationship” and establishes certain valuation and disclosure requirements for those payments for reasons other than restructuring, which are the same as those for pension and seniority premium payments. Under U.S. GAAP, post-employment benefits for former or inactive employees, excluding retirement benefits, are accounted for under the provisions of SFAS 112, which requires recognition of certain benefits, including severance, over an employee's service life. For the years ended December 31, 2007, 2006 and 2005 the guarantors recorded a (decrease) increase in net income of Ps. 25,391, Ps. (5,875) and Ps. 6,101, respectively; and for 2006 the Company cancelled a deferred charge of Ps. 17,071, as recorded under Mexican GAAP. The US GAAP liability amounts to Ps. 44,608 and Ps. 31,489 as of December 31, 2007 and 2006, respectively.

Effective December 31, 2006, the Company adopted the recognition and disclosure provisions of FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). SFAS 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net asset or liability and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income to the extent those changes are not included in the net periodic cost. The funded status reported on the balance sheet as of December 31, 2007 under SFAS 158 was measured as the difference between the fair value of plan assets and the benefit obligation on a plan-by-plan basis. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. The incremental effect of applying SFAS 158 on the Company’s financial position as of December 31, 2007 for items not yet recognized as a component of net periodic cost that were recognized in accumulated other comprehensive income was as follows:

Before After Application Application of of SFAS 158 Adjustments SFAS 158

Severance, seniority premiums and other post retirements benefits long term portion Ps. 47,257 (2,649 ) 44,608 Deferred income taxes assets (noncurrent) (13,232 ) 742 (12,490 )

Total liabilities Ps. 34,025 (1,907 ) 32,118

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 4.20

AMENDED AND RESTATED CREDIT AGREEMENT

dated as of November 30, 2006,

as amended and restated as of February 23, 2007,

among

AXTEL, S.A.B. DE C.V.,

as Borrower,

CERTAIN SUBSIDIARIES OF THE BORROWER,

as Guarantors,

VARIOUS FINANCIAL INSTITUTIONS,

as Lenders,

CITIBANK, N.A.,

as the Administrative Agent,

and

BANCO NACIONAL DE MEXICO, S.A.,

INTEGRANTE DEL GRUPO FINANCIERO BANAMEX,

as the Peso Agent

______

CITIGROUP GLOBAL MARKETS INC., as Sole Lead Arranger and Bookrunner

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Page ARTICLE I DEFINITIONS SECTION 1.1 Certain Defined Terms 1 SECTION 1.2 Other Interpretive Provisions 22 SECTION 1.3 Accounting Principles 23 ARTICLE II THE CREDITS 23 SECTION 2.1 Amounts and Terms of 23 Commitments SECTION 2.2 Notes 23 SECTION 2.3 Procedure for Borrowing 24 SECTION 2.4 Prepayments 24 SECTION 2.5 Repayment 25 SECTION 2.6 Interest 25 SECTION 2.7 Fees 26 SECTION 2.8 Computation of Fees and Interest 26 SECTION 2.9 Payments by Credit Parties 27 SECTION 2.10 Sharing of Payments, Etc. 28 ARTICLE III TAXES AND ILLEGALITY 28 SECTION 3.1 Taxes 28 SECTION 3.2 Illegality 31 SECTION 3.3 Increased Costs and Reduction of Return 31 SECTION 3.4 Funding Losses 32 SECTION 3.5 Inability to Determine Rates 33 SECTION 3.6 Certificates of the Lenders and 34 Agents SECTION 3.7 Substitution of Lenders 34 SECTION 3.8 Survival 34 ARTICLE IV CONDITIONS PRECEDENT 34 SECTION 4.1 Conditions Precedent to Amendment and Restatement 34 SECTION 4.2 Satisfaction of Conditions Precedent 38 ARTICLE V REPRESENTATIONS AND WARRANTIES 38 SECTION 5.1 Representations and Warranties 38 ARTICLE VI COVENANTS 44 SECTION 6.1 Affirmative Covenants 44 SECTION 6.2 Negative Covenants 50 ARTICLE VII DEFAULT/REMEDIES 59 SECTION 7.1 Default/Remedies 59 SECTION 7.2 Acceleration 62 SECTION 7.3 Rights Not Exclusive 63 ARTICLE VIII THE AGENTS 63 SECTION 8.1 Appointment and Authorization 63 SECTION 8.2 Delegation of Duties 63 SECTION 8.3 No Liability of Agent-Related 63 Persons SECTION 8.4 Reliance by the Agent-Related 64 Persons SECTION 8.5 Notice of Default 64 SECTION 8.6 Credit Decision 64 SECTION 8.7 Indemnification of Agent-Related Persons 65 SECTION 8.8 The Agent-Related Persons in Their Individual Capacity 65 SECTION 8.9 Successor Agent 66 ARTICLE IX GUARANTY 66

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 9.1 Guaranty 66 SECTION 9.2 Guaranty Unconditional 67 SECTION 9.3 Discharge only upon Payment in Full; Reinstatement in Certain Circumstances 67 SECTION 9.4 Waiver by the Guarantors 67 SECTION 9.5 Subrogation 68 SECTION 9.6 Stay of Acceleration 68 ARTICLE X MISCELLANEOUS 68 SECTION 10.1 Amendments and Waivers 68 SECTION 10.2 Notices 69 SECTION 10.3 No Waiver; Cumulative Remedies 71 SECTION 10.4 Costs and Expense 71 SECTION 10.5 Borrower Indemnification 72 SECTION 10.6 Payments Set Aside 73 SECTION 10.7 Successors and Assigns 73 SECTION 10.8 Assignments, Participations, etc 73 SECTION 10.9 Set-off 75 SECTION 10.10 Notification of Addresses, Lending Offices, Etc. 75 SECTION 10.11 Counterparts 76 SECTION 10.12 Severability 76 SECTION 10.13 Third Party Beneficiaries 76 SECTION 10.14 Governing Law and Jurisdiction 76 SECTION 10.15 Waiver of Jury Trial 78 SECTION 10.16 Judgment 78 SECTION 10.17 Entire Agreement 79 SECTION 10.18 Use of Names and Marks 79 SECTION 10.19 Use of English Language 79 SECTION 10.20 No Partnership, Etc. 79 SECTION 10.21 Confidentiality. 80

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SCHEDULE 2.1 Commitments and Pro Rata Shares SCHEDULE 5.1(b) Consents and Governmental Approvals Required for Financing SCHEDULE 5.1(c) Indebtedness and Contingent Obligations SCHEDULE 5.1(f) Equity Investments SCHEDULE 5.1(i) Governmental Approvals SCHEDULE 5.1(l) Legal Proceedings SCHEDULE 6.1(j) Released Liens and Release Documentation SCHEDULE 6.1(k)(1) Material Concessions SCHEDULE 6.1(k)(2) Acquisition Documents SCHEDULE 6.2(a)(vii) Continuing Existing Liens SCHEDULE 10.2 Lending Offices; Addresses for Notices

EXHIBITS

EXHIBIT A-1 Form of Note for Dollar Loans EXHIBIT A-2 Form of Note for Peso Loans EXHIBIT B Form of Notice of Borrowing EXHIBIT C Form of Assignment Agreement EXHIBIT D Form of Subsidiary Joinder Agreement EXHIBIT E Forms of Opinions

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of November 30, 2006, as amended and restated as of February 23, 2007 (this “Agreement”), among: (a) AXTEL, S.A.B. DE C.V., a Mexican sociedad anónima bursátil de capital variable (the “Borrower”), (b) CERTAIN SUBSIDIARIES OF THE BORROWER, as Guarantors, (c) VARIOUS FINANCIAL INSTITUTIONS, as lenders (the “Lenders”), (d) CITIBANK, N.A., as the Administrative Agent (in such capacity, the “Administrative Agent”), and (e) BANCO NACIONAL DE MEXICO, S.A., INTEGRANTE DEL GRUPO FINANCIERO BANAMEX, as the Peso Agent (in such capacity, the “Peso Agent”).

WHEREAS, the Borrower and the Guarantors are party to the Credit Agreement, dated as of November 30, 2006 (as heretofore amended, the “Existing Credit Agreement”), with certain of the Lenders and Citicorp North America Inc., the Administrative Agent and the Peso Agent;

WHEREAS, the Existing Loans were funded in accordance with the terms of the Existing Credit Agreement in an aggregate amount of $110,225,133.28 in Dollar Loans and P$1,042,362,416.67 in Peso Loans and it is not the intention of the parties hereto to increase or vary such amount; and

WHEREAS, the Borrower, the Administrative Agent, the Peso Agent and the Lenders desire to amend and restate the Existing Credit Agreement in order to, among other matters, extend the Maturity Date to the Principal Payment Date in February, 2012, reduce the Applicable Base Rate Margin and Applicable Margin and reflect the removal of Citicorp North America Inc. as a Lender and the addition of other parties as Lenders hereunder (the “New Lenders”) with the respective Commitments as indicated on Schedule 2.1.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree that as of the Restatement Date (subject to satisfaction of the conditions precedent set forth in Article IV) (i) the Existing Credit Agreement shall be amended and restated in its entirety as follows, (ii) Citicorp North America Inc. shall no longer be a Lender hereunder and (iii) the New Lenders shall be Lenders under the Existing Credit Agreement as amended and restated hereby with the respective Commitments as indicated by Schedule 2.1:

ARTICLE I

DEFINITIONS

SECTION 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“Acquisition” shall mean the acquisition by the Borrower in 2006 of all of the Capital Stock in Avantel and substantially all of the assets and all of the Capital Stock of Avantel Infraestructura and its Subsidiaries, pursuant to the acquisition agreements described on Schedule 6.1(k)(2).

“Acquisition Documentation” shall mean the agreements relating to the Acquisition described on Schedule 6.1(k)(2).

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“Administrative Agent” shall have the meaning set forth in the preamble.

“Administrative Agent’s Payment Office” shall mean, with respect to payment in Dollars, the address for such payments to the Administrative Agent set forth on Schedule 10.2 or such other address as the Administrative Agent may specify from time to time to the other parties hereto.

“Affected Lender” shall have the meaning set forth in Section 3.7.

“Affiliate” shall mean, as to any Person, any other Person who is directly or indirectly Controlled by, under common Control with or Controls such Person.

“Agent” shall mean each of the Administrative Agent and the Peso Agent.

“Agent-Related Persons” shall mean the Agents, any successor thereto in such capacity hereunder and the Lead Arranger, together with their respective Affiliates or in their other capacities, and the officers, directors, employees, counsel, agents and attorneys-in-fact of any such Person(s).

“Agreement” shall have the meaning set forth in the preamble.

“Applicable Base Rate Margin” shall mean 0.50% per annum.

“Applicable Law” shall mean any applicable statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, approval (including any Governmental Approval), concession, grant, franchise, license, agreement, directive, guideline, policy, requirement or other governmental restriction or any similar form of decision of, or determination by (or any interpretation or administration of any of the foregoing by), any Governmental Authority, whether in effect as of the Restatement Date or thereafter (including any Environmental Law).

“Applicable Margin” shall mean 1.50% per annum.

“Assignee” shall have the meaning set forth in Section 10.8(a).

“Assignment Agreement” shall have the meaning set forth in Section 10.8(a).

“Attorney Costs” shall mean all fees and disbursements of any law firm or other external counsel (but of not more than one firm or other external counsel for all Financing Parties per jurisdiction at any time) or notarial fees.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Auditors” shall mean KPMG Cardenas Dosal, S.C. or a replacement thereof appointed by the Borrower and approved by the Required Lenders; it being agreed that no such approval shall be required if such replacement is a member company or Affiliate of any one of the “Big Four” accounting firms.

“Authorized Officer” shall mean, with respect to any Person, its Chief Executive Officer (Director General), Chief Financial Officer (Director de Finanzas), Treasurer (Tesorero), Comptroller (Contralor) or any more senior officer.

“Avantel” shall mean Avantel, S. de R.L. de C.V., a Mexican sociedad de responsabilidad limitada de capital variable.

“Avantel Companies” shall mean Avantel, Avantel Infraestructura and their Subsidiaries as of the Closing Date.

“Avantel Infraestructura” shall mean Avantel Infraestructura, S. de R.L. de C.V., a Mexican sociedad de responsabilidad limitada de capital variable.

“Avantel/Telmex IRU” shall mean the indefeasible right to use certain telecommunications capacity pursuant to an agreement between Avantel and Telmex originally entered into on January 2, 2006.

“Banco de México Replacement Rate” shall have the meaning set forth in Section 3.5(c).

“Banamex” shall mean Banco Nacional de México, S.A., integrante del Grupo Financiero Banamex, a sociedad anónima organized under the laws of México and authorized to provide banking services in México.

“Base Rate” shall mean, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate and (b) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent in the city in which the Administrative Agent’s Payment Office is located as its “reference rate.” The “reference rate” is a rate set based upon various factors, including the Administrative Agent’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate. Any change in the “reference rate” (occasionally referred to as the “prime rate”) announced by the Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” shall mean a Dollar Loan that bears interest based upon the Base Rate.

“Borrower” shall have the meaning set forth in the preamble.

“Business” shall mean any business in which the Borrower or any of its Subsidiaries was engaged on the Restatement Date and any business related, ancillary or complementary to such business.

“Business Day” shall mean any day other than a Saturday or Sunday and: (a) other than any other day on which commercial banks in New York City, New York, the city in which the Administrative Agent’s Payment Office is located (only with respect to the determination of the Base Rate) or México City, México are authorized or required by law to close, and (b) if the applicable Business Day relates to the determination of LIBOR, shall mean a day on which dealings are carried on in the London interbank eurodollar market.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Capital Adequacy Regulation” shall mean any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case regarding capital adequacy of any bank (or similar entity) or of any Person controlling a bank (or similar entity).

“Capitalized Lease Obligations” shall mean, with respect to any Person, all outstanding obligations of such Person in respect of Capital Leases, taken at the capitalized amount thereof accounted for as indebtedness in accordance with GAAP.

“Capital Lease” shall mean any lease of any Property (whether real, personal or mixed) by any Person as lessee that, in conformity with GAAP, is required to be accounted for as a capital lease on the balance sheet of such Person.

“Capital Stock” shall mean any capital stock (including preferred stock) issued by a corporation or similar ownership interests (including partes sociales and partnership interests) in any Person.

“Change of Control” shall mean the occurrence of any of the following events:

(a) if any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (a): (i) such person shall be deemed to have “beneficial ownership” of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, and (ii) such person shall not be deemed to have “beneficial ownership” of any shares solely as a result of a voting or similar agreement entered into in connection with a merger agreement or asset sale agreement), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Borrower; provided, however, that Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Borrower than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Borrower (for the purposes of this clause (a), such other person shall be deemed to beneficially own any Voting Stock of a specified person held by a parent entity, if such other person is the beneficial owner, directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent entity and the Permitted Holders beneficially own, directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity),

(b) individuals who on the Restatement Date constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board of Directors or whose appointment or nomination for election by the shareholders of the Borrower was approved by a vote of a majority of the directors of the Borrower then still in office who were either directors on the Restatement Date or whose appointment, election or nomination for election was approved directly or indirectly by the Permitted Holders or by directors previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office,

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) the adoption of a plan relating to the liquidation or dissolution of the Borrower; provided, however, that this clause (c) shall not be applicable to: (i) a Guarantor consolidating with, merging into or transferring all or part of its Properties to the Borrower or (ii) the Borrower merging with an Affiliate of the Borrower solely for the purpose and with the sole effect of reincorporating the Borrower in another jurisdiction, or

(d) the merger or consolidation of the Borrower with or into another Person or the merger of another Person with or into the Borrower, or the sale of all or substantially all the Property of the Borrower (determined on a consolidated basis) to another Person other than a transaction in which holders of securities that directly or indirectly represented 100% of the Voting Stock of the Borrower immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the transferee Person or the surviving Person in such merger or consolidation transaction immediately after such transaction.

“Closing Date” shall mean December 4, 2006.

“Code” shall mean the Internal Revenue Code of 1986 of the United States and the regulations promulgated and rulings issued thereunder.

“COFETEL” shall mean the Comisión Federal de Telecomunicaciones, an agency of the SCT.

“Commitments” shall mean the Dollar Commitments and the Peso Commitments.

“Communications” shall have the meaning set forth in Section 10.2(d).

“Consolidated Basis” shall mean, initially, the combined Financial Statements of the Borrower and its Subsidiaries (including the Avantel Companies) and for periods in which the Avantel Companies are consolidated with the Borrower, the consolidated Financial Statements of the Borrower and its Subsidiaries, in each case, where applicable, excluding the Unrestricted Subsidiaries but including Immaterial Subsidiaries, even if not Guarantors.

“Consolidated EBITDA” shall mean, for any period (on a Consolidated Basis for the Borrower and its Subsidiaries determined in accordance with GAAP): (a) the income from operations for such period plus (b) depreciation of fixed or capital assets and amortization of intangibles and leasehold improvements for such period included in the calculation of income from operations.

“Consolidated EBITDA to Interest Ratio” shall mean, at any date of determination, the ratio (expressed as a decimal) of: (a) Consolidated EBITDA (determined excluding the Unrestricted Subsidiaries but including the Immaterial Subsidiaries even if not Guarantors) divided by (b) the Consolidated Interest Expense, in each case determined for the four most recent fiscal quarters ending on or before such date (as applicable, determined on a pro forma basis as if the Acquisition had occurred at the beginning of such four fiscal quarter period).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Consolidated Indebtedness” shall mean, as of any date of determination, all Indebtedness (including the Loans) of the Borrower and its Restricted Subsidiaries determined on a Consolidated Basis.

“Consolidated Interest Expense” shall mean, for any period, all interest, fees, premia and similar payments payable by the Borrower and its Restricted Subsidiaries with respect to Indebtedness (including the Loans) and/or Contingent Obligations during such period, determined on a Consolidated Basis, in accordance with GAAP, and when determined for a future period, assuming no unscheduled reduction in principal, increase in Indebtedness or Contingent Obligations or change in applicable interest rates.

“Consolidated Senior Indebtedness” shall mean Consolidated Indebtedness excluding Permitted Subordinated Indebtedness.

“Consolidated Senior Indebtedness to EBITDA Ratio” shall mean, at any date of determination, the ratio (expressed as a decimal) of: (a) Consolidated Senior Indebtedness as at such date divided by (b) Consolidated EBITDA (determined excluding the Unrestricted Subsidiaries but including the Immaterial Subsidiaries even if not Guarantors) for the four most recent fiscal quarters ending on or before such date (as applicable, determined on a pro forma basis as if the Acquisition had occurred at the beginning of such four fiscal quarter period).

“Consolidated Total Indebtedness to EBITDA Ratio” shall mean, at any date of determination, the ratio (expressed as a decimal) of: (a) Consolidated Indebtedness as at such date divided by (b) Consolidated EBITDA (determined excluding the Unrestricted Subsidiaries but including the Immaterial Subsidiaries even if not Guarantors) for the four most recent fiscal quarters ending on or before such date (as applicable, determined on a pro forma basis as if the Acquisition had occurred at the beginning of such four fiscal quarter period).

“Contingent Obligation” shall mean (without duplication): (a) the face amount of all letters of credit, performance bonds and similar instruments, including fianzas (excluding any such amounts for which a reimbursement obligation exists and any such instrument to the extent it secures the payment of Indebtedness), (b) a guarantee, an indemnity obligation in respect of a guarantee or performance bond (including a fianza), an endorsement or an aval, (c) all liabilities secured by any Lien on any Property of the applicable Person, whether or not such liabilities have been assumed by such Person, (d) a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, any Indebtedness, other obligations, net worth, working capital or earnings of any Person, (e) a guarantee of the payment of dividends or other distributions upon the Capital Stock of any Person, (f) an agreement to purchase, sell or lease (as lessee or lessor) Property or services, primarily in each case for the purpose of enabling a debtor to make payment of its obligations, or (g) an agreement to assure a creditor against loss; in each case including causing a bank or other Person to issue a letter of credit or other similar instrument for the benefit of any Person, but excluding endorsement for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation of any Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined in good faith.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Control” of any Person shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.

“Covered Taxes” shall have the meaning set forth in Section 3.1(a).

“Credit Party” shall mean the Borrower or a Guarantor.

“Credit Party Affiliate” shall mean an Affiliate of a Credit Party.

“Customer Premises Equipment” shall mean equipment owned by the Borrower or a Restricted Subsidiary that is either leased or sold on an installment basis to a customer of the Borrower or such Restricted Subsidiary in connection with the provision of telecommunications services to such customer by the Borrower or a Restricted Subsidiary.

“Default” shall have the meaning set forth in Section 7.1.

“Default Rate” shall mean, at any time of determination: (a) with respect to Dollar Loans, the interest rate(s) then applicable to such Dollar Loans plus 2% per annum, and (b) with respect to Peso Loans: (i) two multiplied by (ii) the Peso Rate, and (c) with respect to other Obligations, the Base Rate plus the Applicable Base Rate Margin plus 2% per annum.

“Disqualified Stock” shall mean, with respect to the Borrower, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event:

(a) matures or is mandatorily redeemable (other than redeemable only for Capital Stock of the Borrower that is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise,

(b) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock, or

(c) is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part, in each case on or prior to the first anniversary of the Maturity Date; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an “asset sale” or “change of control” occurring prior to the first anniversary of the Maturity Date shall not constitute Disqualified Stock if any such requirement only becomes operative after the repayment in full of the Obligations.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such Disqualified Stock is to be determined pursuant to this Agreement; provided, however, that if such Disqualified Stock could not be required to be redeemed, repaid or repurchased at the time of such determination, then the redemption, repayment or repurchase price shall be the book value of such Disqualified Stock as reflected in the most recent Financial Statements of such Person.

“Dollar Commitment” shall mean, with respect to each Lender providing such a commitment, the Dollar amount set forth opposite its name on Schedule 2.1 under the heading “Dollar Commitments.”

“Dollar Lender” shall mean a Lender with a Dollar Commitment or Dollar Loan.

“Dollar Loans” shall mean the Loans in Dollars provided to the Borrower by the Lenders with Dollar Commitments.

“Dollar/Peso Equivalent” shall mean, with respect to any monetary amount in Dollars or Pesos, at any time of determination thereof, the amount of Pesos or Dollars (as applicable) determined by the Administrative Agent by converting either such currency into the other currency at the Exchange Rate.

“Dollars” or “$” or “US$” shall mean the lawful currency of the United States of America.

“Dollar Tranche” shall mean the portion of the funding provided pursuant to the Commitments denominated in Dollars.

“Eligible Assignee” shall mean: (a) a Mexican Financial Institution, (b) an Export Credit Agency or (c) a Foreign Financial Institution resident in a jurisdiction that is party to a treaty with México for the avoidance of double taxation entitled to the benefits of such treaty and to the reduced rate established in such treaty for the type of interest granted therein; provided that no Credit Party or Subsidiary may be an Eligible Assignee.

“Environmental Law” shall mean any federal, national, multilateral, state, local or other law, statute, common law duty, rule, regulation, ordinance or code, together with any administrative order, directed duty, request, license, authorization and permit of, and agreement with, any Governmental Authority, in each case relating to environmental, health, safety and/or land use matters.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 of the United States and the regulations promulgated and rulings issued thereunder.

“ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) who together with the Borrower or any Subsidiary would be deemed to be a “single employer:” (a) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (b) as a result of the Borrower or any Subsidiary being or having been a general partner of such person.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “ERISA Plan” shall mean: (a) any pension plan (as defined in Section 3(2) of ERISA), that is maintained or contributed to by (or to which there is an obligation to contribute of) any Credit Party or an ERISA Affiliate and (b) each such plan for the five year period after the latest date on which any Credit Party or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan.

“Exchange Rate” shall mean, on any date of determination, the Peso/Dollar exchange rate published by Banco de México in the Federal Official Gazette (Diario Oficial de la Federación) as the rate “para solventar obligaciones denominadas en moneda extranjera pagaderas en la República Mexicana” on such date; provided that if Banco de México ceases to publish such exchange rate or a substitute rate therefor, then the Exchange Rate shall be calculated by using the Peso/Dollar spot exchange rate (if any) published by Banamex as of the close of business on the preceding Mexican Business Day.

“Excluded Taxes” shall have the meaning set forth in Section 3.1(a).

“Existing Credit Agreement” shall have the meaning set forth in the recitals.

“Existing Lenders” shall mean the following Lenders: Citicorp North America Inc., Banamex, Comerica Bank and HSBC México, S.A. Institución de Banca Múltiple Grupo Financiero HSBC.

“Existing Loans” shall have the meaning set forth in Section 2.3(b).

“Export Credit Agency” shall mean an official non-Mexican financial institution for the promotion of exports registered in Book I (Libro I) Section 5 (Sección 5) of the Foreign Banks, Financial Entities, Pension and Retirement Funds and Investment Funds Registry (Registro de Bancos, Entidades de Financiamiento, Fondos de Pensiones y Jubilaciones y Fondos de Inversión del Extranjero) maintained by Hacienda for purposes of the Rule 3.21.2 of the Resolución Miscelánea Fiscal for the year 2006 and Article 196-II of the Mexican Income Tax Law (or any successor provision).

