TELEFONOS DE MEXICO, S.A.B. DE C.V. SECOND QUARTER 2011, JULY 19, 2011.

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of July 2011

Commission File Number: 333-13580

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

(Exact Name of the Registrant as Specified in the Charter)

Telephones of Mexico

(Translation of Registrant's Name into English)

Parque Vía 190

Colonia Cuauhtémoc

México City 06599, México, D.F.

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F....P.....Form 40-F.........

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ...... No... P ...

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

_______________________________________________________________________________________________________________________________________________________________________________________

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

STOCK EXCHANGE CODE: TELMEX, QUARTER: 2, YEAR: 2011

I N D E X

FS-01 CONSOLIDATED STATEMENT OF FINANCIAL POSITION, AT JUNE 30, 2011, DECEMBER 31, 2010 AND JANUARY 01, 2010

FS-02 CONSOLIDATED STATEMENT OF FINANCIAL POSITION - INFORMATIONAL DATA - AT JUNE 30, 2011, DECEMBER 31, 2010 AND JANUARY 01, 2010

FS-03 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME, FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

FS-04 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS) (NET OF TAX) - FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

FS-05 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – INFORMATIONAL DATA - FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

FS-06 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – INFORMATIONAL DATA (12 MONTHS) - FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

FS-07 CONSOLIDATED STATEMENT OF CASH FLOWS, AT JUNE 30, 2011 AND 2010

FS-08 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ANNEX 1.- CHIEF EXECUTIVE OFFICER REPORT

ANNEX 2.- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ANNEX 3.- INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

ANNEX 4.- BREAKDOWN OF CREDITS

ANNEX 5.- MONETARY FOREIGN CURRENCY POSITION

ANNEX 6.- DEBT INSTRUMENTS

ANNEX 7.-DISTRIBUTION OF REVENUE BY PRODUCT

ANALYSIS OF PAID CAPITAL STOCK

DERIVATIVE FINANCIAL INSTRUMENTS

GENERAL INFORMATION

BOARD OF DIRECTORS

_______________________________________________________________________________________________________________________________________________________________________________________

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-01

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT JUNE 30, 2011, DECEMBER 31, 2010 AND JANUARY 01, 2010

(Thousands of Mexican Pesos)

Final printing

---

ACCOUNT

SUBACCOUNT

ENDING CURRENT

PREVIOUS YEAR END

HOME PREVIOUS YEAR

Amount

Amount

Amount

2Q 2011

4Q 2010

4Q 2009

TOTAL ASSETS


153,466,895

156,273,094

176,803,426

CURRENT ASSETS


35,497,317

36,759,328

51,649,800

CASH AND CASH EQUIVALENTS


4,143,975

7,493,465

14,379,768

SHORT TERM INVESMENT






HELD-FOR-SALE INVESTMENTS





HELD-FOR-TRADING INVESTMENTS





HELD TO MATURITY INVESTMENTS




TRADE RECEIVABLES (NET)


16,050,041

15,368,111

15,612,825


TRADE RECEIVABLES

20,870,054

20,403,417

19,921,706


ALLOWANCE FOR DOUBTFUL ACCOUNTS

-4,820,013

-5,035,306

-4,308,881

OTHER RECEIVABLES (NET)


5,857,497

2,280,422

4,812,731


OTHER RECEIVABLES

5,857,497

2,280,422

4,812,731


ALLOWANCE FOR DOUBTFUL ACCOUNTS




INVENTORIES


2,449,502

1,783,579

1,448,102

OTHER CURRENT ASSETS


6,996,302

9,833,751

15,396,374


PREPAYMENTS

3,553,021

3,137,852

3,307,937


DERIVATIVE FINANCIAL INSTRUMENTS

3,443,281

6,695,899

12,088,437


ASSETS AVAILABLE FOR SALE





DISCONTINUED OPERATIONS





RIGHTS AND LICENSES





OTHERS




TOTAL NON-CURRENT ASSETS


117,969,578

119,513,766

125,153,626

RECEIVABLES (NET)