“Expropriation Event” shall mean: (a) any condemnation, nationalization, rescate, temporary seizure, seizure, expropriation or similar act by (or on behalf of) a Governmental Authority of all or a material part of the Network and/or the other Property of the Borrower or any Subsidiary and/or of its Capital Stock, (b) any assumption by (or on behalf of) a Governmental Authority of control of all or a material part of the Property or business operations of the Borrower or any Subsidiary and/or of its Capital Stock, (c) any taking of any action by (or on behalf of) a Governmental Authority for the dissolution or disestablishment of the Borrower or any Subsidiary, (d) any taking of any action by (or on behalf of) a Governmental Authority that would prevent the Borrower and its Subsidiaries from carrying on their business or operations or a substantial part thereof or (e) any other act or series of acts attributable to a Governmental Authority; that in respect of the foregoing clauses (a) through (e) individually or in the aggregate, in the reasonable judgment of the Required Lenders, has resulted in, or could reasonably be expected to result in, a Material Adverse Change.

“Federal Funds Rate” shall mean, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York on the preceding New York Business Day opposite the caption “Federal Funds (Effective)”; or, if for any relevant day such rate is not so published on any such preceding New York Business Day, then the rate for such day shall be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged before 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve System of the United States and any Governmental Authority succeeding to any of its functions.

“Federal Telecommunications Law” shall mean the Mexican Federal Telecommunications Law (Ley Federal de Telecomunicaciones), adopted in June 1995.

“Financial Statements” shall mean, with respect to any Person, such Person’s quarterly or annual balance sheet and statements of income, stockholders’ equity and cash flows for such fiscal period and for the period from the beginning of the then-current Fiscal Year to the end of such period, together with all notes thereto and with comparable figures for the corresponding period of the previous Fiscal Year. In the Credit Parties’ case, unless otherwise specified, all such Financial Statements shall be prepared on a Consolidated Basis.

“Financing Documents” shall mean this Agreement, the Notes and the fee letter described in Section 2.7; it being understood that such fee letter is confidential and shall not be distributed to any Person other than the parties thereto and their representatives or as otherwise permitted under such fee letter and that all fees payable under such letter (other than the Administrative Agency Fee, of which the first quarterly installment has been paid) have been paid by the Borrower.

“Financing Parties” shall mean the Agents and the Lenders.

“Fiscal Year” shall mean a calendar year.

“Foreign Financial Institution” shall mean a bank or financial institution which is (or its main office is, if lending through a branch or agency) registered in Book I (Libro I) Section 1 (Sección 1) of the Foreign Banks, Financial Entities, Pension and Retirement Funds and Investment Funds Registry (Registro de Bancos, Entidades de Financiamiento, Fondos de Pensiones y Jubilaciones y Fondos de Inversión del Extranjero) maintained by Hacienda for purposes of Rule 3.21.2 of the Resolución Miscelánea Fiscal for the year 2006 and Article 195-I of the Mexican Income Tax Law (or any successor provisions).

“Foreign Investment Law” shall mean the Mexican Foreign Investment Law (Ley de Inversión Extranjera).

“GAAP” shall mean generally accepted accounting principles in Mexico in effect from time to time, applied on a consistent basis both as to classification of items and amounts.

“Governmental Approval” shall mean the Material Concessions and any other action, order, authorization, consent, approval, right, franchise, license, lease, ruling, permit, tariff, rate, certification, exemption, filing or registration by or with any Governmental Authority.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Governmental Authority” shall mean any government, governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, domestic, foreign or multilateral, federal, state, local or otherwise, having jurisdiction over the matter(s) in question.

“Guarantors” shall mean the Subsidiaries of the Borrower (other than the Immaterial Subsidiaries and the Unrestricted Subsidiaries).

“Hacienda” shall mean the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público), a ministry of the Mexican government.

“Hedging Agreement” shall mean any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing.

“Immaterial Subsidiary” shall mean at any time any Subsidiary of the Borrower that meets the following criteria at such time: (a) such Subsidiary is Telecom Networks, Inc., Instalaciones y Contrataciones S.A. de C.V., Impulsora e Inmobiliaria Regional S.A. de C.V., Servicios Axtel S.A. de C.V., Conectividad Inalámbrica 7GHZ, S. de R.L., Avantel Recursos S.A. de C.V., Avantel Telecomunicaciones S.A. de C.V., Avantel Equipos S.A. de C.V., Avantel Servicios S.A. de C.V. or any other Subsidiary of the Borrower designated in writing by the Borrower to the Administrative Agent as an Immaterial Subsidiary, (b) at all times such Subsidiary’s portion of Consolidated EBITDA is less than 5% of the Consolidated EBITDA of the Borrower and its Subsidiaries for the four fiscal quarter period most recently ended, (c) such Subsidiary holds less than 5% of the consolidated assets of the Borrower and its Subsidiaries on a Consolidated Basis, (d) the loss of the Properties held by such Subsidiary, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, (e) such Subsidiary does not hold a Material Concession, and (f) the designation of such Subsidiary as an Immaterial Subsidiary has not been withdrawn by the Borrower in accordance with Section 6.2(j)(iii). The Immaterial Subsidiaries are Restricted Subsidiaries but not Guarantors.

“Indebtedness” shall mean, for any Person (without duplication):

(a) indebtedness for borrowed money,

(b) obligations evidenced by bonds, debentures, notes, commercial paper, bills of exchange or other instruments (other than rental obligations under operating leases, whether or not evidenced by notes),

(c) obligations to pay the deferred purchase price of Property or services (excluding trade accounts not in default and payable in the ordinary course of business within 180 days of the furnishing of the goods or services),

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) reimbursement obligations of such Person that are due and payable in respect of letters of credit, performance bonds or similar instruments, including fianzas,

(e) all liabilities secured by any Lien on any Property of such Person, whether or not such liabilities have been assumed by such Person,

(f) Capitalized Lease Obligations (other than the Avantel/Telmex IRU),

(g) net obligations in respect of any interest rate protection agreement or any currency swap, cap or collar agreement or similar arrangement entered into by such Person providing for the transfer or mitigation of interest rate, currency or other risks either generally or under specific contingencies (but without regard to any notional principal amount relating thereto), and

(h) Contingent Obligations relating to any of the foregoing Indebtedness.

“Indemnified Liabilities” shall have the meaning set forth in Section 10.5.

“Indemnified Person”shall have the meaning set forth in Section 10.5.

“Information” shall have the meaning set forth in Section 10.21.

“Information Memorandum” shall mean the Confidential Information Memorandum, dated January 2007, prepared by the Credit Parties in connection with the syndication of the Loans.

“Interest Period” shall mean with respect to any Loan: (i) with respect to Dollar Loans, the period from the end of the preceding Interest Period (or, in the case of the first Interest Period, the Restatement Date) to the corresponding day of the month one or three months thereafter, as selected by the Borrower, provided that if an Interest Period would end on a day that is not a Business Day, it shall end on the next succeeding Business Day unless such day falls in the next succeeding calendar month in which case the Interest Period shall end on the next preceding Business Day, provided further that no Interest Period may end after the Maturity Date or after the first Principal Payment Date occurring after the commencement of such Interest Period and (ii) with respect to Peso Loans, the period from the end of the preceding Interest Period (or, in the case of the first Interest Period, the Restatement Date) to the 28th day of the following calendar month; provided that if an Interest Period would end on a day that is not a Business Day, it shall end on the next succeeding Business Day unless such day falls in the next succeeding calendar month in which case the Interest Period shall end on the next preceding Business Day.

“Investment” in any Person shall mean (without duplication): (a) the acquisition (whether for cash, securities, other Property, services or otherwise) or holding of Capital Stock or Indebtedness of such Person, or any agreement to make any such acquisition or to make any capital contribution to such Person, and (b) the making of any deposit with, or provision of Indebtedness to, such Person.

“Judgment Currency” shall have the meaning set forth in Section 10.16(a).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Judgment Currency Conversion Date” shall have the meaning set forth in Section 10.16(a).

“Lead Arranger” shall mean Citigroup Global Markets Inc.

“Lenders” shall have the meaning set forth in the preamble.

“Lending Office” shall mean, as to any Lender, the office(s) of such Lender specified as its “Lending Office” on Schedule 10.2 or such other office(s) as such Lender from time to time may notify the Borrower and the Administrative Agent in writing.

“LIBOR” applicable to any Interest Period shall mean:

(a) the arithmetic mean (rounded upwards, if necessary, to the next 1/100th of 1%) of the offered rates for deposits in Dollars for a period equal (or substantially equal) to such Interest Period quoted on the second Business Day before the first day of such Interest Period, as such rates appear on the display designated as page “LIBO” on the Reuters Monitor Money Rates Service (or such other page as may replace the “LIBO” page on that service for the purpose of displaying the London interbank offered rates of major banks) (the “Reuters Screen LIBO Page”) as of 11:00 a.m. (London time) on such date, if at least two such offered rates appear on the Reuters Screen LIBO Page, or

(b) if, as of 11:00 a.m. (London time) on any such date, such rate does not appear on the Reuters Screen LIBO Page, then the arithmetic mean (rounded upwards, if necessary, to the next 1/100th of 1%) of the rate for deposits in Dollars for a period equal (or substantially equal) to such Interest Period that are offered to the Administrative Agent by two or more leading banks in the London interbank market; in each case as determined by the Administrative Agent and notified to the Dollar Lenders and the Borrower on such second prior Business Day (or, with respect to any LIBOR Loans commencing on the Restatement Date, on the Restatement Date).

“LIBOR (Reserve Adjusted)” shall mean, with respect to a LIBOR Loan for the relevant Interest Period, the quotient (rounded upwards, if necessary, to the nearest 1/100th of 1%) of: (a) LIBOR for such Interest Period divided by (b) one minus the Reserve Requirement applicable to such Interest Period.

“LIBOR Loan” shall mean a Dollar Loan that bears interest based upon LIBOR (Reserve Adjusted).

“Lien” shall mean, with respect to any Property of any Person, any mortgage, deed of trust, hypothecation, security trust, fiduciary transfer of title, assignment by way of security, lien, pledge, charge, sale and lease-back arrangement, easement, servitude, servidumbre, trust arrangement or security interest or encumbrance of any kind in respect of such Property, or any preferential arrangement having the practical and/or economic effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any Property of any kind (and a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such Property). For the purpose of clarification, a Lien shall include any sales (including “true sales”) of Property in connection with any securitization or similar transaction.

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“Material Adverse Change” shall mean: (a) a material adverse change in the operations, business and/or condition (financial or otherwise) of the Credit Parties taken as a whole since December 31, 2005, or (b) an impairment of the ability of the Credit Parties to perform any of their respective material obligations under any Financing Document. For purposes hereof, a Material Adverse Change shall not be deemed to have occurred to the extent that such change with respect to the Credit Parties taken as a whole is as a result of a condition or event related solely to the Avantel Companies and such condition or event was existing prior to or as of the time of the Acquisition.

“Material Concession” shall mean the concessions of the Borrower and its Subsidiaries listed on Schedule 6.1(k)(1).

“Material Document” shall mean the Material Concessions and the Acquisition Documentation.

“Material Obligations” shall have the meaning set forth in Section 7.1(b).

“Maturity Date” shall mean the Principal Payment Date in February 2012.

“Mexican Business Day” shall mean any day other than a Saturday or Sunday and other than any other day on which commercial banks in México City, México are authorized or required by law to close.

“Mexican Financial Institution” shall mean a commercial bank organized under the Credit Institutions Law (Ley de Instituciones de Crédito) of México.

“México” shall mean the United Mexican States.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Net Worth” shall mean the consolidated net worth of the Credit Parties, determined on a Consolidated Basis.

“Network” shall mean the public telecommunications network (red pública de telecomunicaciones) (including the fiber optic cable, cable border crossings, interconnection points, switching centers and operating and office support systems and facilities) of the Credit Parties for the provision of telecommunications services (including any special or value-added telecommunications services) that the Credit Parties may offer from time to time.

“New Lenders” shall have the meaning set forth in the recitals.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “New York Business Day” shall mean any day other than a Saturday or Sunday and other than any other day on which commercial banks in New York City, New York are authorized or required by law to close.

“Non-U.S. Pension Plan” shall mean any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States of America by the Borrower or any Restricted Subsidiary primarily for the benefit of employees of the Borrower or any Restricted Subsidiary residing outside the United States of America, which plan, fund or other similar program provides (or results in) retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.

“Note” shall mean a non-negotiable promissory note (pagaré no negociable) executed by the Borrower (and executed por aval by the Guarantors) in favor of a Lender pursuant to Section 2.2, substantially in the form of Exhibit A-1 (for Dollar Loans) or Exhibit A-2 (for Peso Loans).

“Notice of Borrowing” shall mean a notice to the Administrative Agent substantially in the form of Exhibit B.

“Notice Office” shall mean the office of the Administrative Agent identified on Schedule 10.2 as its office for notices or such other office as the Administrative Agent may specify from time to time to the other parties hereto.

“Obligations” shall mean all loans, advances, debts, liabilities and other payment obligations of every kind and description, howsoever arising, owed by a Credit Party under a Financing Document (whether or not evidenced by any note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all interest, fees, charges, expenses, Indemnified Liabilities and Attorney Costs payable by a Credit Party.

“Ordinary Course of Business” shall mean, with respect to any sale, assignment, transfer, conveyance, lease or other disposition of any Property of the Borrower or any Restricted Subsidiary, any such transaction that is in the ordinary course of business of the Borrower or such Restricted Subsidiary and consistent with practices in the Mexican telecommunications industry, including: (a) any single transaction (or series of related transactions) relating to Property having a book value (under GAAP) of $25,000,000 (or its equivalent in any other currency) or less, (b) leases and/or sales of Customer Premises Equipment to customers, (c) divestitures of obsolete assets and (d) sales or other dispositions of assets for the purpose of upgrading or replacing such assets with assets of equal or greater value and utility (so long as the replacement of such assets shall be effected substantially contemporaneously with such sale or other disposition); provided that, except for transactions described in clause (b), any single such transaction (or series of related transactions) relating to Property having a book value under GAAP in excess of $25,000,000 (or its equivalent in any other currency) shall not be considered to be in the Ordinary Course of Business.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Organizational Documents” shall mean, with regard to any Person: (a) its articles of incorporation or other similar document, (b) its estatutos sociales, by-laws or other similar document, (c) any certificate of designation or instrument relating to the rights of preferred stockholders or other equity holders of such Person, and (d) any stockholder rights agreement, registration rights agreement or other similar agreement relating to such Person.

“Other Taxes” shall mean any present or future stamp, court or documentary taxes or any other excise or property taxes or charges of a similar nature that are levied by any Governmental Authority and that arise from any payment of any Obligations or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Financing Document.

“Participant” shall have the meaning set forth in Section 10.8(c).

“Payment Date” shall mean, as to any Loan, the Business Day at the end of each Interest Period applicable thereto (i.e., the Business Day to which an Interest Period runs even though such Business Day is not within such Interest Period).

“Payment Office” shall mean, with respect to payments in Dollars, the Administrative Agent’s Payment Office, and with respect to payments in Pesos, the Peso Agent’s Payment Office.

“Permitted Acquisition” shall mean the purchase or acquisition by the Borrower or a Restricted Subsidiary of the Capital Stock or Properties of another Person or a business unit or other integrated operations of another Person, which in each such case shall engage in the Business; provided that: (a) after giving effect to such purchase or acquisition of Capital Stock, such Person shall be a wholly-owned Subsidiary of the Borrower, (b) immediately before and after giving effect thereto, no Unmatured Default or Default then exists or would result therefrom, and (c) the Borrower is in compliance with the financial covenants set forth in Section 6.2(g), calculated on a pro forma basis (for a period, in the case of the ratios, of the four fiscal quarters most recently ended for which Financial Statements have been prepared) as though such purchase or acquisition had occurred at the beginning of such period, as evidenced by a certificate of an Authorized Officer of the Borrower delivered to the Administrative Agent demonstrating such compliance.

“Permitted Dollar Investments” shall mean any of the following, denominated and payable in Dollars: (a) securities issued or directly and fully guaranteed by the United States government or any agency or instrumentality thereof with a maturity of less than one year, (b) certificates of deposit and eurodollar time deposits with a maturity of not later than six months, bankers’ acceptances with a maturity of not later than six months and overnight bank deposits, in each case with any U.S. commercial bank of recognized stature having capital and surplus in excess of $500,000,000 and having a commercial paper rating (or the holding company thereof having a commercial paper rating) of “A-1” or better by S&P or “P-1” or better by Moody’s, and that is a member of the Federal Reserve System, (c) commercial paper rated “A-1” or better by S&P or “P-1” or better by Moody’s with a maturity of less than one year, (d) guaranteed investment contracts with a maturity of less than one year and entered into with (or fully guaranteed by) financial institutions whose long-term unsecured non-credit enhanced indebtedness is rated “A-” or better by S&P or “A2” or better by Moody’s, and (e) investments in money market funds having a rating from each of S&P and Moody’s in the highest investment category granted thereby; provided that, notwithstanding the foregoing, no Permitted Dollar Investments shall be permitted with a maturity of later than the next Payment Date for any Loan unless, after giving effect to such later maturing Permitted Dollar Investments, other Permitted Dollar Investments having a maturity of not later than such next Payment Date remain in an amount equal to the aggregate amount of the principal, if any, and interest payment scheduled to be payable on such next Payment Date for any Loan (determined using the interest rate(s) applicable to the Loans on the date of determination as the interest rate(s) applicable until such next Payment Date).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Permitted Hedging Obligations” shall mean obligations of a Person under Hedging Agreements that are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with: (a) raw materials purchases, (b) interest or currency exchange rates, (c) operating expenses or other anticipated obligations of such Person or (d) other liabilities, commitments or assets held or reasonably anticipated by such Person, but not for speculative purposes.

“Permitted Holders” shall mean: (a) any Person that is an Affiliate of the Borrower prior to an event giving rise to a Change of Control (and not established as an Affiliate in order to effect what would otherwise be a Change of Control) and (b) each of the following shareholders of the Borrower: Thomas Milmo Zambrano, Ma. Luisa Santos de Hoyos, Alberto Santos de Hoyos, Tomás Milmo Santos, Impra Café, S.A. de C.V., Alberto Garza Santos, David Garza Santos, Federico Garza Santos, Marcela Garza Santos, Yolanda Garza Santos, Blackstone Capital Partners III Merchant Banking Fund, L.P., Blackstone Family Investment Partnership III, L.P., New Hampshire Insurance Company, LAIF X sprl and Citigroup, Inc., and their respective Affiliates, heirs, legal representatives and successors.

“Permitted Investments” shall mean:

(a) with respect to Dollars, Permitted Dollar Investments, and

(b) with respect to Pesos, Investments in any of the following, denominated and payable in Pesos:

(i) obligations with a maturity of less than one year that are direct obligations of the Mexican government or of entities having the statutory guarantee of the Mexican government, or obligations that are expressly and unconditionally guaranteed by the Mexican government,

(ii) obligations with a maturity of less than one year of Mexican commercial banks of recognized stature, supervised by the Mexican National Banking and Securities Commission, with a capital and surplus of at least $250,000,000 (or its equivalent in other currencies); provided that the aggregate Investments of the Credit Parties in Mexican commercial banks not having Mexican domestic ratings of AA+(mex) or above from Fitch and mxA+ or above from S&P shall not exceed $25,000,000 (or its equivalent in Pesos) at any time,

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (iii) commercial paper of Mexican corporations with a maturity of less than one year and rated at least “A3” by Standard & Poor’s, S.A. de C.V., and

(iv) repurchase agreements with a maturity of less than one year, in each case related to any of the Investments described in clauses (i) through (iii), and that are fully collateralized by such Investments, with any Mexican commercial bank that meets the criteria outlined in clause (ii); provided that the aggregate amount invested in such repurchase agreements shall not exceed $25,000,000 (or its equivalent in Pesos) at any time.

“Permitted Joint Venture/Partnership” shall mean a joint venture or partnership to which a Credit Party is party; provided that at the time of, and after giving effect to, any investment by such Credit Party in a joint venture or partnership, such joint venture or partnership is (a) a Guarantor or is an Unrestricted Subsidiary meeting the requirements of Section 6.2(j)(iv) or (b) if such joint venture or partnership is neither a Guarantor nor an Unrestricted Subsidiary, at least 80% of the Consolidated EBITDA of the Borrower and its Subsidiaries on a pro forma basis for the last four fiscal quarters is derived from Credit Parties.

“Permitted Lien” shall have the meaning set forth in Section 6.2(a).

“Permitted Refinancing” shall mean a refinancing, refunding, renewal or extension of any Indebtedness, provided that: (a) the principal amount of any such Indebtedness is not increased above the principal amount thereof outstanding immediately prior to such refinancing, refunding, renewal or extension, (b) the direct and contingent obligors with respect to such Indebtedness are not changed, (c) such Indebtedness shall not be secured by any Property other than the Property securing the Indebtedness being refinanced, refunded, renewed or extended and (d) if Permitted Subordinated Indebtedness is being refinanced, refunded, renewed or extended, then such Indebtedness shall be subordinated to the Obligations at least to the same extent as the Permitted Subordinated Indebtedness being refinanced, refunded, renewed or extended.

“Permitted Subordinated Indebtedness” shall mean unsecured Indebtedness for borrowed money junior to and subordinate to the Obligations on terms and conditions satisfactory to the Required Lenders, including no principal payments thereon to be due prior to the later of the first anniversary of the Maturity Date and payment in full of the Obligations and no other payments to be made thereon if an Unmatured Default or Default exists or would result therefrom.

“Person” shall mean an individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization, Governmental Authority or other entity of whatever nature.

“Peso Agent” shall mean Banamex.

“Peso Agent’s Payment Office” shall mean, with respect to payments in Pesos, the address for such payments to the Peso Agent set forth on Schedule 10.2 or such other address as the Peso Agent may specify from time to time to the other parties hereto.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Peso Commitment” shall mean, with respect to each Lender providing such a commitment, the Peso amount set forth opposite its name on Schedule 2.1 under the heading “Peso Commitments.”

“Peso Lender” shall mean a Lender with a Peso Commitment or a Peso Loan.

“Peso Loans” shall mean the Loans in Pesos provided to the Borrower by the Lenders with Peso Commitments.

“Peso Rate” applicable to any Interest Period with respect to Peso Loans shall mean the Interbank Interest Equilibrium Rate (Tasa de Interés Interbancaria de Equilibrio) (the “TIIE”) for a designated maturity of 28 days, as most recently calculated and published in the Federal Official Gazette (Diario Oficial de la Federación) by Banco de México on the commencement of such Interest Period (and, if such date shall not be a Mexican Business Day, the immediately preceding Mexican Business Day).

“Pesos” or “P$” shall mean the lawful currency of the United Mexican States.

“Peso Tranche” shall mean the portion of the funding provided pursuant to the Commitments denominated in Pesos.

“Platform” shall have the meaning set forth in Section 10.2(d).

“Principal Payment Date” shall mean, (i) with respect to the Dollar Loans, the last Business Day of each February, May, August and November, beginning with February 2010, until the Maturity Date and (ii) with respect to the Peso Loans, the last Business Day of each Interest Period, of each February, May, August and November, beginning with February 2010, until the Maturity Date.

“Process Agent” shall have the meaning set forth in Section 4.1(h).

“Property” shall mean any right or interest in or to property, assets, rights or revenues of any kind whatsoever, whether real, personal or mixed, whether existing or future and whether tangible or intangible, including intellectual property.

“Pro Rata Share” shall mean, as to any Lender at any time, the percentage equivalent (expressed as a decimal, rounded to the tenth decimal place, with .00000000005 rounded upward) at such time of such Lender’s Loans and unused Commitments then outstanding divided by the combined Loans and unused Commitments then outstanding of all Lenders; provided that if any such determination is made with respect to a particular Tranche or type of Commitment, then only the Loans and unused Commitments of the Lenders of such Tranche or type of Commitment shall be considered; and provided further that, for the purpose of such determination where both Tranches are combined, the Peso Loans shall be calculated as if they were converted into Dollars at the Exchange Rate as of the date of determination.

“Register” shall have the meaning set forth in Section 10.8(e).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Release Documentation” shall mean the documentation listed in Schedule 6.1(j) providing for the termination and release of the Released Liens, in form and substance satisfactory to the Administrative Agent.

“Released Liens” shall mean the Liens on the Properties described in Schedule 6.1(j) which were terminated in accordance with the Existing Credit Agreement and as to which the Borrower shall provide evidence thereof pursuant to Section 6.1(j).

“Replacement Lender” shall have the meaning set forth in Section 3.7.

“Required Lenders” shall mean Lenders holding more than 50% of the aggregate principal amount of the Loans and unused Commitments then outstanding (or with respect to a single Tranche or type of Commitment, more than 50% of the aggregate principal amount of the Loans and unused Commitments outstanding under such Tranche or type of Commitment); provided that any Loans held by any Credit Party or any Credit Party Affiliate shall not be considered in any such determination (i.e., the Required Lenders, including for the following proviso, shall be determined as if such Loans and unused Commitments did not exist) and such holders shall not be entitled to vote thereon; and provided further that, for the purpose of such determination with respect to all Loans under this Agreement, the Peso Loans shall be calculated as if they were converted into Dollars at the Exchange Rate as of the date of determination.

“Reserve Requirement” shall mean, relative to an Interest Period for a LIBOR Loan, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirement, if any (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements), specified under regulations issued from time to time by the Federal Reserve Board or other Governmental Authorities in any jurisdiction and then applicable to assets or liabilities consisting of and including “Eurocurrency liabilities,” as defined in Regulation D (or applicable to similar liabilities under any successor or similar regulation in any jurisdiction), having a term approximately equal to such Interest Period.

“Restatement Date” shall mean the date on which all conditions set forth in Article IV are satisfied.

“Restricted Payment” shall mean any payment or distribution by the Borrower or a Restricted Subsidiary, directly or indirectly, whether in cash or other Property or in obligations of the Borrower or such Restricted Subsidiary: (a) of any dividends on its Capital Stock, (b) in respect of the purchase, acquisition, redemption, deduction, retirement, defeasance or other acquisition for value of any of its Capital Stock or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (c) in respect of the return of any capital to its stockholders as such, (d) in connection with any distribution or exchange of assets in respect of its Capital Stock, warrants, rights, options, obligations or securities to or with its stockholders as such, (e) in return of any irrevocable capital contributions, (f) other than the Obligations, in respect of any principal, interest, fees or expenses relating to any Investment by any Credit Party Affiliates (including Indebtedness of any Credit Party owing to any Credit Party Affiliate) or (g) in respect of any Permitted Subordinated Indebtedness.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Restricted Subsidiary” shall mean a Subsidiary that is not an Unrestricted Subsidiary. For the purpose of clarification, a Restricted Subsidiary need not be a Guarantor if it is an Immaterial Subsidiary.

“RPPC” shall mean the Public Registry of Property and Commerce (Registro Público de Propiedad y Comercio) of the corporate domicile of a Person organized under the laws of México or of the location of a Property, as the case may be.

“S&P” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

“SCT” shall mean the Ministry of Communication and Transportation (Secretaría de Comunicaciones y Transportes), a ministry of the Mexican government.

“SEC” shall mean the United States Securities and Exchange Commission.

“Solvent” shall mean, with respect to any Person as of any date of determination, that, as of such date: (a) the value of the assets of such Person (both at fair value and present fair saleable value) is greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person, (b) such Person is able to pay all liabilities of such Person as such liabilities mature, (c) such Person does not have unreasonably small capital with which to conduct its business and (d) such Person may not be declared in concurso mercantíl in accordance with Articles 9, 10 and 11 of the Mexican Bankruptcy Law (Ley de Concursos Mercantiles). In computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Subsidiary” shall mean, as to any Person: (a) any other Person who is directly or indirectly Controlled by such first Person or (b) any other Person at least 50% of the Voting Stock or the Capital Stock of which is owned by such first Person; but, with respect to the Borrower. For the purpose of the Financing Documents, any Person who is not the Borrower but would be consolidated with the Credit Parties on a Consolidated Basis shall be considered to be a Subsidiary of the Credit Party(ies) owning Capital Stock therein. Unless otherwise expressly indicated herein, reference herein to a Subsidiary refers to a Subsidiary of the Credit Parties.

“Subsidiary Joinder Agreement” shall mean an agreement executed by a Guarantor in the form of Exhibit D.

“Substitute Rate” shall have the meaning set forth in Section 3.5(c).

“Taxes” shall mean any present and future tax, assessment, levy, impost, duty, deduction, fee, withholding or other charge of whatever nature required by any Applicable Law (including any penalties or similar amounts with respect thereto or with respect to the non-payment thereof).

“Telmex” shall mean Teléfonos de México, S.A. de C.V. and its Affiliates, including TelNor.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “Telmex Network” shall mean the telecommunications network owned and operated by Telmex in México.

“TelNor” shall mean Teléfonos del Noroeste, S.A. de C.V.

“TIIE” shall have the meaning assigned thereto in the definition of “Peso Rate.”

“Tranche” shall mean each of the Dollar Tranche and the Peso Tranche.

“Transaction Documents” shall mean the Financing Documents and the Material Documents.

“Type” shall mean a LIBOR Loan or a Base Rate Loan.

“United States” and “U.S.” shall each mean the United States of America.

“Unmatured Default” shall mean any event or circumstance that, with the giving of notice, the expiration of any grace period or both, would (if not cured, waived or otherwise remedied during such time) constitute a Default.

“Unrestricted Subsidiary” shall mean at any time any Subsidiary of the Borrower that meets the following criteria at such time: (a) such Subsidiary is a newly created or acquired Subsidiary of the Borrower designated in writing by the Borrower to the Administrative Agent as an Unrestricted Subsidiary, provided that after giving effect to such designation the Borrower is in compliance with Section 6.2(j), (b) the loss of the Properties held by such Subsidiary, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, (c) such Subsidiary does not hold a Material Concession, and (d) the designation of such Subsidiary as an Unrestricted Subsidiary has not been withdrawn by the Borrower in accordance with Section 6.2(j)(iv).

“Voting Stock” shall mean Capital Stock in any Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or individuals performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.

SECTION 1.2 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b) The words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and any subsection, Section, Article, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(c) The term “documents” includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced.

(d) The term “including” is not limiting and shall mean “including without limitation.”

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (e) Unless otherwise specified, in the computation of periods of time from a specified date to a later specified date, the word “from” shall mean “from and including,” the words “to” and “until” each shall mean “to but excluding,” and the word “through” shall mean “to and including.”

(f) Unless otherwise expressly provided herein: (i) references to agreements (including this Agreement) and other documents shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by any Financing Document, and (ii) references to any Applicable Law are to be construed as including all statutory and regulatory provisions or rules consolidating, amending, replacing, supplementing, interpreting or implementing such Applicable Law.

(g) The Table of Contents, captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

(h) The Financing Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall be performed in accordance with their terms. Unless otherwise expressly provided herein, any reference to any action of any Agent, the Lenders or the Required Lenders by way of consent, approval or waiver shall be deemed modified by the phrase “in its/their sole good faith discretion.”

(i) The Financing Documents are the result of negotiations among and have been reviewed by counsel to the Agents, the Lead Arranger, the Credit Parties and the Lenders, and are the products of all such Persons. Accordingly, they shall not be construed against the Lenders, the Lead Arranger or any Agent merely because of any such Person’s involvement in their preparation.

(j) Except as specifically provided herein, any financial covenant or other provision hereof that requires the combination of Dollars and/or Pesos shall be determined in Dollars applying the Exchange Rate; provided that the exchange rate used in connection with the preparation of any income statement or other Financial Statement that, unlike a balance sheet, is based upon events that occur throughout the reporting period shall be calculated in accordance with GAAP using the Exchange Rates so published throughout the applicable period.

SECTION 1.3 Accounting Principles. Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP.

ARTICLE II

THE CREDITS

SECTION 2.1 Amounts and Terms of Commitments. (a) Each Dollar Lender severally agrees, on the terms and conditions set forth herein, to make Dollar Loans to the Borrower on the Restatement Date in an aggregate principal amount not to exceed such Lender’s Dollar Commitment.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Each Peso Lender severally agrees, on the terms and conditions set forth herein, to make Peso Loans to the Borrower on the Restatement Date, in an aggregate principal amount not to exceed such Lender’s Peso Commitment.

(c) The parties hereto hereby acknowledge and agree that if the Loans are not funded on the Restatement Date as a result of any failure to satisfy the requirements in Sections 4.1 and 4.2, then this Agreement (and the other Financing Documents) shall immediately and automatically terminate except for such provisions hereof and thereof that (by their terms) survive termination.

(d) Within the limits of each Lender’s Commitments, and subject to the other terms and conditions hereof, the Borrower may request Loans hereunder pursuant to Section 2.3(a) and make prepayments under Section 2.4. Loans borrowed, once repaid, may not be reborrowed except to the extent provided in Section 3.2(b). Upon the making of the Loans on the Restatement Date, all unfunded Commitments (if any) shall immediately and automatically terminate.

SECTION 2.2 Notes. (a) The Loans made by each Lender shall be evidenced by one Note for each Lender per Tranche, subscribed by the Borrower and executed in guaranty (por aval) by each of the Guarantors. Each Lender shall record in its records the date, Type (for Dollar Loans) and amount of each Loan made by it and the amount of each payment of principal made by (or on behalf of) the Borrower with respect thereto. Each Lender’s record shall constitute prima facie evidence of the accuracy of the information so recorded; provided that the failure of a Lender to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the Obligations of any Credit Party hereunder or under any such Note to such Lender.

(b) Promptly upon: (i) a conversion of Dollar Loans from LIBOR Loans to Base Rate Loans or vice versa in accordance with Section 2.6(g), (ii) the election of the Borrower in accordance with Section 2.6(e) to change the duration of the Interest Period, (iii) the addition of a new Guarantor, (iv) any change in organizational structure pursuant to Section 6.2(i) and/or (v) any assignment of Loans pursuant to Section 10.8, the Borrower and each Guarantor (por aval) shall, upon the request of the Administrative Agent, at the expense of the Borrower, promptly execute and deliver to the Administrative Agent for the account of each of the relevant Lenders, in exchange for the Note evidencing the relevant Loans of such Lender theretofore delivered to such Lender, a new Note or Notes payable to such Lender and/or such Lender’s assignee, as applicable, dated the Restatement Date, in a principal amount equal to the principal amount then outstanding of such Note and otherwise duly completed.

SECTION 2.3 Procedure for Borrowing. (a) The Borrower shall deliver to the Administrative Agent (by no later than 9:00 a.m. (New York City time) on a day that is at least two Business Days prior to the Restatement Date) an irrevocable written notice in the form of a Notice of Borrowing, requesting that the Loans be made on the Restatement Date. Such Notice of Borrowing: (i) shall be delivered in accordance with the last paragraph of Section 4.1 and (ii) shall specify: (A) the requested amounts of the Loans for each Tranche (to be requested on a pro rata basis) to be borrowed by the Borrower, and (B) for the Dollar Loans, the Type of Loans requested and, if the Dollar Loans are LIBOR Loans, the Interest Period therefor. The Administrative Agent shall promptly notify each Lender and each Existing Lender upon receipt of the borrowing request. Such Notice of Borrowing given in accordance with this Section shall be deemed to satisfy all requirements under the Existing Credit Agreement for prior notice of prepayment of the Existing Loans.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Subject to the conditions precedent set forth in Article IV, each Lender severally agrees to make the amount of its Pro Rata Share of the requested Loan of the applicable Tranche available to the Administrative Agent for the account of the Borrower (in the case of Dollar Loans) at the Administrative Agent’s applicable Payment Office and (in the case Peso Loans) at the Peso Agent’s Payment Office, in each case by 10:00 a.m. (New York City time) on the Restatement Date in funds immediately available to the Administrative Agent. Upon fulfillment of the conditions precedent to disbursing the Loans in Article IV, the Administrative Agent shall apply the proceeds of the Loans to repay in full the outstanding Loans of the Existing Lenders under the Existing Credit Agreement (the “Existing Loans”). The Borrower hereby irrevocably instructs the Administrative Agent to apply the proceeds of the Loans to the payment in full of the Existing Loans as specified above. The Borrower agrees to pay on the Restatement Date to the Existing Lenders all accrued and unpaid interest on the Existing Loans and within fifteen days after demand any amounts owing under Section 3.4 of the Existing Credit Agreement (as in effect prior to the Restatement Date) in respect of the repayment of the Existing Loans to the Existing Lenders on the Restatement Date.

SECTION 2.4 Prepayments: The Borrower shall have the right to prepay the Loans of either or both Tranches, in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (i) the Borrower shall give the Administrative Agent irrevocable written notice at its Notice Office (of which the Administrative Agent shall promptly notify each of the Lenders) of its intent to prepay the Loans of one or both Tranches and the amount of such prepayment, which notice shall be given by the Borrower at or prior to 10:00 a.m. (New York City time) at least three Business Days (but no more than 30 days) before the date of such prepayment, (ii) each partial prepayment of Loans shall be in an aggregate principal amount of at least $10,000,000 (or, for the Peso Loans, the Dollar/Peso Equivalent thereof) and, if greater, in an integral multiple of $1,000,000 (or, for the Peso Loans, the Dollar/Peso Equivalent thereof), (iii) each prepayment of Loans pursuant to this paragraph shall be applied to the Loans of each Lender under the applicable Tranche in accordance with such Lender’s pro rata share of Loans under such Tranche and shall be applied within such Tranche to reduce the remaining scheduled principal repayments of such Tranche on a pro rata basis and (iv) each prepayment of Loans pursuant to this paragraph shall be applied as provided in Section 2.9(d); it being understood that the Borrower shall deliver to the Administrative Agent such additional amounts (if any) necessary so that the amount allocated to the principal prepayment of the Loans is the amount indicated to be prepaid on the notice of prepayment. If such notice is given by the Borrower, then the Borrower shall make such prepayment (and the payment amount specified in such notice shall be due and payable) on the date specified therein, together with accrued interest to such date on the amount prepaid and any amounts required pursuant to Section 3.4.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 2.5 Repayment. The Borrower shall repay the principal of all Loans in full, plus all accrued and unpaid interest thereon, on each Principal Payment Date as follows:

Principal Payment Date Principal Payment on Dollar Loans Principal Payment on Peso Loans February 2010 $11,022,513.33 P$104,236,241.67 May 2010 $11,022,513.33 P$104,236,241.67 August 2010 $11,022,513.33 P$104,236,241.67 November 2010 $11,022,513.33 P$104,236,241.67 February 2011 $11,022,513.33 P$104,236,241.67 May 2011 $11,022,513.33 P$104,236,241.67 August 2011 $11,022,513.33 P$104,236,241.67 November 2011 $11,022,513.33 P$104,236,241.67 Maturity Date $22,045,026.64 P$208,472,483.31

Except to the extent otherwise specifically provided in the Financing Documents, all other Obligations shall be paid on the Maturity Date. Should the Dollar Commitments or the Peso Commitments not be fully drawn on the Restatement Date, then the repayment schedule for such Tranche shall be revised to reduce the scheduled repayments on a pro rata basis by an aggregate amount equal to the undrawn amount.

SECTION 2.6 Interest. (a) Each Dollar Loan shall bear interest on the outstanding principal amount thereof from the Restatement Date at a rate per annum equal to: (i) LIBOR (Reserve Adjusted) plus the Applicable Margin or (ii) the Base Rate plus the Applicable Base Rate Margin, as selected by the Borrower. Each Peso Loan shall bear interest on the outstanding principal amount thereof from the Restatement Date at a rate per annum equal to the Peso Rate plus the Applicable Margin.

(b) Interest on each Loan shall be paid in arrears on each applicable Payment Date. Accrued interest also shall be paid on the date of any prepayment of Loans under Section 2.4 for the portion of the Loans so prepaid.

(c) Notwithstanding clauses (a) and (b), while any Default exists: (i) the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by Applicable Law) on the principal amount of all outstanding Loans and, to the extent permitted by Applicable Law, on any other due but unpaid Obligations, at a rate per annum equal to the applicable Default Rate, and (ii) all such interest shall be payable on demand of the Administrative Agent (with respect to interest on the Loans) or the Person to whom such payment is due.

(d) Anything herein to the contrary notwithstanding, the Obligations shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder to the extent (but only to the extent) that contracting for or receiving such payment by such Lender would be contrary to any law applicable to such Lender that limits the highest rate of interest that lawfully may be contracted for, charged or received by such Lender, and in such event the Credit Parties shall pay such Lender interest at the highest rate permitted by Applicable Law.

(e) With respect to any Interest Period for a Dollar Loan for which the Borrower wishes to change the duration from the duration applicable to the preceding Interest Period for such Dollar Loan pursuant to the definition of “Interest Period” (from three months to one month or from one month to three months), the Borrower shall notify the Administrative Agent, which notice must be received by the Administrative Agent not later than 11:00 a.m. (New York City time) at least three Business Days before the commencement of such Interest Period, of the desired duration of such Interest Period.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) The Administrative Agent promptly (and, in any event, on the day such notice is received) shall notify each Dollar Lender of its receipt of each notice pursuant to clause (e).

(g) The Borrower may, upon irrevocable written notice given to the Administrative Agent not later than 11:00 a.m. (New York City time) on the third Business Day before the date of the proposed conversion, convert all outstanding Dollar Loans from LIBOR Loans into Base Rate Loans or from Base Rate Loans into LIBOR Loans; provided that any conversion of a LIBOR Loan into a Base Rate Loan only shall be made on the last day of the Interest Period for such LIBOR Loan. Such notice shall specify: (i) the date of such conversion (which shall be a Business Day) and (ii) the Dollar Loans to be so converted. The Administrative Agent promptly shall notify each Dollar Lender of its receipt of each such notice.

SECTION 2.7 Fees. The Borrower shall pay to each Agent, for its own account, the fees set forth in the separate fee letter(s) between the Borrower and such Agent pursuant to the terms thereof.

SECTION 2.8 Computation of Fees and Interest. (a) All computations of interest for Base Rate Loans shall be made on the basis of the actual number of days in the applicable year and actual days elapsed. All other computations of interest and fees shall be made on the basis of a 360-day year and actual days elapsed. Interest and fees shall accrue during each period during which such interest or fees are computed from the first day thereof to the last day thereof.

(b) Each determination of an interest rate (and the related amount of interest payable on the Loans) by the Administrative Agent or the Peso Agent, as the case may be, shall be conclusive and binding upon the Credit Parties and the Lenders in the absence of manifest error. The Administrative Agent and the Peso Agent shall, at the written request of the Borrower or any Lender, deliver to the Borrower or such Lender, as the case may be, a written statement showing the quotations used by the Administrative Agent or the Peso Agent, as the case may be, in determining any interest rate and the resulting interest rate.

SECTION 2.9 Payments by Credit Parties. (a) All payments to be made by any Credit Party under the Financing Documents shall be made without set-off, defense, recoupment or counterclaim or other reduction. Except as otherwise expressly provided herein, all payments by (or on behalf of) any Credit Party under the Financing Documents shall be made to the Administrative Agent (in the case of Dollars) or to the Peso Agent (in the case of Pesos), in each case for the account of the Lenders (or other applicable recipient) at the applicable Payment Office, and shall be made in Dollars or Pesos (as applicable), and in immediately available funds, no later than 12:00 noon (New York City time) on the specified payment date. The Administrative Agent or the Peso Agent, as the case may be, promptly (and, in any event, on the date received) shall distribute to each Lender (or other applicable recipient) its Pro Rata Share (or other applicable share as expressly provided in the Financing Documents) of such payment in like funds as received. Any payment received by the Administrative Agent or the Peso Agent later than 12:00 noon (New York City time) on a payment date shall be deemed to have been received on the following Business Day, and any applicable interest or fee shall continue to accrue; provided that such payment delay shall not be considered to be a Default and no Default Rate shall be applicable as a result thereof. The Peso Agent (unless it is the same institution as the Administrative Agent) shall provide the Administrative Agent written notice of each payment received by the Peso Agent from (or on behalf of) the Credit Parties.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Whenever any payment is due on a day other than a Business Day, such payment shall be made on the preceding Business Day, and such reduction of time shall in such event be included in the computation of interest or fees, as the case may be.

(c) Unless the Administrative Agent or the Peso Agent, as the case may be, receives notice from the Borrower before the date on which any payment is due to the Lenders that the Borrower (or the Guarantors on its behalf) shall not make such payment in full as and when required, such Agent may assume that the Credit Parties have made such payment in full to such Agent on such date in immediately available funds and such Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Credit Parties have not made such payment in full to such Agent, then each Lender shall repay to such Agent on demand such amount so distributed to such Lender by such Agent, together: (i) with respect to the Dollar Loans, with interest thereon at the Federal Funds Rate, and (ii) with respect to the Peso Loans, with interest thereon at the customary rate charged by the Peso Agent for Peso overdrafts, for each day from the date such amount is distributed to such Lender to the date repaid to such Agent. The giving of notice by the Borrower to any Agent that the Borrower shall not make (or cause the Guarantors to make) any payment in full as and when required shall not be construed in any manner whatsoever as: (x) a consent by the Financing Parties to such failure to pay or (y) a waiver to any of the rights that the Financing Parties may have.

(d) Payments received by any Agent from (or on behalf of) the Borrower in respect of Loans shall be applied as follows: first, to any fees (on a pro rata basis) due pursuant to Section 2.7; second, to any interest (including, if applicable, at the Default Rate) due and payable pursuant to Section 2.6 (including, pursuant to Section 2.6(b), on any amount of the Loans that is prepaid), such interest to be paid pro rata to each Lender under the applicable Tranche; third, to principal due and payable pursuant to Sections 2.4 and 2.5, such principal to be paid pro rata to each Lender under the applicable Tranche; and fourth, to all other Obligations payable in connection with the Financing Documents in such order as shall be determined by the Required Lenders; it being understood that the Payment Dates for interest for the Loans may not be concurrent and any payment of interest with respect to a Loan shall be applied only to interest then due and payable on the Loans.

(e) After a payment is received by an Agent pursuant to this Section 2.9, upon a written request of the Borrower, such Agent shall use reasonable efforts to issue and deliver to the Borrower within 30 days after such request a receipt with respect to such payment received from the Borrower pursuant to this Agreement, which receipt shall describe how such payment has been applied.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 2.10 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans held by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) in excess of its Pro Rata Share (or other share contemplated hereunder), then such Lender shall promptly: (a) notify the Administrative Agent of such fact and (b) purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment pro rata with each of the other Lenders in accordance with such Lender’s Pro Rata Share; provided that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, then such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s ratable share (according to the proportion of: (i) the amount of such paying Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered; and provided further that if such participations would be in a Loan in a currency other than such Lender’s Loans, then such Lender may deliver the applicable portion of such amounts to the other applicable Lender(s) for application as a payment of such Loans and such amounts shall be considered as having been repaid to such other Lender(s) instead of such first Lender. The Credit Parties agree that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by Applicable Law, exercise all its rights to receive payment (including the right of set-off, but subject to Section 10.9) with respect to such participation as fully as if such Lender were the direct creditor of the Credit Parties in the amount of such participation and not subject to the restrictions on Participant voting rights under Section 10.8(c). The Administrative Agent shall keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and in each case shall notify the Lenders following any such purchases or repayments.

ARTICLE III

TAXES AND ILLEGALITY

SECTION 3.1 Taxes. (a) Any and all payments by the Credit Parties to the Financing Parties under the Financing Documents shall be made free and clear of and without deduction or withholding for any and all present and future Taxes, excluding: (i) in the case of each such Financing Party, taxes imposed upon or measured by its net income or net profits, and franchise or similar taxes and branch profits or similar taxes imposed upon it, by any jurisdiction as a result of any current or former connection between such Financing Party and such jurisdiction or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Financing Party having executed, delivered or performed its obligations or received a payment under, or having been a party to, or having enforced this Agreement or any other Financing Document) and (ii) taxes imposed by any jurisdiction outside México other than any taxes that arise as a result of any Credit Party causing payment to be made from or through a jurisdiction other than México (all such excluded Taxes are herein referred to as “Excluded Taxes” and all Taxes that are not Excluded Taxes are herein referred to as “Covered Taxes”).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) If any Credit Party shall be required by Applicable Law to deduct or withhold any Covered Taxes from or in respect of any sum payable under any Financing Document to any Financing Party, then:

(i) the sum payable shall be increased by such additional amounts (the “Additional Amounts”) as necessary so that, after making all required deductions and withholdings of Covered Taxes, such Financing Party receives an amount equal to the sum it would have received had no such deductions or withholdings of Covered Taxes been made,

(ii) such Credit Party shall make such deductions and withholdings, and

(iii) such Credit Party promptly shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with Applicable Law; provided that notwithstanding any contrary provisions and excluding any Person organized under the laws of México and any Export Credit Agency from the applicability of this proviso, the Credit Parties shall not be obligated to pay to any Financing Party any amounts described in this Section in respect of any portion of Covered Taxes (including any Additional Amounts) that would not have been imposed but for the failure of such Financing Party: (A) to be registered with Hacienda as a Foreign Financial Institution, or (B) to be a resident (or to have the principal offices of such Financing Party be a resident, if such Financing Party lends through a branch or agency) for tax purposes, of a country with which México has entered into a treaty that is in effect for the avoidance of double taxation, entitled to the benefits of such treaty and to the reduced rate established in such treaty for the type of interest provided therein, or (C) to comply with any certification, identification, information, declaration or other reporting requirements or to deliver to the Credit Parties information, documentation or other evidence concerning the nationality, residence, identity or registration with Hacienda of such Financing Party, in each case if compliance is required by a statute, treaty or regulation of México or any political subdivision thereof or any taxing authority therein or general administrative practice of a Mexican Governmental Authority as a precondition or requirement to the exemption from, or the reduction in the rate of, deduction or withholding of Taxes; provided that any such Financing Party may cure any such failure in order to receive such Additional Amounts if such cure is sufficiently timely to effect or obtain the exemption from or reduction in the rate of deduction or withholding of Taxes.

(c) Each Financing Party (other than a Person that is organized under the laws of México or an Export Credit Agency) represents and warrants to the Credit Parties that such Financing Party is registered as a Foreign Financial Institution with Hacienda and resident of a country that is a party to a treaty with México for the avoidance of double taxation entitled to the benefits of such treaty and to the reduced rate established in such treaty for the type of interest provided therein.

(d) Each Credit Party agrees to indemnify and hold harmless each Financing Party for any Covered Taxes and Other Taxes paid by such Financing Party in connection with the execution, delivery and performance of this Agreement, including penalties and interest arising therefrom or with respect thereto, whether or not such Covered Taxes and Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date on which such Financing Party makes written demand therefor.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (e) Within 30 days after the date of any payment by any Credit Party of any Covered Taxes in connection with any payment by any Credit Party under the Financing Documents, such Credit Party shall furnish to the Administrative Agent (for distribution to the applicable Financing Party(ies)) the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment reasonably satisfactory to the Administrative Agent.

(f) Each Financing Party (other than any Person organized under the laws of México or an Export Credit Agency) shall use reasonable efforts (consistent with legal and regulatory restrictions): (i) to file any certificate or document or to furnish any information as reasonably requested by a Credit Party pursuant to any applicable treaty, law or regulation or (ii) to designate a different Lending Office, if the making of such a filing, the furnishing of such information or the designation of such other Lending Office would avoid the need for or reduce the amount of any Additional Amounts payable by the Credit Parties pursuant to this Section and would not, in the sole judgment of such Financing Party, be illegal or otherwise disadvantageous to such Financing Party. It is understood and agreed that nothing in this Section shall interfere with the rights of any Financing Party to conduct its fiscal and tax affairs in such manner as it deems fit.

(g)(i) If any additional amounts or indemnity payments are made by the Credit Parties to any Financing Party with respect to any Covered Taxes or Other Taxes pursuant to this Section and such Financing Party in its reasonable discretion is entitled to a refund of such Covered Taxes or Other Taxes from the taxing jurisdiction to which the Covered Taxes or Other Taxes were paid, then such Financing Party shall, to the extent that it can do it so without prejudice to the retention of the amount of such refund, make reasonable efforts that would not materially prejudice such Financing Party or otherwise be detrimental to such Financing Party to apply for such refund and reimburse to the Credit Parties such amount of any refund received (net out-of-pocket expenses incurred).

(ii) If any payment is made by the Credit Parties to or for the account of any Financing Party after deduction for or on account of any Covered Taxes or Other Taxes, and increased payments are made by the Credit Parties pursuant to this Section, then, if such Financing Party at its reasonable discretion determines that it has received or been granted a refund or credit for such Covered Taxes or Other Taxes, such Financing Party shall, to the extent that it can do so without prejudice to the retention of the amount of such refund or credit, reimburse to the Credit Parties such amount as such Financing Party shall determine in its reasonable discretion to be attributable to the relevant Covered Taxes, Other Taxes, or deduction, or withholding. Nothing herein contained shall oblige any Financing Party to disclose its tax returns or any other information it deems confidential taking into account the other provisions of this clause (g).

(h) The Credit Parties shall be responsible for the payment of any and all Other Taxes and any interest and penalties related thereto.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 3.2 Illegality. (a) If, on or after the Restatement Date, any Lender determines that the introduction of any Applicable Law, any change in any Applicable Law or in the interpretation or administration of any Applicable Law, or any other reason whatsoever has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender under the Dollar Tranche or its applicable Lending Office to make or maintain LIBOR Loans, then, on written notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to continue (or convert Base Rate Loans into) LIBOR Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower in writing that the circumstances giving rise to such determination no longer exist.

(b) If a Lender under the Dollar Tranche determines that it is unlawful to maintain any outstanding LIBOR Loan, then the Borrower shall, upon its receipt of written notice of such fact and demand from such Lender (with a copy to the Administrative Agent), prepay in full any LIBOR Loan of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof or, if earlier, on the date on which such Lender may no longer lawfully continue to maintain such LIBOR Loan. If the Borrower is required so to prepay any LIBOR Loan, then, concurrently with such prepayment, the Borrower shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan having the same principal amount; it being understood that any such repayment by the Borrower shall not constitute a repayment of the Loan hereunder pursuant to Section 2.5.

(c) If the obligation of any Lender under the Dollar Tranche to continue (or convert Base Rate Loans into) LIBOR Loans has been so terminated or suspended, then all Loans that otherwise would be continued (or converted) by such Lender as LIBOR Loans shall be maintained as Base Rate Loans instead.

(d) Before giving any notice to the Administrative Agent or demand upon the Borrower under this Section, an affected Lender shall designate a different Lending Office with respect to its LIBOR Loans if such designation shall avoid the need for giving such notice or making such demand and shall not, in the sole judgment of such Lender, be illegal or otherwise disadvantageous to such Lender.

SECTION 3.3 Increased Costs and Reduction of Return. (a) If any Lender determines that, due to either: (i) the introduction of or any change in or in the interpretation of any Applicable Law or (ii) the compliance by such Lender with any guideline or request from any Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Loan, then the Borrower shall be liable for, and from time to time, promptly upon demand (with a copy of such demand to be sent to the Administrative Agent), shall pay to the Administrative Agent (or, in the case of a payment in Pesos, to the Peso Agent) for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs (calculated in accordance with Section 3.4). For the avoidance of doubt, this Section does not apply to Taxes (which are covered solely by Section 3.1).

(b) If any Lender shall determine that: (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any Governmental Authority charged with the interpretation or administration thereof or (iv) compliance by such Lender (or its Lending Office) or any Person controlling such Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by such Lender, its Lending Office or such Person and (taking into consideration such Lender’s, such Lending Office’s or such Person’s policies with respect to capital adequacy and such Lender’s or such Person’s desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, Loans, credits or obligations under this Agreement, then, upon written demand of such Lender to the Borrower through the Administrative Agent, the Borrower promptly shall pay to the Administrative Agent (or, in the case of a payment in Pesos, to the Peso Agent) for the account of such Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate such Lender for such increase.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 3.4 Funding Losses. Within fifteen days after demand, the Borrower shall reimburse each Lender and hold each Lender harmless from any loss or expense that such Lender has sustained or incurred as a consequence of:

(a) the failure of the Borrower to make on a timely basis any payment of principal or interest of any LIBOR Loan or Peso Loan,

(b) the failure of the Borrower to borrow a Loan on the Restatement Date,

(c) the failure of the Borrower to make any prepayment of any LIBOR Loan or Peso Loan in accordance with Section 2.4, and

(d) the prepayment or other payment (including after acceleration thereof for any reason) of a LIBOR Loan or a Peso Loan on a day that is not the last day of the relevant Interest Period, in each case other than a prepayment required pursuant to Section 3.2(b), including any such loss or expense arising from the liquidation or reemployment of funds obtained by such Lender to maintain its LIBOR Loans or Peso Loans, as the case may be (but excluding loss of the Applicable Margin for the period after any such payment or failure to borrow or prepay), or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section and under Section 3.3(a), each LIBOR Loan and Peso Loan made by a Lender (and each related reserve, special deposit or similar requirement) conclusively shall be deemed to have been funded at LIBOR (Reserve Adjusted) or the Peso Rate (as applicable) applicable to such Loan by a matching deposit or other borrowing for a comparable amount and for a comparable period, whether or not such Loan is in fact so funded.

SECTION 3.5 Inability to Determine Rates. (a) If the Administrative Agent determines that for any reason adequate and reasonable means do not exist for determining LIBOR for any Interest Period with respect to a proposed LIBOR Loan, then the Administrative Agent promptly shall so notify the Borrower and each Dollar Lender. Thereafter, the obligation of the Dollar Lenders to make or maintain LIBOR Loans hereunder shall be suspended until the Administrative Agent revokes such notice in writing, which revocation shall be promptly given upon such adequate and reasonable means of determining LIBOR becoming available. If LIBOR Loans are then outstanding, then such Lenders shall continue such Loans as Base Rate Loans during each following Interest Period for such Loan until the Administrative Agent revokes such notice in writing.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) If any Dollar Lender determines that LIBOR applicable to any Interest Period with respect to a LIBOR Loan would not adequately and fairly reflect the cost to such Lender of funding such LIBOR Loan, then such Lender promptly so shall notify the Administrative Agent and the Borrower. Thereafter, the obligation of such Lender (but not the other Dollar Lenders) to make or maintain LIBOR Loans hereunder shall be suspended until such Lender revokes such notice in writing, which revocation shall be promptly given as soon as such Dollar Lender determines that the applicable LIBOR would adequately and fairly reflect its cost of funding such LIBOR Loan. If LIBOR Loans are then outstanding, then such Dollar Lender shall continue such Loans as Base Rate Loans during each following Interest Period for such Loan until such Dollar Lender revokes such notice in writing.

(c) If Banco de México for any reason is not publishing the TIIE as contemplated by the definition of “Peso Rate”, whether permanently or temporarily, then the Peso Rate shall instead be calculated based upon the rate that Banco de México has published in substitution for such published rate (a “Banco de México Replacement Rate”), and the term “Peso Rate” shall be deemed to be amended to refer to the Banco de México Replacement Rate. In the event that Banco de México does not publish a Banco de México Replacement Rate, if a substitute rate has been agreed by the Borrower and each of the Peso Lenders (a “Substitute Rate”) then all references in this Agreement to Peso Rate shall thereafter be deemed to be amended to refer to such Substitute Rate. Notwithstanding the foregoing, the following provisions shall apply:

(i) at any time when this clause (c) is operative, any Peso Loan that was made prior to the date on which Banco de México ceased to publish the TIIE as contemplated by the definition of “Peso Rate” shall continue to bear interest until the next Payment Date at the rate of interest applicable to such Peso Loan at the time when it was made,

(ii) if the TIIE ceases to be published by Banco de México, and after a period of 30 consecutive days Banco de México has not published a Banco de México Replacement Rate and the Peso Lenders and the Borrower have not agreed upon a Substitute Rate, then: (A) the Peso Rate shall be the rate for Certificados de la Tesorería de la Federación for 28 days, published by Banco de México and (B) if Banco de México fails to publish such rate, the market rate determined jointly by the Peso Lenders, in their reasonable discretion, as reflecting their cost of funding in a manner similar to that which would have applied had such published rate been in effect, and such market rate shall be notified from time to time by the Peso Lenders to the Administrative Agent and the Borrower, and

(iii) any Substitute Rate or other rate that becomes effective pursuant to this clause (c) shall cease to be applicable if at any time (and as of such time as) Banco de México again publishes the TIIE as contemplated by the definition of “Peso Rate” or a Banco de México Replacement Rate.

SECTION 3.6 Certificates of the Lenders and Agents. Any Lender or Agent claiming reimbursement or compensation under this Article shall deliver to the Borrower (with a copy to the Administrative Agent and (for Peso Loans) the Peso Agent) a certificate setting forth in reasonable detail the reason for such reimbursement or compensation and the amount payable to such Lender or Agent hereunder, which certificate shall constitute prima facie evidence of the accuracy of the information so detailed.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 3.7 Substitution of Lenders. If any Lender (an “Affected Lender”) fails to meet the status referenced in Section 3.1(b) or is entitled to additional amounts or indemnity payments under Section 3.3 of this Agreement, the Borrower may: (i) request the Affected Lender to use reasonable efforts to obtain a replacement bank or financial institution satisfactory to the Borrower (a “Replacement Lender”) to acquire and assume all or a portion of all of such Affected Lender’s Loans and Commitment, (ii) request one or more of the other Lenders to acquire and assume all or part of such Affected Lender’s Loans and Commitment; it being understood that no such other Lender shall be so required to acquire and assume any of such Loans and/or Commitments, or (iii) designate a Replacement Lender. Any designation of a Replacement Lender under clause (i) or (iii) shall be subject to the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld or delayed and shall be deemed to have been given if no negative response shall have been received from the Administrative Agent within five Business Days of the Administrative Agent’s receipt of a request for such consent) and the other provisions relating to the assignment set forth in Section 10.8.

SECTION 3.8 Survival. With the exception of the obligations of the Credit Parties under Section 3.1 (which obligations shall survive indefinitely), the agreements and obligations of the Credit Parties in this Article shall survive until the irrevocable payment in full of all Obligations in Dollars and Pesos, as applicable, and the cancellation of all the Commitments.

ARTICLE IV

CONDITIONS PRECEDENT

SECTION 4.1 Conditions Precedent to Amendment and Restatement. The amendment and restatement of the Existing Credit Agreement by this Agreement, the addition of the New Lenders, as Lenders, and the obligation of each Lender to make its Loans on the Restatement Date are subject to the conditions that on the Restatement Date:

(a) Transaction Documents.

(i) Each of the Financing Documents shall have been duly authorized, executed and delivered by each party thereto. Each Financing Party shall have received an original of each Financing Document to which it is a party executed by all parties thereto.

(ii) The Borrower shall have duly authorized and executed a Note for each Tranche (and, if the Borrower have requested both LIBOR Loans and Base Rate Loans for the Dollar Loans, for each such Type) for the account of each applicable Lender duly executed in guaranty (por aval) by each Guarantor. Each Note shall be appropriately completed with the name and address of the Lender, the principal amount of the Loans of the applicable Tranche made by the applicable Lender and the date of issuance (which shall be the Restatement Date) inserted therein. Each Note shall be delivered by the Borrower to the Administrative Agent. As soon as practicable after the Restatement Date, the Administrative Agent shall deliver the Notes received by it pursuant to the preceding sentence to the respective Lenders and, following repayment of the Existing Loans, the Existing Lenders shall return to the Borrower the Notes evidencing the Existing Loans under the Existing Credit Agreement.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Financial Statements. Each Financing Party shall have received: (i) copies of year-end 2004 and 2005 audited consolidated Financial Statements prepared in accordance with GAAP of each of: (A) the Borrower (on a consolidated basis), and (B) the Avantel Companies (on a combined basis), (ii) copies of third quarter 2006 unaudited consolidated Financial Statements for the Borrower, to the extent available before the Restatement Date, (iii) certificates dated the Restatement Date and signed by an Authorized Officer of the Borrower stating that: (A) such Financial Statements are true, complete and correct in all material respects and (B) no Material Adverse Change has occurred, and (iv) consolidated Financial Statements of the Credit Parties for the 2004 and 2005 Fiscal Years and the nine-month period ending September 30, 2006 prepared on a pro forma basis as if the Acquisition had occurred.

(c) Evidence of Authority. The Administrative Agent shall have received the names, specimen signatures and evidences of authority of the Persons signing the Financing Documents on behalf of the Credit Parties.

(d) Corporate Proceedings. The Administrative Agent shall have received a copy of the Organizational Documents and resolutions of the board of directors (or other appropriate authorizing actions (including any necessary equityholder or similar approval) or documents) of each Credit Party authorizing the execution, delivery and performance by each such Credit Party of each Financing Document to which it is a party, in each case certified by the Secretary or an Assistant Secretary (or other appropriate officer) of such Credit Party as of the Restatement Date; and each such certificate shall be in form and substance satisfactory to each Financing Party and shall state that the resolutions (or other authorizing actions or documents) thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect on and as of the Restatement Date.

(e) Legal Opinions. The Lead Arranger and each of the Financing Parties shall have received the following legal opinions, which legal opinions shall be dated the Restatement Date, addressed to the Lead Arranger and each Financing Party and in the forms attached hereto as Exhibit E:

(i) the opinion of Cahill Gordon & Reindel LLP, special New York counsel to the Credit Parties,

(ii) the opinion of Mayer, Brown, Rowe & Maw LLP, special New York counsel to the Agents and the Lenders,

(iii) the opinion of D&A Morales y Asociados, S.C., special Mexican counsel to the Credit Parties,

(iv) the opinion of internal Mexican counsel of the Borrower, and

(v) the opinion of Ritch Mueller, S.C., special Mexican counsel to the Agents and the Lenders.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) Approvals and Other Consents. The Administrative Agent shall have received a certificate of an Authorized Officer of the Borrower certifying that all: (i) Governmental Approvals set forth in Schedule 5.1(i) with respect to the Financing Documents and the conduct of the business of the Borrower and its Subsidiaries, except for such Government Approvals relating to but not material to the conduct of the business of the Borrower and its Subsidiaries, are in full force and effect and, except as disclosed in such Schedule, not currently being appealed, and (ii) other consents, if any, necessary for the Credit Parties’ execution, delivery and performance of the Financing Documents have been obtained and are in full force and effect.

(g) Fees and Expenses. All fees and expenses (including Attorney Costs) due and payable by the Credit Parties to the Lead Arranger or any Financing Party pursuant to a Financing Document (or otherwise pursuant to Sections 2.7 and/or 10.4 and/or otherwise) on or before the Restatement Date shall have been paid or the Credit Parties shall have made arrangements satisfactory to the applicable recipient(s) for the payment thereof. The Administrative Agent shall have received evidence of payment by the Credit Parties of all such accrued and unpaid fees and expenses to the extent then due and payable on the Restatement Date, together with Attorney Costs of the Lead Arranger and the Agents to the extent invoiced on or before the Restatement Date, plus such additional amounts of Attorney Costs as shall constitute the Lead Arranger’s and Agent’s reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceeding (provided that such estimate shall not thereafter preclude final settling of accounts between the Credit Parties and the Lead Arranger or Agent, as applicable), including any such costs, fees and expenses arising under or referenced in Sections 2.7 and/or 10.4.

(h) Process Agent. The Administrative Agent shall have received from each Credit Party evidence that: (i) such Person has irrevocably appointed as its agent for service of process (with respect to all of the Financing Documents and all other related agreements to which they are a party) CT Corporation System, 111 Eighth Avenue, New York, New York 10011 (the “Process Agent”), (ii) a notarized power of attorney has been granted to such agent by all such Persons organized in México and (iii) the Process Agent has accepted such appointment and has agreed to forward promptly to such Person all legal process addressed to such Person received by such agent.

(i) Borrower’s Certificate. The Administrative Agent shall have received a certificate signed by an Authorized Officer of the Borrower, dated the Restatement Date, to the effect that: (i) no Default or Unmatured Default exists or will exist immediately after the funding of the Loans and (ii) all representations and warranties of the Borrower and each other Credit Party contained herein and/or in the other Financing Documents are true and correct on and as of such date, except to the extent that any such representation or warranty is expressed to be made only as of an earlier date, in which case such representation or warranty was true and correct on and as of such earlier date.

(j) Solvency. The Administrative Agent shall have received a certificate of the Borrower signed by the chief financial officer of the Borrower certifying that the Borrower and its Subsidiaries, on a Consolidated Basis as of the Restatement Date, are Solvent.

(k) Know Your Customer. The Administrative Agent shall have received, at least five Business Days prior to the Restatement Date, all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation the PATRIOT Act, that is requested by the Administrative Agent.

(l) Ratings. The Borrower shall have long-term unsecured debt ratings from S&P of at least “B+” and from Moody’s of at least “B1”. -37-

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (m) Additional Matters. Each Financing Party shall have received such other documents relating to this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby as it shall have reasonably requested, in each case in form and substance satisfactory to it.

(n) Notice of Borrowing. The Borrower shall have delivered a Notice of Borrowing in accordance with Section 2.3.

(o) No Default; Representations and Warranties. Immediately before and after giving effect to such Loans: (i) no Default or Unmatured Default shall exist and (ii) all representations and warranties made by any Credit Party contained herein or in the other Financing Documents shall be true and correct, except to the extent that any such representation or warranty is expressed to be made only as of an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date.

(p) Schedules. The informational schedules to this Agreement (Schedules 5.1(b), 5.1(c), 5.1(f), 5.1(i), 5.1(l), 6.1(j), 6.1(k)(1), 6.1(k)(2) and 6.2(a)(vii)) shall be provided by the Borrower on or before the Restatement Date, in form and substance satisfactory to the Administrative Agent and upon the Borrower’s delivery of such Schedules to the Administrative Agent, the Administrative Agent shall include such Schedules in this Agreement as if such Schedules had been included on the date hereof.

The Existing Lenders shall provide written confirmation of payment in full of the Existing Loans together with any accrued interest thereon.

The Notice of Borrowing submitted by the Borrower hereunder shall constitute a representation and warranty by the Borrower that, as of the date of such notice or request and as of the Restatement Date, the conditions in this Section shall be satisfied on or before (in which event, they shall continue to be satisfied on) the Restatement Date.

SECTION 4.2 Satisfaction of Conditions Precedent. Each Lender shall be deemed to have agreed to and accepted each document and opinion, and to have approved or accepted each other matter, delivered in connection with Section 4.1 unless such Lender notifies the Administrative Agent in writing that it does not so agree with or accept such document, opinion or other matter before making the amount of its Loan available to the Administrative Agent or the Peso Agent.

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REPRESENTATIONS AND WARRANTIES

SECTION 5.1 Representations and Warranties. Each Credit Party (with respect to itself and each of its Subsidiaries) makes all of the representations and warranties in this Article to and in favor of the Financing Parties as of the Restatement Date, except to the extent any of such representations or warranties specifically relate to an earlier date (in which case they shall have been true and correct on and as of such earlier date).

(a) Organization. Each Credit Party is a corporation or other entity duly organized and validly existing under the laws of its jurisdiction of organization. Each Credit Party is duly authorized and qualified to do business in each jurisdiction in which it owns or leases Property or in which the conduct of its business requires it so to qualify, except where the failure so to qualify, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. Each Credit Party has the requisite power and authority to own or lease and operate its Properties, to carry on its business, to borrow money and to execute, deliver and perform each Transaction Document to which it is or will be a party.

(b) Authority and Consents.

(i) The execution, delivery and performance by each Credit Party of each Financing Document to which it is or will be a party, and the transactions contemplated thereby: (A) have been duly authorized by all necessary corporate action (including any necessary equityholder or similar action), (B) will not breach, contravene, violate, conflict with or constitute a default under: (1) any of its Organizational Documents, (2) any Applicable Law or (3) any material contract, loan, agreement, indenture, mortgage, lease or other document or requirement to which it is a party or by which it or any of its Properties may be bound or affected, including all material Governmental Approvals and the Transaction Documents, and (C) will not result in or require the creation or imposition of any Lien upon or with respect to any of the Properties or Capital Stock of any Credit Party.

(ii) Each Financing Document: (A) has been duly executed and delivered by the applicable Credit Parties and (B) when executed and delivered by each of the other parties thereto will be the legal, valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms (including with respect to any submission to jurisdiction and the choice of law specified therein), except as enforceability may be limited by applicable concurso mercantil, quiebra, bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights with respect to such Credit Party.

(iii) No authorization, consent or approval of, or notice to or filing with, the SCT, the COFETEL, any other Governmental Authority or any other Person has been, is or will be required to be obtained or made: (A) for the due execution, delivery, recordation, filing or performance by any Credit Party of any of the Financing Documents to which it is a party or any transaction contemplated by the Financing Documents or (B) for the exercise by any Financing Party of any of its rights under any Financing Document, except for: (1) the authorizations, consents, approvals, notices and filings listed on Schedule 5.1(b), all of which have been duly obtained, taken, given or made and are in full force and effect, and (2) any authorization, approval, consent, notices or filings the failure of which to obtain, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(iv) This Agreement and each of the other Transaction Documents are in proper legal form under the Applicable Law of México and New York for the enforcement thereof in each such jurisdiction and no related filings, registrations, recordings or Other Taxes are required to be made or paid in connection therewith other than any such filings, registrations, recordings or payments the failure of which to make, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. -39-

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (v) To the knowledge of each Credit Party, there is no requirement for the Lead Arranger or any Financing Party to be licensed or qualified with any Governmental Authority of México or the United States of America solely by reason of the execution and performance of the Financing Documents.

(i) The Financial Statements for the Borrower and its Subsidiaries delivered in accordance with Section 4.1(b) have been prepared in accordance with GAAP, are complete and correct in all material respects and fairly present the financial condition of the Borrower and its Subsidiaries as at the applicable dates and the results of their operations for the periods ended on such dates, subject, in the case of interim statements, to normal year-end audit adjustments.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (ii) Except for Indebtedness disclosed in the Financial Statements for the Borrower and its Subsidiaries delivered in accordance with Section 4.1(b) and Indebtedness specifically identified in Schedule 5.1(c), as of the Restatement Date no Credit Party has any Contingent Obligation, liability for Taxes, long-term commitment or outstanding Indebtedness of any kind, in the aggregate in excess of $1,000,000 (or its equivalent in any other currency).

(iii) No event has occurred since December 31, 2005 and no condition exists that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change (other than in respect of the Avantel Companies and their Subsidiaries).

(d) Business of the Credit Parties. No Credit Party has conducted any business other than the Business.

(e) Taxes and Reports. All Tax returns, reports and statements of each Credit Party required by any Applicable Law to be filed with any Governmental Authority have been duly and properly filed except to the extent the failure to file, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. All such returns, reports and statements are complete and accurate in all material respects. All Taxes due or anticipated to become due in respect of each Credit Party, or any of their respective Properties, incomes or franchises, have been duly paid by, or have been adequately provided for in accordance with GAAP on the books of, such Credit Party other than those which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. In addition, except as may be permitted by Section 6.1(e) or 6.2(a)(ii)(A), no Liens have been filed or registered, and no claims are being asserted (or, to the Credit Parties’ knowledge, threatened), with respect to any such Taxes which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change.

(f) Ownership of Capital Stock. Except as set forth on Schedule 5.1(f), no Credit Party owns or otherwise Controls any Capital Stock of, or has any other (legal or beneficial) interest in, any Capital Stock of any other Person, other than Capital Stock of public companies acquired in the ordinary course of business.

(g) Investments. No Credit Party holds any Investment other than Investments permitted by Section 6.2(i).

(h) Title to Assets; Liens. Each Credit Party has good and marketable title to all of the material Property purported to be owned by it, free and clear of all Liens, other than Permitted Liens, and holds such title and all of such Property in its own name and not in the name of any nominee or other Person. Each Credit Party is lawfully possessed of a valid and subsisting leasehold estate in and to all Property that it purports to lease, free and clear of all Liens, other than Permitted Liens, and holds such leaseholds in its own name and not in the name of any nominee or other Person (it being understood that Avantel Infraestructura subleases one floor of its office at Paseo de la Reforma No. 265). No Credit Party has created or is contractually bound to create any Lien on or with respect to any of its Properties, except for Permitted Liens, and no Credit Party is restricted by Applicable Law or its Organizational Documents from creating Liens on any of its Properties.

(i) Governmental Approvals.

(i) Schedule 5.1(i) contains a complete and accurate list of all Governmental Approvals necessary for the conduct of the business of each Credit Party and the transactions effected by the Financing Documents (including right-of-way agreements). Each Credit Party has obtained all other necessary Governmental Approvals from, and has filed all required registrations, applications, tariffs, reports and other documents with, the SCT, the COFETEL and all other Governmental Authorities in accordance with the Material Concessions and all other Applicable Laws, except for such approvals or filings the failure of which to obtain or make, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. Each Material Concession and each such other Governmental Approval is valid and in full force and effect, is not subject to any conditions for effectiveness and is not subject to appeal or judicial challenge; and no event has occurred that, individually or in the aggregate, could reasonably be expected to: (A) result in the revocation, termination or adverse modification of the Material Concessions or the revocation, termination or material adverse modification of any such other Governmental Approval or (B) adversely affect any rights of any Credit Party under any Governmental Approval, and, in either case (of clause (A) and/or (B)) result in a Material Adverse Change.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (ii) There is no proceeding pending or, to any Credit Party’s knowledge, threatened against the Borrower or any Subsidiary that, individually or in the aggregate, if determined adversely to the Borrower or such Subsidiary, could reasonably be expected to result in the rescission, termination or suspension of any Governmental Approval set out in Schedule 5.1(i) other than any such proceeding that could not reasonably be expected to result in a Material Adverse Change.

(j) Condition of Systems. All of the material Properties and systems of the Borrower and its Subsidiaries are in good repair, working order and condition, ordinary wear and tear excepted, and are in material compliance with all Applicable Laws and all Governmental Approvals (including the Material Concessions) except as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.

(k) No Defaults; Adverse Restrictions. No Default or Unmatured Default exists or will exist immediately after the funding of the Loans. No default exists under or with respect to any of the Credit Parties’ contractual or other obligations in any respect that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change.

(l) Legal Proceedings. Except as set forth in Schedule 5.1(l), there is no: (i) injunction, writ, preliminary restraining order or any order of any nature issued by an arbitrator, court or other Governmental Authority in connection with the transactions provided for herein or in any other Transaction Document or (ii) action, suit, other legal proceeding, arbitral proceeding, inquiry or investigation of or before any arbitrator, court or other Governmental Authority pending or, to any Credit Party’s knowledge, threatened, that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change. Notwithstanding anything herein to the contrary, the information contained in Schedule 5.1(l) is for informational purposes only and nothing herein shall be deemed to constitute an agreement or waiver by any of the Financing Parties to any consequences of the proceedings described therein (including any consequence that may result in a Default).

(m) Compliance with Laws. The Borrower and each Subsidiary is in compliance in all material respects with the Federal Telecommunications Law, all other Applicable Laws, all Governmental Approvals (including the Material Concessions) and its Organizational Documents other than any such failure to comply that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(n) Environmental Matters. The Borrower and each Subsidiary has duly complied in all material respects with, and its business, operations, Property, leaseholds and other facilities are in all material respects in compliance with, all applicable Environmental Laws other than any such failure to comply that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. The Borrower and each Subsidiary: (i) has received and will maintain all Governmental Approvals relating to, and (ii) has received no complaint, order, directive, claim, citation or notice by any Governmental Authority or any other Person alleging non-compliance with, any Environmental Law other than any such failure to maintain or to comply that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. -42-

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (o) Intellectual Property. Each Credit Party owns or has the right to use all patents, trademarks, permits, service marks, trade names, copyrights, franchises, formulas, licenses, other intellectual property rights and other rights with respect thereto, and has obtained assignment of all leases and other rights of whatsoever nature, necessary for the Network and the operation of its business as currently contemplated without any conflict with the rights of other Persons other than as, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. No product, process, method, substance, part or other material sold or employed or presently contemplated to be sold by or employed by any Credit Party infringes (or will infringe) upon any patent, trademark, permit, service mark, trade name, copyright, franchise, formula, license or other intellectual property right of any other Person other than as, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(p) Solvency. Each Credit Party is Solvent and, after giving effect to the consummation of the transactions contemplated in the Financing Documents, on a Consolidated Basis, will be and will continue to be Solvent.

(q) Disclosure. All documents, reports or other information pertaining to any Credit Party, any Credit Party Affiliate or the Business that have been furnished in writing to the Lead Arranger and/or Financing Party by (or on behalf of) the Credit Parties (including: (i) the Information Memorandum, (ii) any application for the extensions of credit or guarantees provided for in the Financing Documents and (iii) the Financing Documents, including the Exhibits and Schedules attached thereto, but excluding any forecasts and projections), taken as a whole, are true and correct in all material respects and do not contain any material misstatement of fact or taken as a whole omit to state any fact necessary to make the statements contained therein not materially misleading. The projections delivered to the Administrative Agent and any other such written forecasts and projections were as of the time delivered based upon assumptions reasonably believed to be reasonable at the time made (it being understood that such projections are subject to significant uncertainties and contingencies, many of which are beyond the control of the Credit Parties, and that no assurance can be given that the projections will be realized).

(r) Immunity. Each Credit Party is subject to civil and commercial law with respect to its Obligations, and the execution, delivery and performance of the Financing Documents by each Credit Party constitute private and commercial acts rather than public or governmental acts. No Credit Party nor any of their respective Properties have any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment or from any other legal process with respect to the Obligations or any of their other respective agreements under the Financing Documents.

(s) Pension Plans; Labor Matters.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) No Credit Party nor any ERISA Affiliate has ever maintained or contributed to (or had an obligation to contribute to) any ERISA Plan. Each Non-U.S. Pension Plan, if any, has been maintained in substantial compliance with its terms and with the requirements of Applicable Law, and has been maintained, where required, in good standing with applicable Governmental Authorities. No Credit Party has incurred any obligation in connection with the termination of or withdrawal from any Non-U.S. Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Non-U.S. Pension Plan, if any, determined as of the end of the Credit Parties’ most recently-ended Fiscal Year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Non-U.S. Pension Plan allocable to such benefit liabilities.

(ii) All obligations of the Borrower and its Subsidiaries for payments with respect to any mandatory and additional employee benefit plans (including to the Instituto Mexicano del Seguro Social (Mexican Social Security Institute) and Instituto del Fondo Nacional para la Vivienda de los Trabajadores (National Worker’s Housing Fund Institute)) and accrued payroll tax payments for their respective employees have been timely paid and properly reported in the Financial Statements required to be delivered hereunder except where the failure to make such payments, individually or in the aggregate, has not resulted in, and could not reasonably be expected to result in, a Material Adverse Change or create any Lien (other than Permitted Liens).

(iii) The Borrower and its Subsidiaries have complied in all material respects with all Applicable Laws with respect to employment practices, including applicable health and safety regulations, and there is no charge or complaint alleging any material violation of any such Applicable Law against the Borrower or any Subsidiary pending or, to the Credit Parties’ knowledge, threatened (including by or before any federal or local labor board, any tribunal or the Comisión Nacional del Sistema de Ahorro para el Retiro (National Savings and Retirement System Commission)) other than non-compliance or violation that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(iv) There is no labor strike, request for representation, slowdown or stoppage actually pending or, to the Credit Parties’ knowledge, threatened against or affecting any of the Borrower and its Subsidiaries that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change.

(v) The Borrower and each Subsidiary has filed all forms, reports, statements, provider agreements, benefit plan descriptions, payor agreements, beneficiary materials and other documents (including those related to employee benefit plans) required to be filed by it with any Governmental Authority, including state and federal insurance and health regulatory authorities, except where the failure to file, individually or in the aggregate, has not resulted in, and could not reasonably be expected to result in, a Material Adverse Change.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (t) Use of Proceeds; Margin Stock. The proceeds of the Loans shall be utilized directly or indirectly for the refinancing of all outstanding amounts owed under the Existing Credit Agreement. No proceeds of any Loan shall be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. No Credit Party is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the U.S. Federal Reserve System), and no proceeds of any Loan shall be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock.

(u) Investment Company Act. No Credit Party is an “investment company,” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940. Neither the making of any Loan, nor the application of the proceeds or repayment thereof by any Credit Party, nor the consummation of the other transactions contemplated hereby will violate any provisions of such Act or any rule, regulation or order of the U.S. Securities and Exchange Commission thereunder.

(v) Pari Passu. The Obligations of each Credit Party are and will be direct, unconditional, unsecured and unsubordinated obligations, and do rank and will rank at least pari passu with all other present and future senior unsecured and unsubordinated Indebtedness, of such Credit Party.

ARTICLE VI

COVENANTS

SECTION 6.1 Affirmative Covenants. Each Credit Party hereby agrees that it shall (and shall cause each of its Subsidiaries to) perform and comply with each of the following:

(a) Corporate Existence. Except as may be permitted by Section 6.2(f)(ii), each Credit Party shall (and shall cause each of its Subsidiaries that are Restricted Subsidiaries to) preserve and maintain its corporate existence and obtain and maintain all Governmental Approvals necessary for the maintenance of its corporate existence and good standing, if applicable; provided that no Credit Party (other than the Borrower with respect to existence) or any of its Subsidiaries shall be required to preserve any such existence or Governmental Approvals if such Credit Party shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(b) Governmental Approvals. The Credit Parties shall (and shall cause their Subsidiaries) at all times maintain in full force and effect the Material Concessions and each Credit Party shall obtain and maintain (and cause each of its Subsidiaries to obtain and maintain) all other Governmental Approvals necessary for: (i) the conduct of its business (except for such Governmental Approvals the failure to obtain and maintain, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change) and (ii) the authorization, execution and delivery by each Credit Party of the Financing Documents to which it is a party, and the due performance of all of its obligations thereunder and the validity and enforceability thereof. Each Credit Party shall acquire, maintain and renew all rights, contracts, powers, exemptions, privileges, leases, lands and franchises and obtain and maintain all registrations, filings and declarations necessary for the performance of its obligations under the Financing Documents and material to the conduct of its business.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) Compliance with Laws. Each Credit Party shall (and shall cause its Subsidiaries to) conduct its business in compliance with all Applicable Laws, including all relevant Governmental Approvals and Environmental Laws, except where any failure to comply, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, and except that any Credit Party or Subsidiary may, at its expense, contest by appropriate proceedings conducted in good faith the validity or application of any such Applicable Law so long as: (i) none of the Financing Parties or any Credit Party would be subject to any criminal liability for failure to comply therewith, (ii) all proceedings to enforce such Applicable Law against the Credit Parties and, if applicable, the Financing Parties shall have been duly stayed and (iii) the loss of such contest is not reasonably likely to result in the sale, forfeiture or loss of any of the Credit Parties’ Property (including the Material Concessions).

(d) Maintenance of Properties, Etc. Each Credit Party shall maintain and preserve all of its material Properties that are necessary to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and, from time to time, make or cause to be made all appropriate and proper repairs, renewals and replacements thereto in accordance with its prior practices, and keep all systems and equipment in compliance with any and all standards or rules (including compliance with technical standards and construction requirements and deadlines) imposed pursuant to any Applicable Law or the terms of any Material Document (including the Material Concessions), except where the failure to do so, individually or in the aggregate, would not result in a Material Adverse Change.

(e) Payment of Taxes, Etc. Each Credit Party shall (and shall cause its Subsidiaries to) duly pay and discharge before they become overdue: (i) all material Taxes levied or imposed upon its Property, earnings or business, (ii) all material utility and governmental charges incurred in the ownership, operation, maintenance, use, occupancy and upkeep of its business and (iii) all material lawful claims and obligations that, if unpaid, might result in the imposition of a Lien upon its Property except, in each case, where the failure to pay or discharge, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change and provided that any Credit Party may contest in good faith any such Taxes, charges, claims or obligations and, in such event, may permit the Taxes, charges, claims or obligations to remain unpaid during any period, including appeals, when any Credit Party is in good faith contesting the same and so long as: (A) adequate reserves shall have been established with respect to any such Taxes, charges, claims or obligations, accrued interest thereon and potential penalties or other costs relating thereto in accordance with applicable GAAP, or other adequate provision for payment thereof shall have been made, (B) such contest does not involve any risk of the sale, forfeiture or loss of any of the Credit Parties’ Property (including the Material Concessions) and (C) enforcement of the contested item shall be effectively stayed.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) Maintenance of Insurance. Each Credit Party shall procure and maintain in full force and effect at all times insurance policies with financially sound, responsible and reputable insurance companies in such amounts and covering such risks as is prudent in the good faith judgment of the officers of the Borrower, except where failure to obtain and maintain such insurance, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(g) Financial Statements and Other Information. The Credit Parties shall at their sole cost furnish to the Administrative Agent (for further delivery to each Lender) each of the documents provided for below at the times specified below (all Financial Statements to be prepared on a Consolidated Basis except to the extent specifically provided otherwise below):

(i) Quarterly Statements. As soon as available and in any event within 45 days after the end of each fiscal quarter (other than the last fiscal quarter of each Fiscal Year), the unaudited Financial Statements for the Borrower and its Subsidiaries prepared in accordance with GAAP.

(ii) Annual Statements. Within 120 days after the end of each Fiscal Year, the audited consolidated annual Financial Statements for the Borrower and its Subsidiaries prepared in accordance with GAAP together with an unqualified opinion of the Auditors reporting thereon to the effect that such Financial Statements fairly present the financial condition of the Borrower and its Subsidiaries in accordance with GAAP.

(iii) Officer’s Certificate. Each time the Financial Statements are required to be delivered under clause (i) or (ii), a certificate of an Authorized Officer of the Borrower: (A) certifying that: (1) such officer has made or caused to be made a review of the transactions and financial condition of the Credit Parties during the relevant period, (2) the Financial Statements fairly present the financial condition of the Credit Parties as at the end of, and for, the relevant period in accordance with GAAP, subject to normal year- end audit adjustments, and (3) his/her review has not disclosed the existence of a Default or Unmatured Default at any time during the applicable fiscal period or, if any Default or Unmatured Default then exists or existed at any time during the applicable fiscal period, specifying the nature and period of existence thereof and what action the Credit Parties have taken and/or propose to take with respect thereto, and (B) setting out in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Sections 6.2(a), (b), (d), (e), (g), (h), (i) and (o) as at the end of the relevant fiscal period.

(iv) Communications with Governmental Authorities. Promptly (and in any event within ten Business Days) after receipt thereof, a copy of: (A) any notice from the SCT, the COFETEL or any other Governmental Authority of the imposition of any material fine, penalty or forfeiture (either individually or when taken together with other fines, penalties or forfeitures incurred), including any fine pursuant to Article 38 of the Federal Telecommunications Law, (B) any notice from the SCT or the COFETEL pursuant to Article 63 of the Federal Telecommunications Law and (C) any notice or request from the SCT, the COFETEL or any other Governmental Authority threatening any of the foregoing; and promptly (but in any event within 10 Business Days) after the delivery thereof, a copy of each material notice, report or other communication sent by a Credit Party to the SCT, the COFETEL or any other Governmental Authority.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (v) Other information. Copies of all other annual or interim audit reports submitted to a Credit Party by the Auditors, copies of all financial reports and material notices sent by the Borrower or any other Credit Party to holders of notes issued by a Credit Party, copies of any Financial Statements and reports that the Borrower or any other Credit Party files with the Comisión Nacional Bancaria y de Valores or the SEC, when any Unrestricted Subsidiary exists, internally prepared reconciliations or adjustments to the financials for the Borrower and its Subsidiaries to show whether there is compliance with respect to the covenants of this Agreement relating to the Borrower and its Restricted Subsidiaries (excluding the Unrestricted Subsidiaries), and such other information and data with respect to the business, Properties, operations or condition of any Credit Party as either Agent may reasonably request.

(h) Access to Records: Inspection. Each Credit Party shall, at all reasonable times (and upon at least 10 Business Days’ prior notice, unless a Default or Unmatured Default exists), give, or cause to be given, to any and all representatives of any Financing Party access during normal business hours to, and permit them to examine, copy and make extracts from, any and all records and documents in the possession or subject to the control of the Credit Parties relating to their respective Properties, operations and financial affairs, and to inspect any of their respective facilities or Properties, and to discuss the affairs, finances and accounts of the Credit Parties with any of their respective officers or directors and with the Auditors; provided that the Credit Parties shall not be obligated to: (i) permit the Administrative Agent (or such other Financing Party or Financing Parties as the Administrative Agent may specify) to perform any such examination more than once in any calendar year unless a Default or Unmatured Default exists, or (ii) make available any such records and documents (other than enforceable agreements to which any Credit Party is a party) to the extent that they: (A) are subject to confidentiality agreements with parties that are not Affiliate(s) of the Credit Parties and (B) are of a type of communication that is generally considered confidential by similar Persons in the ordinary course of business. The expenses of any such examination shall be borne by the examining Financing Parties unless a Default or Unmatured Default exists, in which event such expenses shall be borne by the Borrower.

(i) Notice of Default and Other Matters. The Credit Parties shall promptly (but in any event within or five Business Days upon obtaining knowledge thereof) provide to the Administrative Agent (for further delivery to each Lender and the Peso Agent) written notice of:

(i) any Default or Unmatured Default, describing such Default or Unmatured Default and any action being taken and/or proposed to be taken with respect to such Default or Unmatured Default,

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (ii) any litigation, arbitration, claim, investigation, proceeding or controversy pending or, to any Credit Parties’ knowledge, threatened in writing involving or affecting the Credit Parties: (A) involving an amount in excess of $10,000,000 (or its equivalent in any other currency) individually or in the aggregate, (B) seeking any injunctive, declaratory or other equitable relief that, if granted, could reasonably be expected to result in a Material Adverse Change, (C) that could give rise to a Lien on any of their respective Properties, other than Permitted Liens or (D) that, individually or in the aggregate, has resulted in, or (if adversely determined) could reasonably be expected to result in, a Material Adverse Change,

(iii) with respect to the Material Concessions or any other material Governmental Approval: (A) any material citation or order relating thereto, (B) any material suspension, revocation, rescission, materially adverse modification or termination thereof, (C) any alleged material breach or violation thereof by the Credit Parties or any other Person, (D) any material proceeding (including any material development in connection with the events described in Schedule 5.1(l)) relating thereto and (E) any refusal of any Person to grant, renew or extend the same,

(iv) any casualty, damage or loss to the Property of the Credit Parties, whether or not insured, through fire, theft, other hazard or casualty in excess of $10,000,000 (or its equivalent in any other currency) for any one casualty or loss or $10,000,000 (or its equivalent in any other currency) in the aggregate in any Fiscal Year,

(v) the occurrence of any: (i) fire, explosion, flood, earthquake or “Act of God,” (ii) war, civil war, blockade or act of the public enemy or (iii) riot, strike, lockout or other labor dispute or industrial action, in each case that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change,

(vi) any proposed material change in the nature or scope of the business or operations of the Credit Parties taken as a whole other than any that constitutes part of the Business, and

(vii) any other event or development that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change.

(j) Release Documentation. Each Credit Party shall provide evidence of registration (where applicable) of the release of the Released Liens through the delivery of a no-lien certificate or equivalent documentation, issued by the relevant registration office (including without limitation, to the extent applicable, the RPPC, the Telecommunications Registry (Registro de Telecomunicaciones) maintained by COFETEL and the Mexican Institute of Industrial Property (Instituto Mexicano de Propiedad Industrial) within 180 days from the filing of the Release Documentation with such registration office on or before January 15, 2007 (or such later date as the Administrative Agent shall approve).

(k) Material Documents; Etc. Each Credit Party shall (and shall cause its Subsidiaries to): (A) perform and observe in all material respects all of its covenants and obligations contained in each of the Material Documents to which it is a party and (B) except to the extent considered imprudent in the reasonable judgment of the applicable Credit Party or Subsidiary, enforce against the relevant Person each material covenant or obligation under any Material Document to which it is a party in accordance with its terms.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (l) Use of Proceeds. All proceeds of the Loans shall be used as provided in Section 5.1(t).

(m) Insurance Proceeds. If any Credit Party receives any amount in respect of any proceeds of insurance in excess of $100,000 as a result of any loss or damage to any of the Credit Parties’ Property, then unless such Credit Party applies such proceeds to the payment of the costs of repairing, restoring or rebuilding the portion of such Property that was the subject of such loss or damage or otherwise invests such proceeds in the Business within six months after the receipt of such proceeds, then such Credit Party shall apply such proceeds to the payment of its Indebtedness (including Indebtedness hereunder).

(n) Expropriation Event. If an Expropriation Event shall occur with respect to the Borrower’s or any Restricted Subsidiary’s Property, then the Borrower or such Restricted Subsidiary, as the case may be, shall: (i) promptly (but in any event within five Business Days) upon discovery or receipt of notice of any occurrence thereof provide written notice to the Agents, (ii) diligently pursue all of its rights to compensation against the relevant Governmental Authority in respect of such Expropriation Event, and (iii) not, without the written consent of the Required Lenders, compromise or settle any claim with or against such Governmental Authority. Nothing in this paragraph shall be deemed to impair any rights any Financing Party may have with respect to any such Expropriation Event.

(o) Pension Plans. Each Non-U.S. Pension Plan (if any) shall be maintained in substantial compliance with its terms and with the requirements of all Applicable Laws. All contributions required to be made with respect to a Non-U.S. Pension Plan shall be timely made. No Credit Party shall incur any obligation in connection with the termination of or withdrawal from any Non-U.S. Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Non-U.S. Pension Plan (if any) determined as of the end of each Fiscal Year, on the basis of reasonable actuarial assumptions, shall not exceed the current value of the assets of such Non-U.S. Pension Plan allocable to such benefit liabilities. The Borrower and its Subsidiaries shall comply with all Applicable Laws relating to social security.

(p) License Marks. Each Credit Party shall preserve or renew all of its registered patents, trademarks, permits, service marks, trade names, copyrights, franchises, formulas, licenses and other intellectual property, and rights to use the foregoing, the non-preservation or non- renewal of which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change.

(q) Pari Passu. Each Credit Party shall take all actions to ensure that at all times the Obligations constitute unconditional general obligations ranking at least pari passu in all respects with all present and future other senior unsecured and unsubordinated obligations of such Credit Party.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (r) Further Assurances. Each Credit Party shall do and perform, from time to time, any and all acts (and execute any and all documents) as may be necessary or as reasonably requested by any Financing Party in order to effect the purposes of the Financing Documents.

(s) Ratings. The Borrower shall use commercially reasonable efforts to maintain a corporate rating from at least two of S&P, Moody’s and Fitch.

SECTION 6.2 Negative Covenants. Each Credit Party hereby agrees that it shall (and shall cause each of its Subsidiaries to) perform and comply with each of the following:

(a) Liens. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, create, incur, assume or otherwise permit to exist any Lien on any of its Properties of any character (including accounts receivable and bank accounts), whether now owned or hereafter acquired, or on any proceeds or income therefrom, or sign any security agreement authorizing any secured party thereunder to file any financing statement, record any Lien or take any similar action, or assign for security any accounts receivable or any other right to receive income, except for the following (each a “Permitted Lien”):

(i) any Liens to secure the Obligations,

(ii) such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (A) Liens for Taxes to the extent not required to be paid under Section 6.1(e), (B) materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days or are being contested in good faith, (C) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation, (D) easements, rights-of-way and other encumbrances on title to real property that do not render title to the real property encumbered thereby unmarketable or materially adversely affect the use of such real property for its present purposes, (E) the interests of parties other than the Borrower and the Restricted Subsidiaries under certain right-of-way agreements and (F) setoff rights of deposit banks with respect to amounts on deposit in accounts of the Borrower and the Restricted Subsidiaries permitted under the Financing Documents,

(iii) Liens on Property subject to Capital Leases or other equipment financing transactions entered into by the Borrower and the Restricted Subsidiaries after the Closing Date or Liens on Property acquired after the Closing Date by the Borrower and the Restricted Subsidiaries in favor of the vendor thereof to secure the Borrower’s or applicable Restricted Subsidiary’s, as the case may be, obligation to pay the balance of the purchase price thereof; provided that: (A) no such Lien may extend to any Property other than the Property (and any improvements thereon or thereto) held subject to such Capital Lease or other equipment financing transaction or acquired for such purchase price, as the case may be, (B) the aggregate principal amount of Indebtedness in respect of Capital Leases or the deferred purchase price of Property or services payable more than 120 days after the furnishing of such Property or services secured by such Liens shall not exceed $30,000,000 (or its equivalent in any other currency) at any time outstanding, (C) after giving effect to such Indebtedness, the Borrower and the Restricted Subsidiaries are still in compliance with clause (g)(iii), and (D) any such Indebtedness shall not otherwise be prohibited hereby (including by clause (b)),

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (iv) Liens on Customer Premises Equipment arising from the interests of the lessees of such equipment (including the right to acquire the leased property at the end of the lease term and the right of possession and quiet enjoyment),

(v) the replacement, extension or renewal of any Lien permitted by any clause of this Section 6.2(a) upon or in the same Property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount) of the Indebtedness secured thereby,

(vi) Liens granted by a Credit Party to another Credit Party pursuant to any joint venture agreements,

(vii) Liens granted by the Borrower or any Restricted Subsidiary (other than the Avantel Companies and the Subsidiaries of the Avantel Companies) in effect on the Closing Date (not including the Released Liens, which were released in connection with entering into to the Existing Credit Agreement) and listed on Schedule 6.2(a)(vii),

(viii) good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which the Borrower or such Restricted Subsidiary is a party, or deposits to secure public or statutory obligations of the Borrower or such Restricted Subsidiary or deposits of cash or United States government bonds to secure surety or appeal bonds to which the Borrower or such Restricted Subsidiary is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business,

(ix) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of the Borrower or such Restricted Subsidiary in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness,

(x) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of- way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Borrower or such Restricted Subsidiary or to the ownership of its Properties that were not Incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of such Properties or materially impair their use in the operation of the business of the Borrower or such Restricted Subsidiary,

(xi) Liens on Property or shares of Capital Stock of any Person at the time such other Person becomes a Subsidiary of a Credit Party; provided, however, that the Liens may not extend to any other Property owned by the Borrower or any Restricted Subsidiary (other than Property affixed or appurtenant thereto),

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (xii) Liens on Property at the time such Credit Party or any of its Subsidiaries acquires the Property, including any acquisition by means of a merger or consolidation with or into such Credit Party or a Subsidiary of such Credit Party; provided, however, that the Liens may not extend to any other Property owned by any Credit Party or any of its Subsidiaries (other than Property affixed or appurtenant thereto),

(xiii) Liens securing Indebtedness or other obligations of a Subsidiary of such Credit Party owing to such Credit Party or a wholly-owned Subsidiary of the Borrower that is also a Guarantor,

(xiv) Liens securing Permitted Hedging Obligations so long as: (A) such Permitted Hedging Obligations relate to Indebtedness that is secured by a Lien on the same Property securing such Permitted Hedging Obligations or (B) such Lien is with respect to the posting of cash or cash equivalents as collateral so long as such collateral is not required under the related Hedging Agreement unless such Permitted Hedging Obligations exceed 10% of the notional amount of the related hedging transaction,

(xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods,

(xvi) licenses of patents, trademarks and other intellectual property rights granted by the Borrower or any Restricted Subsidiary in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of the Borrower or any Restricted Subsidiary,

(xvii) pledges or deposits of cash and cash equivalents securing deductibles, self-insurance, co-payment, co-insurance, retentions or similar obligations to providers of property, casualty or liability insurance in the ordinary course of business,

(xviii) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto,

(xix) licenses, leases or subleases granted to third Persons or to the Borrower or its Subsidiaries by the Borrower and/or its Subsidiaries in the ordinary course of business and not interfering in any material respect with the business of any Credit Party or any of its Subsidiaries,

(xx) other Liens securing, in the aggregate, less than $20,000,000 (or its equivalent in another currency) of Indebtedness, and

(xxi) any Lien on any Property securing other Indebtedness permitted under clause (b); provided that the Obligations are also secured by a Lien on such Property on a senior or pari passu basis with respect to such other Indebtedness, in a manner satisfactory to the Administrative Agent.

(b) Indebtedness. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, incur, assume, guarantee, permit to exist or otherwise become liable for any Indebtedness; provided that Indebtedness shall be permitted if: (i) the Borrower is and remains in compliance with the financial covenant set forth in clause (g)(iii) (calculated, as applicable, on a pro forma basis for the four fiscal quarters most recently ended for which Financial Statements have been prepared as though such Indebtedness had been incurred at the beginning of such period), and (ii) the Consolidated Total Indebtedness to EBITDA Ratio does not and continues not to exceed 4.0x (calculated, as applicable, on a pro forma basis for the four fiscal quarters most recently ended for which Financial Statements have been prepared as though such Indebtedness had been incurred at the beginning of such period).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) No Alteration of Agreements or Organizational Documents. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, cancel, terminate, permit the cancellation or termination of, amend, modify or change any material terms or conditions of, or grant (or receive) any material consent, waiver or approval under, or waive any default or any breach of any material term or condition of, or take or fail to take any other action that would impair the value of the interest or impair the rights of any Credit Party, any Restricted Subsidiary, the Administrative Agent or any other Financing Party under: (i) any of its Organizational Documents, or (ii) any Financing Document.

(d) Restricted Payments. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, make any Restricted Payment at any time; provided that:

(i) the Borrower and any Restricted Subsidiary may make Restricted Payments to the Borrower or another Credit Party that is a wholly-owned Subsidiary of the Borrower or is wholly-owned by the Credit Party who is the recipient of such payment,

(ii) the Borrower and any Restricted Subsidiary may pay dividends on its Capital Stock in the form of shares of additional Capital Stock so long as no Change of Control shall result from the payment of such share dividend,

(iii) the Borrower may make Restricted Payments in respect of dividends or other payments on Capital Stock, repurchase of Capital Stock and payments on Permitted Subordinated Indebtedness in any Fiscal Year not in excess of its net income for the previous fiscal year so long as no Unmatured Default or Default then exists or would result therefrom,

(iv) so long as no Default exists, the repurchase or other acquisition of Capital Stock of the Borrower or any Restricted Subsidiary from employees, former employees, directors or former directors of the Borrower or any Restricted Subsidiary (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors of the Borrower under which such individuals purchase or sell, or are granted the option to purchase or sell, shares of such Capital Stock; provided, however, that the aggregate amount of such repurchases and other acquisitions (excluding amounts representing cancellation of Indebtedness) shall not exceed $5,000,000 (or its equivalent in any other currency) in any calendar year,

(v) repurchases of Capital Stock may occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options,

(vi) cash payments may be made in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of the Borrower,

(vii) Restricted Payments may be made from the proceeds, not required to be applied to pay other Indebtedness, of the issuance of new Capital Stock to a Person that is not the Borrower or a Subsidiary, and

(viii) other Restricted Payments may be made not to exceed $20,000,000 (or its equivalent in any other currency) in the aggregate.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (e) Conduct of Business with Affiliates. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, conduct any business with, or enter into any business transaction involving, any Affiliate thereof (other than among the Borrower and/or one or more wholly-owned Subsidiaries of the Borrower or between a Credit Party and another Credit Party that is a wholly-owned Subsidiary thereof, including pursuant to clause (f)(i)) unless:

(i) such business or transaction is: (A) in the ordinary course of such Credit Party’s (and such Affiliate’s) business and (B) upon fair and commercially reasonable terms no less favorable to such Credit Party than it could obtain in a comparable arm’s length transaction with a Person who is not an Affiliate, or

(ii) such business or transaction constitutes: (A) an Investment permitted to be made pursuant to Section 6.2(i) or a Restricted Payment permitted to be made pursuant to Section 6.2(d), (B) an issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (C) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Credit Parties, but in any event not to exceed $2,000,000 (or its equivalent in any other currency) in the aggregate outstanding at any one time, (D) the payment of reasonable fees to directors of the Credit Parties who are not employees of the Credit Parties, (E) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Borrower, or (F) a transaction entered into in the ordinary course of business, consistent with past practices.

(f) Sale of Assets; Mergers.

(i) No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, sell, assign, transfer, convey, lease or otherwise dispose of any Property, or grant an option or any other right to purchase or otherwise acquire any Property, whether now owned or hereafter acquired, except that the Borrower and each Restricted Subsidiary may sell, assign, transfer, convey, lease or otherwise dispose of any Property: (x) in the Ordinary Course of Business; provided that no Material Adverse Change could reasonably be expected to occur as a result thereof, (y) to another Credit Party so long as such transaction is in compliance with clause (e), or (z) the net proceeds of which sale are applied to repay Indebtedness or are reinvested in the Borrower’s and Restricted Subsidiaries’ business within 180 days of receipt thereof.

(ii) No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to: (A) dissolve, liquidate or otherwise cease to do business (except as permitted in the proviso to Section 6.1(a)) or (B) merge into or consolidate with any Person or permit any Person to merge into or consolidate with it; provided that the Borrower or any Restricted Subsidiary may merge into or consolidate with the Borrower or another Restricted Subsidiary so long as such transactions are in compliance with clause (e) and any Restricted Subsidiary may (so long as all of the Properties thereof are transferred to the Borrower or another Restricted Subsidiary in accordance with clause (e)) be dissolved.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (g) Financial Covenants. In each case calculated in accordance with GAAP, the Credit Parties shall not permit:

(i) the Net Worth as of the end of any fiscal quarter to be less than 80% of the Net Worth as of December 31, 2006,

(ii) the Consolidated EBITDA to Interest Ratio to be less than 3.0x as of the end of any fiscal quarter, commencing with the fiscal quarter ending September 30, 2006, and

(iii) the Consolidated Senior Indebtedness to EBITDA Ratio to be more than 3.0x as of the end of any fiscal quarter, commencing with the fiscal quarter ending September 30, 2006.

(h) Accounts Receivable. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, directly or indirectly, sell or factor any account receivable or other payment right, including in connection with any securitization or similar transaction, in an aggregate amount outstanding at any time in excess of $25,000,000. Each of the Borrower and the Restricted Subsidiaries shall keep accurate and complete records of the accounts receivable and other payment rights of the Borrower or such Restricted Subsidiary and deliver to the Agents such information about such accounts receivable and other payment rights as the Administrative Agent may reasonably request from time to time.

(i) Investments. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, make any Investment in any Person except:

(i) extensions of trade credit to customers in the ordinary course of business,

(ii) Permitted Investments,

(iii) Investments in other Credit Parties,

(iv) extensions of trade credit in the ordinary course of business,

(v) Contingent Obligations permitted by clause (b),

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (vi) loans and advances to employees of the Borrower and the Restricted Subsidiaries pursuant to the ordinary course of business (including for travel, entertainment and relocation expenses) in an aggregate amount not to exceed $2,000,000 (or its equivalent in any other currency) at any one time outstanding,

(vii) Investments of the Borrower and the Restricted Subsidiaries existing on the Closing Date and any renewal or extension thereof, provided that the amount of the original Investment is not increased except by the terms of such Investment as in effect on the Closing Date or as otherwise permitted under this clause (i),

(viii) Investments received in satisfaction or partial satisfaction of accounts receivable from financially troubled account debtors,

(ix) Investments in the ordinary course of business consisting of endorsements for collection or deposit,

(x) promissory notes and other non-cash consideration received in connection with asset sales,

(xi) Investments of a Subsidiary acquired after the Closing Date or of a corporation merged into the Borrower or merged into or consolidated with a Subsidiary after the Closing Date to the extent that such Investments: (A) were not made in contemplation of or in connection with such acquisition, merger or consolidation and (B) were in existence on the date of such acquisition, merger or consolidation,

(xii) Permitted Acquisitions,

(xiii) Investments in other Persons; provided that (with respect to this clause (xiii)): (1) no Default or Unmatured Default shall exist at the time in which such Investment is made or would have existed if such Investment had been made as of the last day of the previous fiscal quarter, and (2) the aggregate amount of such Investments (calculated using the amount of the initial Investment in any such Person) shall not exceed $25,000,000 (or its equivalent in any other currency) plus the aggregate amount of cash dividends (excluding return of capital) received by the Credit Parties in connection with such Investments,

(xiv) Investments in Permitted Joint Ventures/Partnerships, and

(xv) other Investments made from the proceeds of the issuance of new Capital Stock not required to be applied to pay other Indebtedness.

No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to, become a partner in any general or limited partnership or, except with each other, otherwise enter into any partnership or joint venture arrangements, except for Permitted Joint Ventures/Partnerships.

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(i) Neither the Borrower nor any Restricted Subsidiary shall establish, create or acquire any Subsidiary unless: (A) such new Subsidiary becomes a party to this Agreement as a Guarantor by executing a Subsidiary Joinder Agreement, or such new Subsidiary is designated by the Borrower in a writing delivered to the Administrative Agent and qualifies as an Immaterial Subsidiary or an Unrestricted Subsidiary under this clause (j), and (B) if applicable, replacement Notes are provided to each Lender in the manner required by Section 2.2(b)(iv).

(ii) Each Subsidiary that has been designated an Immaterial Subsidiary or an Unrestricted Subsidiary by the Borrower but at any time no longer qualifies as an Immaterial Subsidiary or an Unrestricted Subsidiary or has had its designation as an Immaterial Subsidiary or Unrestricted Subsidiary withdrawn by the Borrower pursuant to this clause (j) shall become a party to this Agreement as a Guarantor by executing a Subsidiary Joinder Agreement with and replacement Notes shall be provided to each Lender in the manner required by Section 2.2(b)(iv). A Subsidiary whose designation as an Immaterial Subsidiary or an Unrestricted Subsidiary has been withdrawn by the Borrower may not subsequently be redesignated an Immaterial Subsidiary or Unrestricted Subsidiary.

(iii) The Credit Parties shall not permit at any time: (A) the portion of Consolidated EBITDA of all Immaterial Subsidiaries to exceed 5% of the Consolidated EBITDA of the Borrower and its Subsidiaries for the four fiscal quarters most recently ended at the time of determination or (B) the aggregate assets held by all Immaterial Subsidiaries to exceed 5% of the consolidated assets of the Borrower and its Subsidiaries on a Consolidated Basis. To comply with the foregoing, the Borrower may from time to time, by notice to the Administrative Agent, withdraw the designation of Immaterial Subsidiary from a formerly Immaterial Subsidiary such that the requirements of the preceding sentence are met at all times and in connection therewith shall cause such Subsidiary to become party to this Agreement as a Guarantor by executing a Subsidiary Joinder Agreement and cause replacement Notes to be provided to each Lender in the manner required by Section 2.2(b)(iv), provided that such redesignation shall not cause or result in an Unmatured Default or Default.

(iv) The Credit Parties shall not permit at any time the portion of Consolidated EBITDA of all Unrestricted Subsidiaries to exceed 20% of the Consolidated EBITDA of the Borrower and its Subsidiaries on a Consolidated Basis for the four fiscal quarters most recently ended at the time of determination. To comply with the foregoing, the Borrower may from time to time, by notice to the Administrative Agent, withdraw the designation of Unrestricted Subsidiary from a formerly Unrestricted Subsidiary such that the requirements of the preceding sentence are met at all times and in connection therewith shall cause such Subsidiary to become party to this Agreement as a Guarantor by executing a Subsidiary Joinder Agreement and cause replacement Notes to be provided to each Lender in the manner required by Section 2.2(b)(iv), provided that such redesignation shall not cause or result in an Unmatured Default or Default.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (k) Ordinary Conduct of Business. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to: (i) engage in any business other than the Business, (ii) change its Fiscal Year or its method of determining its fiscal quarters or (iii) make or permit any material change in its accounting policies or reporting practices, except as required by a change in applicable accounting principles; provided that in the case of any such change, the Credit Parties shall promptly notify the Administrative Agent thereof and enter into such amendments of the financial ratios, definitions and/or related tests contained herein as the Required Lenders may reasonably request as a result of such change so as to preserve the intent of such provisions.

(l) Sales and Transfers of Equity Interests. No Credit Party shall, or shall permit any of its Subsidiaries that are Restricted Subsidiaries to: (i) issue or sell any of its Capital Stock or securities convertible into, or exercisable for, any of its Capital Stock or (ii) permit the transfer of its Capital Stock or securities convertible into, or exercisable for, any of its Capital Stock, except: (A) for such issuances, sales or transfers that would not result in a Change of Control and (B) as may be permitted by clause (d).

(m) Limitation on Restrictions on Distributions from Subsidiaries. No Credit Party shall, or shall permit any of its Subsidiaries to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to: (i) pay dividends or make any other distributions on its Capital Stock to any Credit Party or pay any Indebtedness owed to any Credit Party, (ii) make any loans or advances to any Credit Party or (iii) transfer any of its Property to any Credit Party, except:

(A) with respect to clauses (i), (ii) and (iii)

(1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Closing Date,

(2) any encumbrance or restriction with respect to a Subsidiary pursuant to an agreement relating to any Indebtedness incurred by such Subsidiary on or prior to the date on which such Subsidiary was acquired by the Borrower (other than Indebtedness incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Borrower) and outstanding on such date,

(3) any encumbrance or restriction pursuant to an agreement effecting a Permitted Refinancing of Indebtedness incurred pursuant to an agreement referred to in clause (1) or (2) or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) or this clause (3); provided, however, that the encumbrances and restrictions with respect to such Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the Lenders than encumbrances and restrictions with respect to such Subsidiary contained in such predecessor agreements, and

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (4) any encumbrance or restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or Property of such Subsidiary pending the closing of such sale or disposition, and

(B) with respect to clause (iii) only,

(1) any encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the Property leased thereunder, and

(2) any encumbrance or restriction contained in security agreements or mortgages securing Indebtedness of a Subsidiary to the extent such encumbrance or restriction restricts the transfer of the Property subject to such security agreements or mortgages.

(n) Permitted Hedging. No Credit Party shall, or shall permit any Subsidiary to, enter into any Hedging Agreement, except with respect to Permitting Hedging Obligations.

(o) Permitted Fianzas and Letters of Credit. No Credit Party shall, or shall permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligation in respect of fianzas or letters of credit in excess of $100,000,000 (or its equivalent in any other currency) at any one time outstanding other than fianzas or letters of credit securing obligations of a Credit Party to Telmex under any interconnection agreement.

ARTICLE VII

DEFAULT/REMEDIES

SECTION 7.1 Default/Remedies. The occurrence of any of the following events or circumstances shall constitute a “Default” hereunder:

(a)(i) any Credit Party shall have failed to pay when due any principal payable pursuant to any Note or any other Obligation payable pursuant to this Agreement or any other Financing Document, in each case when the same becomes or shall be declared due and payable (whether at stated maturity, by acceleration or otherwise), or (ii) any Credit Party shall have failed to pay when due any interest payable pursuant to any Note or any other Obligation payable pursuant to this Agreement or any other Financing Document, in each case when the same becomes or shall be declared due and payable (whether at stated maturity, by acceleration or otherwise), which failure (in the case of clause (ii)) shall have continued unremedied for at least three Business Days after the date on which such payment is required to be made,

(b) other than with respect to payments under the Financing Documents: (i) the Borrower or any Restricted Subsidiary shall default (as principal, guarantor or other surety) in the payment of any principal of, interest on, or premium, guaranty fees or other fees payable with respect to any credit-enhancement for, any Indebtedness or Contingent Obligation, which Indebtedness or Contingent Obligation is for a principal amount of at least $10,000,000 in the aggregate (or its equivalent in any other currency) (“Material Obligations”), and such default shall have continued for more than any applicable period of grace, (ii) any other event shall occur or condition shall exist in respect of any Material Obligation that results in (or permits the applicable creditor to cause) the acceleration of the Borrower’s or any Restricted Subsidiary’s obligation to pay all or any portion of such Material Obligations or (iii) any Material Obligation shall be required to be redeemed, purchased or defeased (or similarly satisfied) before its otherwise scheduled payment date (or an offer to redeem, purchase or defease (or similarly satisfy) such Material Obligations shall be required to be made), in each case before the otherwise scheduled payment date,

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) any representation or warranty made by or on behalf of any Credit Party or any Credit Party Affiliate in this Agreement, any other Financing Document or any notice or other certificate, document, Financial Statement or other statement delivered pursuant hereto or thereto shall have been untrue or incorrect in any respect when made or deemed made,

(d) any Credit Party shall have failed to observe or perform any term or covenant set forth in Section 6.1(a), (g), (h), (i), (j), (l) or (p) or in Section 6.2,

(e) except as specifically provided in clauses(a), (b) and (d), any Credit Party shall have failed to observe or perform any other agreement, covenant or provision contained in this Agreement, any other Financing Document or any document delivered pursuant hereto or thereto, and such failure (unless not capable of remedy in the reasonable opinion of the Required Lenders) shall have continued unremedied for at least 30 days after the earlier of: (i) such Credit Party’s receipt of written notice of the occurrence thereof or (ii) the date on which such Credit Party shall (or should) have obtained knowledge of such failure),

(f) any Governmental Approval required: (i) to enable any Credit Party lawfully to enter into and perform its obligations under the Financing Documents to which it is a party, (ii) to enable any Credit Party to operate its business, (iii) to enable any Financing Party to exercise any of the rights expressed to be granted to it in the Financing Documents and/or (iv) to ensure the legality, validity, enforceability and/or admissibility in evidence in México and/or New York of any of the Financing Documents shall not be obtained or shall cease to be in full force and effect in any respect,

(g) (i) any Transaction Document at any time and for any reason terminates or otherwise ceases to be in full force and effect (other than any scheduled expiration thereof), or any Transaction Document is declared to be void, or any Person shall issue a notice of termination under any Material Document; provided that the termination of any Material Document or other failure of any such document to remain in full force and effect (or any such issuance of a notice thereof) shall not constitute a Default unless such event, individually or in the aggregate, has resulted in or could reasonably be expected to result in a Material Adverse Change; or (ii) any Credit Party or any other Person repudiates, or contests the validity or enforceability of, any Transaction Document to which it is a party,

(h) any Expropriation Event shall occur,

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) with respect to the Borrower or any Restricted Subsidiary, either: (i) it shall commence a voluntary case, proceeding or other action: (A) under any Applicable Law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, suspension of payments, concurso mercantil or relief of debtors seeking to have an order for relief entered with respect to it or seeking to adjudicate it a bankrupt or insolvent or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, liquidator, custodian, conservator, síndico, conciliador or other similar official of it or for any part of its Property, (ii) an involuntary case, proceeding or other action of a nature referred to in clause (i) shall be commenced against it that shall: (A) result in the entry of an order for relief of any such adjudication or appointment or (B) not have been discharged within 60 days from the commencement thereof, (iii) an involuntary case, proceeding or other action shall be commenced against it that seeks issuance of a warrant of attachment, execution, distraint or similar process (excluding precautionary attachment) against any substantial part of its Property that shall result in the entry of an order for any such relief and shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof, (iv) there shall be commenced against it any extra-judicial liquidation proceedings under any Applicable Law of any jurisdiction, which proceedings could reasonably be expected to result in its liquidation, (v) it shall admit in writing its inability to pay its debts as they become due, (vi) it shall make a general assignment for the benefit of its creditors or (vii) it shall take any corporate (or similar) action in furtherance of, or indicating its consent to, approval of or acquiescence in, any of the foregoing acts,

(j) any court, other Governmental Authority or arbitrator shall enter against the Borrower or any Restricted Subsidiary: (i) a final non-payment judgment, decree or order that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Change or (ii) a final judgment, decree or order for the payment of money in an amount that, when aggregated with the amount of all other unsatisfied final judgments, decrees or orders against the Borrower and the Restricted Subsidiaries (collectively), exceeds $10,000,000 (or its equivalent in any other currency), and (in case of both clause (i) and (ii)) either: (A) such judgment, decree or order is not stayed or discharged within 45 days after entry thereof or (B) there shall be any period of at least 45 consecutive days during which a stay of enforcement of such judgment or order shall not be in effect,

(k) a Change of Control shall occur,

(l) the ownership or possession of Capital Stock of any Credit Party by any Person shall contravene the Foreign Investment Law,

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (m) the government of México, the SCT, the COFETEL or any other Governmental Authority shall: (i) commence a proceeding to revoke, terminate, withdraw or fail to renew a Material Concession or any other material Governmental Approval, (ii) issue an administrative resolution to revoke, terminate, materially suspend, materially and adversely modify, withdraw or fail to renew a Material Concession or any other material Governmental Approval or (iii) issue any other rule or decree resulting in the revocation, the termination, any suspension that is not partial, temporary and non-material, any material and adverse modification or the withdrawal of a Material Concession or any other material Governmental Approval; provided that, without limiting the generality of the foregoing, the issuance by the SCT of any or several administrative notices, sanctions or actions pursuant to Article 38 of the Federal Telecommunications Law relating to any event described in paragraphs I, V, VI and VII thereof shall not constitute a Default under clauses (i), (ii) or (iii) unless and until any such notice, action or sanction results in any of the events described in such clauses,

(n) any change in or the withdrawal or modification of any Applicable Law occurs, including the imposition of applicable foreign exchange control regulations, that, individually or in the aggregate, in the reasonable opinion of the Required Lenders has resulted in, or could reasonably be expected to result in, a Material Adverse Change,

(o) the Obligations shall cease to rank at least pari passu with the present and future senior unsecured and unsubordinated Indebtedness and Contingent Obligations of any Credit Party, or

(p) there shall occur any governmental action: (i) asserting a general moratorium or (ii) changing or restricting the currency (or the conversion thereof) in which any Credit Party may pay its obligations.

SECTION 7.2 Acceleration. (a) If a Default specified in Section 7.1(i) shall occur, automatically all Commitments shall immediately terminate and all Loans (with accrued interest thereon) and all other Obligations owing under the Financing Documents shall immediately become due and payable.

(b) If any Default (other than a Default referred to in clause (a)) shall occur, then the Administrative Agent (acting at the direction of the Required Lenders) may by notice to the Borrower either: (i) declare the Lenders’ Commitments to be terminated, whereupon all Commitments of the Lenders shall immediately terminate, and/or (ii) declare any or all of the Loans, all accrued and unpaid interest thereon and all other Obligations owing under the Financing Documents to be due and payable, whereupon the same shall become immediately due and payable; it being understood that any such acceleration shall, unless consented by the Required Lenders of the unpaid Tranche, apply to both Tranches on a pro rata basis.

(c) Except as expressly provided in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by each Credit Party with respect to the events and actions described in this Section.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 7.3 Rights Not Exclusive. The rights provided to the Financing Parties by the Financing Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other document now existing or hereafter arising.

ARTICLE VIII

THE AGENTS

SECTION 8.1 Appointment and Authorization. Each Lender hereby irrevocably (subject to Section 8.9) appoints, designates and authorizes each Agent to take such action on its behalf under the Financing Documents and to exercise such powers and perform such duties as expressly are delegated to it by the Financing Documents, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained in any Financing Document: (a) no Agent shall have any duties or responsibilities except those expressly set forth therein, (b) no Agent shall have or be deemed to have any fiduciary relationship with any other Financing Party, (c) no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into any Financing Document or otherwise exist against either Agent and (d) no Agent shall be required to take any action that is contrary to any Applicable Law. Without limiting the generality of the foregoing sentence, the use of the term “agent” in this Agreement or any other Financing Document with reference to the Agents is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties.

SECTION 8.2 Delegation of Duties. Each Agent may execute any of its respective duties under any Financing Document by or through agents, employees or attorneys-in-fact, and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for any degree of negligence or misconduct of any agent or attorney-in-fact that such Agent selects with reasonable care.

SECTION 8.3 No Liability of Agent-Related Persons. None of the Agent-Related Persons shall: (a) be liable for any action taken or omitted to be taken by any of them under or in connection with any Financing Document or the transactions contemplated thereby (except for such Person’s own gross negligence, bad faith, willful misconduct or breach of such Financing Agreement) or (b) be responsible in any manner to any of the Financing Parties or Credit Parties for: (i) any recital, statement, representation or warranty made by any of the Credit Parties or Credit Party Affiliates, or any officer thereof, contained in any Financing Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Agent-Related Person under or in connection with, any Financing Document, (ii) the validity, effectiveness, genuineness, enforceability or sufficiency of any Financing Document (except as to such Agent-Related Person’s execution thereof) or (iii) any failure of any of the Credit Parties or any other party to any Financing Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Financing Party or Credit Party to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, any Financing Document, or to inspect the Properties, books or records of any of the Credit Parties or Credit Party Affiliates.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 8.4 Reliance by the Agent-Related Persons. Each Agent-Related Person shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, facsimile or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person(s), and upon advice and statements of legal counsel (including counsel to any of the Credit Parties), independent accountants and other experts selected by any Agent-Related Person. Each Agent-Related Person shall be fully justified in failing or refusing to take any action under any Financing Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders (or, with respect to the Peso Agent, the Peso Lenders) against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent-Related Person in all cases shall be fully protected in acting, or in refraining from acting, under any Financing Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act under any Financing Document pursuant thereto shall be binding upon all of the Financing Parties.

SECTION 8.5 Notice of Default. (a) No Agent-Related Person shall be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default (except an Agent with respect to defaults in the payment of principal, interest and fees required to be paid to such Agent for the account of the applicable Lenders and/or the Agents) unless such Agent-Related Person shall have received written notice from a Financing Party or any of the Credit Parties referring to this Agreement, describing such Default or Unmatured Default and stating that such notice is a “notice of default” or similar statement. Such Agent-Related Person promptly shall notify each Agent and each Lender of its receipt of any such notice and (in the case of an Agent) of the occurrence of any default in the payment of principal, interest or fees required to be paid to such Agent for the account of the applicable Lenders and/or the Agents. The Agents shall take such action with respect to such Default or Unmatured Default as may be requested by the Required Lenders in accordance with Article VII; provided that unless and until the Administrative Agent has received any such request and so notified the other Agent and the Lenders, each Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Unmatured Default as it shall deem advisable or in the best interest of the Financing Parties.

(b) Notwithstanding clause (a), each Agent-Related Person and each Lender shall use its best efforts to notify each Agent upon obtaining knowledge of any Default or Unmatured Default.

SECTION 8.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent-Related Person hereinafter taken, including any review of the affairs of the Credit Parties and the Credit Party Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender or other Agent- Related Person. Each Lender represents to the Agents and the Lead Arranger that it has, independently and without reliance upon any Agent- Related Person and based upon such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, Property, financial and other condition and creditworthiness of the Credit Parties, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into the Financing Documents to which it is a party and to extend credit to the Borrower thereunder. Each Lender also represents that it shall, independently and without reliance upon any Agent-Related Person and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under the Financing Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, Property, financial and other condition and creditworthiness of the Credit Parties. Except for notices, reports and other documents expressly herein or in the other Financing Documents required to be furnished to the Lenders by any Agent, no Agent-Related Person shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, Property, financial and other condition or creditworthiness of the Credit Parties that may come into the possession of any of the Agent-Related Persons.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 8.7 Indemnification of Agent-Related Persons. Whether or not the transactions contemplated hereby are consummated, each Lender agrees to indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Credit Parties and without limiting the obligation of the Credit Parties to do so), on the basis of such Lender’s ratable share from and against any and all Indemnified Liabilities; provided that no Lender shall be liable for the payment to any Agent-Related Person of any portion of the Indemnified Liabilities to the extent a court of proper jurisdiction has delivered a final determination that such Indemnified Liabilities resulted from such Agent-Related Person’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse each Agent- Related Person upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by such Agent- Related Person in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, any Financing Document or any document contemplated by or referred to therein to the extent that such Agent-Related Person is not reimbursed for such expenses by or on behalf of the Credit Parties. A Lender’s ratable share with respect to the Agents or the Lead Arranger or any Agent-Related Person related to the Agents or the Lead Arranger shall be such Lender’s Pro Rata Share. The undertaking in this Section shall survive the payment of all Obligations hereunder, the cancellation of all the Commitments and, as to any Agent-Related Person, the resignation or replacement of such Agent-Related Person.

SECTION 8.8 The Agent-Related Persons in Their Individual Capacity. Each Agent-Related Person may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Credit Parties and their Affiliates as though the Agents did not act in such capacity under the Financing Documents, without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, the Agent-Related Persons may receive information regarding the Credit Parties or their Affiliates (including information that may be subject to confidentiality obligations in favor of such Person) and acknowledge that no Agent-Related Person shall be under any obligation to provide such information to any Lender. With respect to its Loans, each Lender that also acts as an Agent under the Financing Documents shall have the same rights and powers under the Financing Documents as any other Lender and may exercise the same as though it were not such Agent thereunder.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 8.9 Successor Agent. (a) Any Agent may, and at the request of the Required Lenders shall, resign as such Agent upon at least 30 days’ prior written notice to the Lenders. If such Agent resigns under this Agreement, then the Required Lenders shall appoint from among the Lenders a successor agent who, unless a Default then exists, shall be reasonably acceptable to the Borrower. If no such successor agent is appointed before the date on which a retiring Agent’s resignation is to become effective in accordance with its notice of resignation, then such Agent may appoint, after consulting with the Lenders and the Borrower, a successor agent from among the Lenders who, unless a Default then exists, shall be reasonably acceptable to the Borrower. Upon the acceptance of its appointment as successor agent hereunder: (i) such successor agent shall succeed to all the rights (including as to the same fees), powers and duties of such retiring Agent, (ii) the term “Administrative Agent” or “Peso Agent”, as the case may be, shall mean such successor agent and (iii) such retiring Agent’s appointment, powers and duties as such Agent shall be terminated. After any such retiring Agent’s resignation hereunder, this Article and Sections 10.4 and 10.5 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was such Agent under the Financing Documents.

(b) Any Person: (i) into which an Agent may be merged or consolidated, (ii) that may result from any merger, conversion or consolidation to which an Agent shall be a party or (iii) that may succeed to all or substantially all of the corporate trust business of an Agent shall be the successor of such Agent without the execution or filing of any instrument or any further act on the part of any of the parties hereto.

ARTICLE IX

GUARANTY

SECTION 9.1 Guaranty. (a) For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Guarantor hereby, jointly and severally, as primary obligor and not merely as surety, unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the payment Obligations (howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due) under the Financing Documents. Upon the failure by the Borrower to pay punctually any of its Obligations, the Guarantors (jointly and severally) shall immediately pay the amount not so paid. The obligations of the Guarantors under this Article shall constitute a guaranty of payment and not merely a guaranty of collection.

(b) All payments by any Guarantor under this Article shall be payable in the manner required for payments by the Borrower hereunder, including: (i) the obligation to make all such payments free and clear of, and without deduction for, any Covered Taxes (including withholding taxes) in the manner provided in Section 3.1 and (ii) the obligation to pay interest at the Default Rate.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 9.2 Guaranty Unconditional. The obligations of the Guarantors under this Article shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by any reason, including:

(a) any extension, renewal, settlement, compromise, waiver or release in respect of any Obligation(s) and/or any Commitment(s) under the Financing Documents, by operation of law or otherwise,

(b) any modification or amendment of or supplement to this Agreement or any other Financing Document,

(c) any change in the existence, structure or ownership of the Borrower or any other Credit Party, or any event described in Section 7.1(i) with respect to any Person,

(d) the existence of any claim, set-off or other rights that a Guarantor may have at any time against the Borrower, any other Credit Party, any Agent, any other Financing Party or any other Person, whether in connection herewith or any unrelated transactions,

(e) any invalidity, irregularity or unenforceability relating to or against the Borrower or any other Credit Party for any reason of any Financing Document, or any provision of Applicable Law purporting to prohibit the payment by the Borrower or any other Credit Party of any of the Obligations, or

(f) any other act or omission to act or delay of any kind by the Borrower and/or any other Credit Party, any Agent, any other Financing Party or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of (or defense against) the Obligations and the Guarantors’ obligations under this Article other than prior payment of the Obligations.

SECTION 9.3 Discharge only upon Payment in Full; Reinstatement in Certain Circumstances. The Guarantors’ obligations hereunder shall remain in full force and effect until all of the payment Obligations shall have been paid in full and all of the Commitments shall have terminated. If at any time any payment made under this Agreement or any other Financing Document is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of a Credit Party or any other Person or otherwise, then the Guarantors’ obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time.

SECTION 9.4 Waiver by the Guarantors. (a) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law: (i) notice of acceptance of the guaranty provided in this Article and notice of any liability to which this guaranty may apply, (ii) all notices that may be required by Applicable Law or otherwise to preserve intact any rights of any Financing Party against the Borrower and/or any other Credit Party, including any demand, presentment, protest, proof of notice of non-payment, notice of any failure on the part of the Borrower and/or any other Credit Party to perform and comply with any covenant, agreement, term, condition or provision of any agreement and any other notice to any other party that may be liable in respect of the Obligations guaranteed hereby (including the Borrower, any other Credit Party and any other guarantor thereof from time to time) except any of the foregoing as may be expressly required hereunder, (iii) any right to the enforcement, assertion or exercise by any Financing Party of any right, power, privilege or remedy conferred upon such Person under the Financing Documents or otherwise, (iv) any requirement that any Financing Party exhaust any right, power, privilege or remedy, or mitigate any damages resulting from a default, under any Financing Document, or proceed to take any action against a Credit Party or any other Person under or in respect of any Financing Document or otherwise, or protect, secure, perfect or ensure any Lien on any collateral, and (v) the benefit of any statute of limitations affecting the Guarantors’ or any other Credit Party’s liability in respect of any of the payment Obligations, and each Guarantor agrees that any payment of any Obligation to the applicable Person and any other act that shall toll any statute of limitations applicable to the Obligations shall also operate to toll such statute of limitations applicable to such Guarantor’s liability under this Article.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Each Guarantor hereby further waives any right to which it may be entitled under Articles 2836, 2846, 2848 and 2849 of the Federal Civil Code (Código Civil Federal) of México and similar articles contained in the Civil Codes of the States of México and the Federal District. Each Guarantor further expressly waives the benefits of order, excusión and división contained in Articles 2814, 2815, 2817, 2818, 2820, 2821, 2822, 2823, 2839, 2840, 2841 and other similar articles of the Federal Civil Code of México and similar articles contained in the Civil Codes of the States of México and the Federal District.

SECTION 9.5 Subrogation. Upon a Guarantor’s making payment with respect to any obligation under this Article, such Guarantor shall be subrogated to the rights of the payee against the Borrower (or the other obligor) with respect to such obligation; provided that such Guarantor shall not be a Financing Party and shall not enforce any payment by way of subrogation, indemnity or otherwise, or exercise any other right, against the Borrower (or such other obligor) so long as any Obligations (other than on-going but not yet incurred indemnity obligations) remain unpaid and/or any Commitments remain outstanding.

SECTION 9.6 Stay of Acceleration. If acceleration of the time for payment of any Obligations is stayed due to any event described in Section 7.1(i), then all such amounts otherwise subject to acceleration under this Agreement shall nonetheless be payable by the Guarantors hereunder.

ARTICLE X

MISCELLANEOUS

SECTION 10.1 Amendments and Waivers. No amendment or waiver of any provision of any Financing Document, and no consent with respect to any departure by any Credit Party therefrom, shall be effective unless the same shall be in writing and consented to by the Required Lenders and the other parties thereto, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no such amendment, waiver or consent shall do any of the following unless approved by the indicated Lenders in writing (it being understood that no approval from any Lenders other than those indicated below shall be required):

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) unless approved by each Lender, amend, modify or waive the definition of “Required Lenders” or any provision of this Section,

(b) unless approved by the applicable Lender, increase or extend the Commitment of such Lender,

(c) unless approved by each Lender of the applicable Tranche, postpone or reduce any scheduled payment of principal of, or any payment of interest on, the Loans of such Tranche (other than interest that accrues at the Default Rate pursuant to Section 2.6(c)) or any fees or other amounts payable in connection therewith,

(d) except as provided in Article VII, unless approved by the Required Lenders of the amended Tranche and each Lender of the other Tranche, accelerate any scheduled payment of principal of any Loans or increase the Applicable Margin or Applicable Base Rate Margin payable with respect to a Tranche,

(e) unless approved by the applicable Lender, change the currency of payment of any Obligations to such Lender, or

(f) unless approved by each Lender of a Tranche, reduce any Guarantor’s obligations under Article IX with respect to such Tranche and the applicable Lenders; and provided further that:

(i) no amendment, waiver or consent shall, unless in writing and signed by the applicable Agent in addition to the applicable Lender(s), affect the rights or duties of such Agent under any Financing Document, and

(ii) the fee letter described in Section 2.7, may be amended, or rights or privileges thereunder waived, in a writing executed solely by the parties thereto.

No Credit Party shall directly or indirectly pay or cause to be paid any remuneration in any manner whatsoever to any Lender as consideration for or as an inducement to the entering into by such Lender of any waiver or amendment of any of the Financing Documents unless such remuneration is concurrently paid ratably to each Lender (or with respect to amendments with respect to one Tranche only, to each Lender of such Tranche) even if any such Lender is not required to or did not consent to such waiver or amendment.

SECTION 10.2 Notices. (a) All notices, requests and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile or other electronic transmission; provided that any document transmitted by any Credit Party by facsimile or other electronic transmission shall be followed promptly by delivery of a hard copy original thereof) and couriered, faxed or delivered to the address or facsimile number specified for notices on Schedule 10.2, or, if directed to: (A) any Credit Party or either Agent, to such other address as shall be designated by such Credit Party or such Agent, as the case may be, in a written notice to the other parties hereto, and (B) any other Person, at such other address as shall be designated by such Person in a written notice to the Borrower and the Administrative Agent.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) All such notices, requests and communications shall be effective: (i) if transmitted by facsimile, when transmitted by facsimile machine upon confirmation of receipt; provided that notices pursuant to Article II or VIII to an Agent shall not be effective until actually received by such Agent (including by electronic communication), or (ii) if delivered by courier (including by overnight courier), upon receipt.

(c) Any agreement of the Financing Parties herein to receive certain notices by telephone or facsimile or other electronic transmission is solely for the convenience and at the request of the Credit Parties. The Financing Parties shall be entitled to rely upon the authority of any Person purporting to be a Person authorized by a Credit Party to give such notice and the Financing Parties shall not have any liability to any Credit Party or any other Person on account of any action taken or not taken by the Financing Parties in reliance upon such notice. The obligation of the Credit Parties to repay the Obligations shall not be affected in any way or to any extent by any failure by the Financing Parties to receive written confirmation of any telephonic or facsimile notice or the receipt by the Financing Parties of a confirmation that is at variance with the terms understood by the Financing Parties to be contained in the notice.

(d) Notwithstanding the foregoing: (i) a Credit Party may, at its option, provide to the Agents all information, documents and other materials that it is obligated to furnish pursuant to the Financing Documents, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that: (A) relates to a request for a new, or a conversion of an existing, borrowing (including any election of an interest rate or interest period relating thereto), (B) relates to the payment of any principal or other amount due under the Financing Documents before the scheduled date therefor, (C) provides notice of any Default or Unmatured Default or (D) is required to be delivered to satisfy any condition precedent to the effectiveness of the Financing Documents and/or any borrowing thereunder (all such non-excluded communications being referred to herein collectively as “Communications”), by transmitting the Communications in an electronic/soft medium to the Administrative Agent’s e-mail address specified by the Administrative Agent by written notice to such Credit Party (with respect to Communications to the Administrative Agent) and the Peso Agent’s e-mail address specified by the Peso Agent by written notice to such Credit Party (with respect to Communications to the Peso Agent), and (ii) each Agent may, at its option, make the Communications or other information available to the Lenders by posting them on Intralinks or a substantially similar electronic transmission system (the “Platform”).

(e) ANY PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT-RELATED PERSONS DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF ANY NOTICES OR OTHER COMMUNICATIONS MADE AVAILABLE BY AN AGENT, OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN SUCH NOTICES AND COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT-RELATED PERSONS IN CONNECTION WITH THE PLATFORM OR THE NOTICES OR OTHER COMMUNICATIONS MADE AVAILABLE THEREBY. IN NO EVENT SHALL ANY AGENT-RELATED PERSON HAVE ANY LIABILITY TO THE CREDIT PARTIES, THE FINANCING PARTIES OR ANY OTHER PERSON FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE), ARISING OUT OF THE CREDIT PARTIES’ OR THE AGENTS’ TRANSMISSION OF NOTICES OR OTHER COMMUNICATIONS THROUGH THE PLATFORM, EXCEPT TO THE EXTENT THE LIABILITY OF ANY AGENT-RELATED PERSON IS FOUND IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH AGENT-RELATED PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) Each Agent agrees that the receipt of the Communications by it at its e-mail address described above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Financing Documents. Each Lender agrees that notice to it (as provided in the next sentence) specifying that the Communications and/or other notices have been made available to it on the Platform shall constitute effective delivery thereof to such Lender for purposes of the Financing Documents. Each Lender agrees: (i) to notify the Agents in writing (including by electronic communication) from time to time of such Lender’s e-mail address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such e-mail address.

SECTION 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Agent, any Lender or any other Financing Party, any right, remedy, power or privilege under (or referred to in) any Financing Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under any Financing Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

SECTION 10.4 Costs and Expense. The Borrower shall:

(a) whether or not the transactions contemplated hereby are consummated, pay or reimburse any Agent-Related Person(s), promptly upon demand by such Person, for all reasonable and reasonably documented out-of-pocket fees, costs and expenses (including Attorney Costs) incurred by or charged to any such Person in connection with the preparation, execution, delivery, negotiation and syndication of the Financing Documents,

(b) pay or reimburse any Agent, promptly upon demand by such Agent, for all reasonable and reasonably documented out- of-pocket fees, costs and expenses (including reasonable Attorney Costs) incurred by or charged to any such Agent in connection with the modification, administration, waiver or amendment (in each case, whether or not consummated) of the Financing Documents (including in connection with any potential restructuring, renegotiations or workouts), and

(c) pay or reimburse each Agent-Related Person and each Lender, promptly upon demand by any such Person, for all reasonably documented out-of-pocket fees, costs and expenses (including Attorney Costs) incurred by them in connection with: (i) the enforcement or preservation of any rights or remedies under any Financing Document and (ii) the protection or preservation of any right or claim of any such Person against the Credit Parties or any of their Affiliates arising out of any Financing Document.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 10.5 Borrower Indemnification. (a) The Borrower shall, whether or not the transactions herein contemplated are consummated, indemnify each of the Financing Parties, the Lead Arranger and their respective Affiliates (and each of such Person’s officers, directors, employees, representatives and agents) (each an “Indemnified Person”) from and hold each of them harmless against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments and suits and all documented costs (including reasonable and reasonably documented Attorney Costs), expenses and disbursements of any kind or nature whatsoever (the “Indemnified Liabilities”) incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any such Indemnified Person is a party thereto) related to the entering into and/or performance of any Financing Document or the use of the proceeds of any Loans or the consummation of any transactions contemplated in any Financing Document (including the reasonable and reasonably documented out-of-pocket Attorney Costs incurred in connection with any such investigation, litigation or other proceeding or in connection with enforcing this Section but excluding any such Indemnified Liabilities to the extent resulting directly and primarily by reason of the gross negligence, bad faith, willful misconduct or breach of a Financing Document of the Indemnified Person to be indemnified (or its officers, directors, employees, representatives, attorneys or agents) as found in a final, non-appealable judgment by a court of competent jurisdiction. Each Indemnified Party shall: (i) upon its becoming aware of any event that might result in the Borrower being required to perform any of its indemnity obligations hereunder, use reasonable efforts to promptly notify the Borrower (provided that failure so to notify the Borrower shall not mitigate the obligations of the Borrower hereunder), (ii) upon the Borrower’s request, consult with the Borrower regarding any step (including any step that may mitigate the effect of such event) it proposes to take in respect of such event and (iii) (unless an Unmatured Default or Default in respect of payment then exists) obtain the Borrower’s consent before entering into any settlement or compromise in relation to any such claims, actions or suits.

(b) To the extent that any undertaking in clause (a) may be unenforceable because it is violative of any Applicable Law or public policy, the Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under Applicable Law to the payment and satisfaction of such undertaking.

(c) All such amounts and costs payable or indemnified under this Section shall be included in the Obligations and shall be immediately due and payable on demand.

(d) The Borrower’s obligations hereunder and under Sections 3.1 and 10.4 shall survive the execution and delivery of the Financing Documents, the making and repayment of the Loans and (with respect to any applicable Indemnified Person) its resignation and/or removal.

(e) To the fullest extent permitted by Applicable Law, each Credit Party agrees that it shall not assert, and hereby waives, any claim against any Indemnified Party on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Financing Document or any agreement or document contemplated hereby, the transactions contemplated hereby or thereby, any Loan and/or the use of the proceeds thereof.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 10.6 Payments Set Aside. If any Credit Party (or any Person on its behalf) makes a payment to any Financing Party, or any Financing Party exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof subsequently are invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Financing Party in its discretion) to be repaid to such Credit Party (or such Person), a trustee, síndico, receiver or any other Person in connection with any insolvency proceeding or otherwise, then: (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to each Agent from whom it received any such amounts upon demand its Pro Rata Share of any amount so recovered from or repaid by such Agent.

SECTION 10.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective authorized successors and assigns, except that no Credit Party may assign or transfer any of its rights or obligations under this Agreement or any other Financing Document without the prior written consent of the Administrative Agent and the Required Lenders, any attempt to do so being null and void ab initio.

SECTION 10.8 Assignments, Participations, etc.

(a) Assignments. Any Lender may, with the prior written consent of the Administrative Agent and (except during the existence of a Default) the Borrower, which consent(s) shall not be unreasonably withheld or delayed, at any time assign to one or more Persons that (unless a Default exists) are Eligible Assignees (provided that no written consent of the Borrower or the Administrative Agent shall be required in connection with any assignment by a Lender to an Eligible Assignee that is a Lender or an Affiliate of any Lender and that the Borrower will be deemed to have consented to an assignment if it fails to respond negatively to a written request for consent within ten Business Days of delivery of such request and provided, further, that it is acknowledged that it is reasonable for the Borrower to withhold its consent to an assignment to a competitor of the Borrower or to an Affiliate of a competitor of the Borrower) (each an “Assignee”) all, or any portion, of the Loans, the Commitment and the other rights and obligations of such Lender hereunder, in a minimum Dollar/Peso Equivalent amount of $5,000,000 or a higher integral multiple of $1,000,000 (or, if less, all of such Lender’s remaining rights and obligations hereunder); provided that the Credit Parties and the Agents may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until: (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Administrative Agent by such Lender and/or its Assignee, (ii) such Lender and its Assignee shall have delivered to the Borrower and the Administrative Agent a duly executed Assignment Agreement substantially in the form of Exhibit C (an “Assignment Agreement”) together with the Note(s) subject to such assignment and (iii) except to the extent waived by the Administrative Agent, such Lender or its Assignee shall have paid to the Administrative Agent a processing fee relating to such assignment in the amount of $3,500. Notwithstanding the foregoing, no such assignment shall be allowed if it would require securities registration under any Applicable Law or if the assigner thereof (if it is assigning less than all of its Loans and Commitments) would, after such assignment, have less than $5,000,000 (or its Dollar/Peso Equivalent) in Loans and remaining Commitments.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Assignee as Lender. From and after the date that the Administrative Agent notifies the assignor Lender that it has received and provided its consent, and received (if such consent is applicable) the consent of the Borrower, with respect to an executed Assignment Agreement (and has received payment of the above-referenced processing fee): (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender under the Financing Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations under the Financing Documents have been assigned by it pursuant to such Assignment Agreement, be considered to have relinquished its rights and be released from its obligations under the Financing Documents.

(c) Participations. Any Lender may at any time sell to one or more financial institution(s) or other Person(s) (each a “Participant”) participating interests in any Loans, the Commitment of such Lender and the other interests of such Lender (the “originating Lender”) under the Financing Documents; provided that: (i) the originating Lender’s obligations under the Financing Documents shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Credit Parties and the Agents shall continue to deal solely and directly with the originating Lender in connection with the originating Lender’s rights and obligations under the Financing Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, any Financing Document, except to the extent such amendment, consent or waiver would require unanimous consent of the applicable Lenders as described in Section 10.1, and (v) if such Participant does not satisfy the definition of an Eligible Assignee, the Borrower shall be liable for Taxes and Other Taxes to such Participant (or to the originating Lender on behalf of such Participant) in an amount no greater than the amount that it otherwise would have been so liable to the originating Lender (who for purposes hereof, will have been assumed to be in compliance with Section 3.1(c)). In the case of any such participation, the Participant shall be entitled to the benefit (subject to the requirements and limitations of such Sections) of Sections 3.1 (except as set forth in clause (v) above), 3.3, 3.4 and 10.5 as though it were also a Lender hereunder, and if amounts outstanding under the Financing Documents are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of a Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under the Financing Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement (including such rights under Section 10.10). So long as no Default exists, an originating Lender shall provide at least ten Business Days’ prior notice to the Borrower (or such shorter notice period as the Borrower may approve) of any proposed participation to a proposed Participant that is not already a Lender, a Participant or an Affiliate of a Lender or a Participant. So long as no Default exists, such originating Lender shall not enter into such proposed participation if the Borrower provides to such originating Lender, within ten Business Days after the Borrower’s receipt of the notice of such proposed participation, notice of the Borrower’s objection to the proposed participation to such proposed Participant on the basis that such proposed Participant is a competitor or an Affiliate of a competitor of the Borrower.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) Pledge to Federal Reserve Bank. Notwithstanding any other provision in this Agreement, any Lender may (without the consent of the Borrower or the Administrative Agent or prior notice to either) at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and any Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under Applicable Law; it being understood that no such security interest or pledge shall release any Lender from any of its obligations hereunder or shall substitute such Federal Reserve Bank as a party hereto.

(e) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Payment Office a copy of each Assignment Agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

SECTION 10.9 Set-off. In addition to any rights now or hereafter granted under Applicable Law or otherwise, and not by way of limitation of any such rights, if the Loans have been accelerated, each Financing Party is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person (any such notice being waived to the fullest extent permitted by Applicable Law), to set off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other Indebtedness at any time owing by, such Financing Party (including by branches and agencies of any Financing Party) to or for the credit or the account of a Credit Party against and on account of any and all Obligations owing to such Financing Party, now or hereafter existing, irrespective of whether or not such Financing Party shall have made demand under any Financing Document and although such Obligations may be contingent or unmatured. Each Financing Party agrees promptly to notify the applicable Credit Party and the Administrative Agent after any such set-off and application made by such Financing Party; provided that the failure to give such notice shall not affect the validity of such set-off and application.

SECTION 10.10 Notification of Addresses, Lending Offices, Etc. Each Agent and Lender shall notify the Administrative Agent in writing of any change in: (a) the address to which notices to such Agent or such Lender should be directed, (b) addresses of any Lending Office, (c) payment instructions in respect of all payments to be made to it hereunder and (d) such other administrative information as the Administrative Agent reasonably requests.

SECTION 10.11 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of which taken together shall be deemed to constitute but one and the same instrument.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 10.12 Severability. The illegality or unenforceability in any jurisdiction of any provision of this Agreement or any document required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or such other document in such jurisdiction or such provision in any other jurisdiction. With respect to any such illegal or unenforceable provision in any jurisdiction, the parties hereto agree to as promptly as possible amend this Agreement (or such other document) in such a manner as to ensure that the substance of such provision shall be replaced (at least with respect to such jurisdiction) with alternative language having substantially equivalent effect that is legal and enforceable in such jurisdiction.

SECTION 10.13 Third Party Beneficiaries. This Agreement is made and entered into for the sole protection and legal benefit of the parties hereto, the other Agent-Related Persons, the Indemnified Persons and their permitted successors and assigns (all of which, if not parties hereto, are third-party beneficiaries hereof for purposes of enforcing their respective rights hereunder), and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement.

SECTION 10.14 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF NEW YORK (NOT INCLUDING SUCH STATE’S CONFLICT OF LAWS PROVISIONS OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW); PROVIDED THAT THE FINANCING PARTIES SHALL RETAIN ALL RIGHTS ARISING UNDER U.S. FEDERAL LAW.

(b) EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY APPELLATE COURT WITH RESPECT THERETO (COLLECTIVELY, THE “FEDERAL COURTS”) (OR, IN THE EVENT THE FEDERAL COURTS ARE UNAVAILABLE, THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND ANY APPELLATE COURT WITH RESPECT THERETO (SUCH COURTS, TOGETHER WITH THE FEDERAL COURTS, THE “NEW YORK COURTS”)) AND TO THE COURTS OF ITS OWN CORPORATE DOMICILE IN RESPECT OF ACTIONS BROUGHT AGAINST IT AS A DEFENDANT OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND ANY RIGHT TO WHICH IT MAY BE ENTITLED ON ACCOUNT OF PLACE OF RESIDENCE OR DOMICILE PURSUANT TO APPLICABLE LAW, AND FURTHER AGREES THAT A FINAL JUDGMENT IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT WILL BE CONCLUSIVE AND BINDING UPON SUCH PARTY. EACH CREDIT PARTY IRREVOCABLY CONSENTS TO THE APPOINTMENT OF THE PROCESS AGENT AS ITS AGENT TO RECEIVE SERVICE OF PROCESS (WITH RESPECT TO ALL OF THE FINANCING DOCUMENTS AND ALL OTHER RELATED AGREEMENTS TO WHICH IT IS A PARTY) IN NEW YORK, NEW YORK. EACH PARTY AGREES THAT A JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE ENFORCED IN ANY OTHER APPLICABLE JURISDICTION BY SUIT UPON JUDGMENT, A CERTIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE JUDGMENT. Each of the parties hereto further agrees that service of process may be made personally or (with respect to a Credit Party) by mailing or delivering a copy of the summons and complaint or other legal process in any such legal suit, action or proceeding to a Credit Party in care of the Process Agent and such agent is hereby authorized to accept, receive and acknowledge the same for and on behalf of each Credit Party and to admit service with respect thereto. Service upon the Process Agent shall be deemed to be personal service on the applicable Credit Party and shall be legal and binding upon the applicable Credit Party for all purposes notwithstanding any failure to mail copies of such legal process to the applicable Credit Party, or any failure on the part of the applicable Credit Party to receive the same. Nothing herein shall affect the right to serve process in any other manner permitted by Applicable Law or any right to bring legal action or proceedings in any other competent jurisdiction. Each party further agrees that the aforesaid courts shall have exclusive jurisdiction with respect to any claim or counterclaim of any party based upon the assertion that the rate of interest charged by or under this Agreement or under the other Financing Documents is usurious. Each party hereby waives any right to stay or dismiss any action or proceeding under or in connection with this Agreement or any other Financing Document brought before the foregoing courts on the basis of forum non conveniens and any rights that it may be entitled to on account of place of residence or domicile. The foregoing provisions constitute, among other things, a special arrangement for service among the parties to this Agreement for the purposes of 28 U.S.C. §1608.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) Each Credit Party irrevocably waives, to the fullest extent permitted by Applicable Law, any claim that any action or proceeding commenced against it relating in any way to this Agreement and/or any of the other Financing Document(s) should be dismissed or stayed by reason, or pending the resolution, of any action or proceeding commenced by such Credit Party relating in any way to this Agreement and/or the other Financing Documents, whether or not commenced earlier. To the fullest extent permitted by Applicable Law, each Credit Party shall take all measures necessary for any such action or proceeding commenced against it to proceed to judgment before the entry of judgment in any such action or proceeding commenced by such Credit Party.

(d) To the extent that any party hereto may, in any suit, action or proceeding brought in México or in any other jurisdiction arising out of or in connection with this Agreement and/or any of the other Financing Document(s), be entitled to the benefit of any provisions of Applicable Law requiring any other Person in such suit, action or proceeding to post security for costs or to post a bond to take such action, each party hereto hereby irrevocably waives any such benefit to the fullest extent now or hereafter permitted under Applicable Law.

(e) To the extent that any Credit Party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) with respect to itself or its Property, it hereby waives or will irrevocably waive such immunity in respect of its obligations under the Financing Documents to the extent permitted by Applicable Law and, without limiting the generality of the foregoing, the waivers set forth in this paragraph shall have effect to the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States and are intended to be irrevocable for purposes of such Act.

SECTION 10.15 Waiver of Jury Trial. EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OF OR RELATED TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, IN ANY ACTION, LITIGATION OR OTHER PROCEEDING OF ANY TYPE BROUGHT BY ANY SUCH PERSON AGAINST ANY OTHER SUCH PERSON OR ANY AGENT-RELATED PERSON OR PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THE FINANCING DOCUMENTS OR ANY PROVISION THEREOF. THE AGREEMENT OF EACH PARTY HERETO TO THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE OTHER PARTIES HERETO TO ENTER INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS TO WHICH IT IS A PARTY.

SECTION 10.16 Judgment. (a) Each Credit Party’s obligations hereunder and under the other Financing Documents to make payments in Dollars or Pesos (as applicable) shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than Dollars or Pesos (as applicable). If, for the purpose of obtaining or enforcing judgment against any Credit Party in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than Dollars or Pesos (as applicable) (such other currency, the “Judgment Currency”), the conversion shall be made at the Dollar/Peso Equivalent in the case of Dollars and Pesos and, in the case of other currencies, the rate of exchange as quoted by the Administrative Agent or, if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Required Lenders of the applicable Tranche. Each such conversion shall be determined as of the Business Day preceding the Business Day on which the judgment is given (such preceding Business Day, the “Judgment Currency Conversion Date”).

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, then the Borrower covenants to pay (or cause to be paid) such additional amounts (if any) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of Dollars or Pesos (as applicable) that could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date.

(c) For purposes of determining the Dollar/Peso Equivalent or rate of exchange under this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Dollars or Pesos (as applicable).

SECTION 10.17 Entire Agreement. The Financing Documents embody the entire agreement and understanding among the parties hereto, and supersede all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof.

SECTION 10.18 Use of Names and Marks. No use of the Lead Arranger’s or Financing Party’s (or any of their respective Affiliates’) name, trademarks, service marks or symbols may be made by any Credit Party or any of their Affiliates in any advertisements or public announcements (including press releases) without such Lead Arranger’s or Financing Party’s (or such Affiliate’s) prior written approval. No Credit Party shall disclose or divulge (and shall prohibit its Affiliates from disclosing or divulging) any written opinions or advice rendered by the Lead Arranger, any Financing Party, any of their respective Affiliates or any of their agents, counsel or representatives in connection with the transaction contemplated hereby without the prior written consent of the Lead Arranger, such Financing Party, such Affiliate or such agent, counsel or representative; provided that a Credit Party may make such disclosure to its stockholders, its counsel and, as required by Applicable Law, Governmental Authorities. The Lead Arranger, any Financing Party and their respective Affiliates may use each Credit Party’s name, trademarks or service marks for the purpose of tombstone advertising. Neither the Lead Arranger, any Financing Party nor any of their respective Affiliates shall otherwise use a Credit Party’s or any Credit Party Affiliates’ name, trademarks, service marks or symbols in any advertisements or public announcements (including press releases) without the prior written consent of the applicable Credit Party or Credit Party Affiliate.

SECTION 10.19 Use of English Language. All certificates, reports, notices, documents and other communications (excluding estatutos sociales and powers-of-attorney) given or delivered pursuant to the Financing Documents shall be in the English language, except as required by Mexican law. If any Financing Document, certificate, reports, notices, documents or other communications is not originally executed in English, then the Borrower shall (at their own expense), concurrently with (or as promptly as possible after) the delivery thereof, provide the recipients thereof of a certified English translation thereof, upon which translation all Financing Parties shall have the right to rely for all purposes of the Financing Documents.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECTION 10.20 No Partnership, Etc. The Financing Parties and the Credit Parties intend that the relationship between them shall be solely that of creditor and debtor. Nothing contained in this Agreement, the Notes or any other Financing Document shall be deemed or construed to create a partnership, tenancy-in-common, joint tenancy, joint venture or co-ownership by or between any Financing Party, on the one hand, and any other Financing Party, Credit Party or any other Person, on the other hand. The Financing Parties shall not in any way be responsible or liable for the debts, losses, obligations or duties of the Credit Parties or any other Person with respect to the Network or otherwise. All obligations to pay real property or other taxes, assessments, insurance premiums and all other fees and charges arising from the ownership, operation or occupancy of the Network (and to perform all obligations under the agreements and contracts relating thereto) shall be the sole responsibility of the Credit Parties.

SECTION 10.21 Confidentiality. Each of the Administrative Agent, the Peso Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, auditors, advisors and other representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Financing Document, any action or proceeding relating to this Agreement or any other Financing Document, the enforcement of rights hereunder or thereunder or any litigation or proceeding to which the Administrative Agent, the Peso Agent or any Lender or any of its Affiliates may be a party, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement (in the case of a Participant or prospective Participant, only if such Person is a Lender or an Affiliate of a Lender or has been approved by the Borrower to receive non-public Information), (ii) any actual or prospective counterparty, surety, reinsurer, guarantor or credit liquidity enhancer (or their advisors) to or in connection with any swap, derivative or other protective transaction relating to the Borrower and its obligations or (iii) to any rating agency when required by it, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, the Peso Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.

“Information” means all information received from the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of its respective businesses, other than any such information that is available to the Administrative Agent, the Peso Agent or any other Lender on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries; provided that, in the case of information received from the Borrower or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

AXTEL, S.A.B. DE C.V., as Borrower

By: /s/ Patricio Jiménez Barrera

AVANTEL, S. DE R.L. DE C.V., as a Guarantor

By: /s/ José Antonio Velasco

AVANTEL INFRAESTRUCTURA, S. DE R.L. DE C.V., as a Guarantor

By: /s/ José Antonio Velasco

ADEQUIP, S.A., as a Guarantor

By: /s/ José Antonio Velasco

S-1

By: /s/ Carlos Corona Name: Carlos Corona Title: Authorized Signatory

S-2

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document BANCO NACIONAL DE MEXICO, S.A., INTEGRANTE DEL GRUPO FINANCIERO BANAMEX, as the Peso Agent

By: /s/ Leopoldo Amaya González Name: Leopoldo Amaya González Title: Director Finanzas Corporativas

By: /s/ Manuel Elizondo Arias Name: Manuel Elizondo Arias Title: Director de Banca Corporative e Inversión

S-3

CITIBANK, N.A. NASSAU BAHAMAS BRANCH, as a Lender

By: /s/ Leslie Munroe

Name: Leslie Munroe Title: Attorney-In-Fact

S-4

By: /s/ Josef C. Koberl

Name: Josef C. Koberl Title: First Vice President

S-5

By: /s/ Sophie Papasavva Name: Sophie Papasavva Title: Senior Manager Telecom and Media

By: /s/ Julian Rennie Name: Julian Rennie Title: Director Telecom and Media

S-6

By: /s/ Marian Lawson Name: Marian Lawson Title: Managing Director

S-7

By: /s/ John Gregory

Name: John Gregory Title: Vice President

By: /s/ Donna M. Quilty Name: John Gregory Title: Vice President

S-8

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK NEDERLAND”, NEW YORK BRANCH, as a Lender

By: /s/ Nicholas J. Baikie

Name: Nicholas J. Baikie Title: Attorney-in-Fact

By: /s/ Henrique Costa

Name: Henrique Costa Title: Managing Director Credit Risk Management

S-9

By: /s/ Sharon Baraz

Name: Sharon Baraz Title: Vice President

S-10

By: /s/ Mary Kennedy

Name: Mary Kennedy Title: Vice President

By: /s/ Aidan Storey

Name: Aidan Storey Title: Associate Director

S-11

By: /s/ M. Grisel Vega

Name: M. Grisel Vega Title: General Manager

S-12

BANCO NACIONAL DE MÉXICO, S.A., INTEGRANTE DEL GRUPO FINANCIERO BANAMEX, as a Lender

By: /s/ Leopoldo Amaya González

Name: Leopoldo Amaya González Title: Director de Finanzas Corporativas

By: /s/ Victor Manuel Elizondo Arias Name: Victor Manuel Elizondo Arias Title: Director de Banca Corporativa e Inversión

S-13

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document HSBC MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO HSBC, as a Lender

By: /s/ Jose Eduardo Gutierrez Gutierrez Name: Jose Eduardo Gutierrez Gutierrez Title: Executive Director

S-14

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document BBVA BANCOMER, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO BBVA BANCOME, as a Lender

By: /s/ Agustin de la Garza Vidaurri

Name: Agustin de la Garza Vidaurri Title: Director

By: /s/ Alejandro Cardenas Bortoni Name: Alejandro Cardenas Bortoni Title: Director

S-15

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document BANCO MERCANTIL DEL NORTE, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO BANORTE, as a Lender

By: /s/ Fernando Valenzuela Bracamontes Name: Fernando Valenzuela Bracamontes Title: Subdirector Banca Corporativa

By: /s/ Osvaldo Brondo Menchaca Name: Osvaldo Brondo Menchaca Title: Director Banca Corporativa

S-16

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document BANK OF AMERICA MÉXICO S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO BANK OF AMERICA, as a Lender

By: /s/ José Manuel Ruiz Name: José Manuel Ruiz Title: Attorney-In-Fact

S-17

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ING BANK (MÉXICO), S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, ING GRUPO FINANCIERO, as a Lender

By: /s/ Edgar Trueba Paz y Puente Name: Edgar Trueba Paz y Puente Title: Attorney-In-Fact

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By: /s/ Dan O'Blenis Name: Dan O'Blenis Title: Financing Manager

By: /s/ Luisa Reboledo Name: Luisa Reboledo Title: Financing Manager

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Axtel, S.A.B. de C.V. And Subsidiaries Computation of ratio of earnings to fixed charges (According to Mexican Gaap) (Thousand pesos of constant purchasing power as of December 31, 2007, except ratios)

Years ended December 31, 2003 2004 2005 2006 2007

Income before income taxes $ 1,636,048 $ 81,797 $ 474,961 $ 338,310 $ 872,766

Fixed charges: Interest Expense 256,788 305,674 411,207 482,735 925,049 Amortization of deferred charges 13,033 7,624 9,619 35,292 67,715 Operating leases @ 33% 75,708 105,834 123,452 131,205 150,961 Total Fixed Charges: 345,529 419,132 544,278 649,232 1,143,725

Income before income taxes + fixed charges 1,981,577 500,929 1,019,239 987,542 2,016,491

Ratio of earnings to fixed charges 5.73 1.20 1.87 1.52 1.76

For purposes of determining the ratio of earnings to fixed charges, earnings are defined as our income from operations before income taxes, plus fixed charges. Fixed charges consist of interest expense on all indebtedness, amortization of debt issuance costs and 33% of lease payments, which represents the amounts considered to be the interest factor.

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Axtel, S.A.B. de C.V. And Subsidiaries Computation of ratio of earnings to fixed charges (According to U.S. Gaap) (Thousand pesos of constant purchasing power as of December 31, 2007, except ratios)

Years ended December 31, 2003 2004 2005 2006 2007

Income before income taxes $3,232,800 $91,525 $478,369 $326,539 $785,960

Fixed charges: Interest Expense 256,788 305,674 411,207 427,608 881,099 Amortization of deferred charges 13,033 7,624 9,619 35,292 67,715 Operating leases @ 33% 75,708 105,834 123,452 131,205 150,961 Total Fixed Charges: 345,529 419,132 544,278 594,105 1,099,775

Income before income taxes + fixed charges 3,578,329 510,657 1,022,647 920,644 1,885,735

Ratio of earnings to fixed charges 10.36 1.22 1.88 1.55 1.71

LIST OF COMPANY’S SUBSIDIARIES

Before July 31, 2008:

Exact name of registrant as State or other jurisdiction of specified in its charter incorporation or organization Impulsora e Inmobiliaria Regional, S.A. de C.V. United Mexican States Instalaciones y Contrataciones, S.A. de C.V. United Mexican States Servicios Axtel, S.A. de C.V. United Mexican States Avantel, S. de R.L. de C.V. United Mexican States Avantel Infraestructura, S. de R.L. de C.V. United Mexican States Avantel Servicios, S.A. de C.V. United Mexican States Avantel Equipos, S.A. de C.V. United Mexican States Avantel Recursos, S.A. de C.V. United Mexican States Avantel Telecomunicaciones, S.A. de C.V. United Mexican States Adequip, S.A. de C.V. United Mexican States Telecom Networks, Inc. Delaware, USA.

After July 31, 20081:

Exact name of registrant as State or other jurisdiction of specified in its charter incorporation or organization Instalaciones y Contrataciones, S.A. de C.V. United Mexican States Servicios Axtel, S.A. de C.V. United Mexican States Avantel, S. de R.L. de C.V. United Mexican States Avantel Infraestructura, S. de R.L. de C.V. United Mexican States Telecom Networks, Inc. Delaware, USA.

1 On July 31, 2008, the subsidiaries of the Borrower mentioned below, merged into Servicios Axtel, S.A. de C.V. (“SAX”) with the latter being the surviving entity. The subsidiaries of the Borrower that merged with and into SAX are (1) Impulsora e Inmobiliaria Regional, S.A. de C.V.; (2) Adequip, S.A. de C.V.; (3) Avantel Equipos, S.A. de C.V.; (4) Avantel Recursos, S.A. de C.V.; (5) Avantel Servicios, S.A. de C.V. and (6) Avantel Telecomunicaciones, S.A. de C.V.

CERTIFICATION

I, Patricio Jiménez Barrera, certify that:

1. I have reviewed this annual report on Form 20-F of Axtel, S.A.B. de C.V.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: January 21, 2009 Axtel, S.A.B. de C.V.

/s/ Patricio Jiménez Barrera Patricio Jiménez Barrera Chief Financial Officer

CERTIFICATION

I, Tomás Milmo Santos, certify that:

1. I have reviewed this annual report on Form 20-F of Axtel, S.A.B. de C.V.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: January 21, 2009 Axtel, S.A.B. de C.V.

/s/ Tomás Milmo Santos Tomás Milmo Santos Chief Executive Officer

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Axtel, S.A.B. de C.V. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tomás Milmo Santos, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(a) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Tomás Milmo Santos Tomás Milmo Santos Chief Executive Officer

January 21, 2009

This certification shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Axtel, S.A.B. de C.V. and will be retained by Axtel, S.A.B. de C.V. and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Axtel, S.A.B. de C.V. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patricio Jimenez Barrera, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(a) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patricio Jiménez Barrera Patricio Jiménez Barrera Chief Financial Officer

January 21, 2009