INVESTMENTS


1,422,056

1,392,042

1,744,573


INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

1,422,056

1,392,042

1,744,573


HELD-TO-MATURITY INVESTMENTS





HELD-FOR-SALE INVESTMENTS





OTHERS INVESTMENTS




PROPERTY, PLANT AND EQUIPMENT


95,757,570

99,421,332

106,047,642


LAND AND BUILDINGS

19,182,666

19,264,542

18,901,853


MACHINERY AND INDUSTRIAL EQUIPMENT

79,714,184

77,764,532

72,326,959


OTHER EQUIPMENT

21,598,578

19,019,758

14,409,756


ACCUMULATED DEPRECIATION

-25,378,917

-16,871,969



CONSTRUCTION IN PROGRESS

641,059

244,469

409,074

INVESTMENT PROPERTY





BIOLOGICAL ASSETS





INTANGIBLE ASSETS


1,190,923

1,252,677

738,548


GOODWILL

103,289

103,289



BRANDS

442,477

456,707



RIGHTS AND LICENSES

645,157

692,681

738,548


OTHERS INTANGIBLE ASSETS




DEFERRED TAX ASSETS





OTHERS NON-CURRENT ASSETS


19,599,029

17,447,715

16,622,863


DERIVATIVE FINANCIAL INSTRUMENTS





EMPLOYEE BENEFIT

18,572,681

16,290,368

15,214,802


DISCONTINUED OPERATIONS





DEFERRED CHARGES

1,026,348

1,157,347

1,408,061


OTHERS




TOTAL LIABILITIES


107,413,128

110,496,107

136,610,162

CURRENT LIABILITIES


42,745,541

32,673,661

37,326,097

BANK LOANS


4,164,754

1,272,982

7,363,129

STOCK MARKET LOANS


9,300,000

4,500,000

12,405,765

OTHER LIABILITIES WITH COST


5,919,450

6,178,550


TRADE PAYABLES


5,096,436

5,572,154

3,538,048

TAXES PAYABLE


2,335,950

2,443,268

2,211,626


INCOME TAX PAYABLE


219,060



OTHER TAXES PAYABLE

2,335,950

2,224,208

2,211,626

OTHERS CURRENT LIABILITIES


15,928,951

12,706,707

11,807,529


INTEREST PAYABLE

561,961

630,490

936,516


DERIVATIVE FINANCIAL INSTRUMENTS

1,873,497

1,547,054

848,824


ADVANCES AND DEPOSITS FROM CUSTOMERS

35,487

26,269

94,572


OTHER DEFERRED REVENUE

892,251

889,824

1,005,480


EMPLOYEE BENEFITS

8,001,340

5,454,440

5,319,547


PROVISIONS





DISCONTINUED OPERATIONS





OTHERS

4,564,415

4,158,630

3,602,590

TOTAL NON-CURRENT LIABILITIES


64,667,587

77,822,446

99,284,065

BANK LOANS


16,256,088

20,624,954

35,750,038

STOCK MARKET LOANS


32,136,282

41,944,459

47,355,416

OTHER LIABILITIES WITH COST





DEFERRED TAX LIABILITIES


15,288,907

14,641,160

15,720,811

OTHERS NON-CURRENT LIABILITIES


986,310

611,873

457,800


DERIVATIVE FINANCIAL INSTRUMENTS





ADVANCES AND DEPOSITS FROM CUSTOMERS





OTHER DEFERRED REVENUE

986,310

611,873

457,800


EMPLOYEE BENEFITS





PROVISIONS





DISCONTINUED OPERATIONS





OTHERS




TOTAL EQUITY


46,053,767

45,776,987

40,193,264

EQUITY ATTRIBUTABLE TO OWNERS OF PARENT

45,731,414

45,467,630

40,151,174

NON-CONTROLLING INTERESTS


322,353

309,357

42,090

CAPITAL STOCK


5,441,696

5,467,035

5,473,815

SHARES REPURCHASED





PREMIUM ON ISSUANCE OF SHARES





CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES




OTHER CAPITAL CONTRIBUTED





RETAINED EARNINGS (ACCUMULATED LOSSES)

40,738,733

39,887,713

33,944,158


LEGAL RESERVE

1,094,763

1,094,763

1,094,763


OTHER RESERVES





RETAINED EARNINGS

26,337,376

17,203,780

26,448,731


NET INCOME FOR THE YEAR

6,905,930

15,188,506



OTHERS

6,400,664

6,400,664

6,400,664

OTHER ITEMS OF INCOME (LOSS) ACCUMULATED COMPREHENSIVE

-449,015

112,882

733,201


REVALUATION SURPLUS





ACTUARIAL EARNINGS (LOSS) FROM LABOR OBLIGATIONS





FOREING CURRENCY TRANSLATION

-39,446

55,367



CHANGES IN THE VALUATION OF FINANCIAL ASSETS HELD-FOR-SALE





CHANGES IN THE VALUATION OF DERIVATIVE FINANCIAL INSTRUMENTS

-409,569

57,515

733,201


CHANGES IN FAIR VALUE OF OTHER ASSETS





SHARE OF OTHER COMPREHENSIVE INCOME (LOSS) OF ASSOCIATES AND JOINT VENTURES





OTHER COMPREHENSIVE INCOME




---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-02

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Final printing

---


Informational data (not part of the Statement)

ENDING CURRENT

PREVIOUS YEAR END

HOME PREVIOUS YEAR

Amount

Amount

Amount

2Q 2011

4Q 2010

4Q 2009

SHORT-TERM FOREIGN CURRENCY LIABILITIES

12,809,553

10,124,601

18,294,695

LONG TERM FOREIGN CURRENCY LIABILITIES

27,292,370

36,669,413

52,705,454

CAPITAL STOCK (NOMINAL)

77,852

78,398

78,545

RESTATEMENT OF CAPITAL STOCK

5,363,844

5,388,637

5,395,270

PENSIONS AND SENIORITY PREMIUMS




NUMBER OF EXECUTIVES (*)

80

83

84

NUMBER OF EMPLOYEES (*)

9,306

9,260

9,269

NUMBER OF WORKERS (*)

42,031

42,719

43,593

OUTSTANDING SHARES (*)

18,031,500,000

18,158,000,000

18,191,892,260

REPURCHASED SHARES (*)

126,500,000

33,892,260


RESTRICTED CASH (1)




GUARANTEED DEBT OF ASSOCIATED COMPANIES





    (1) This concept must be filled when they are given assurances that affect cash and cash equivalents

    (*) DATA UNITS

---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-03

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

(Thousands of Mexican Pesos)

Final printing

---

ACCOUNT

SUBACCOUNT

CURRENT YEAR

PREVIOUS YEAR

2Q 2011

2Q 2010

ACCUMULATED

QUARTER

ACCUMULATED

QUARTER







REVENUE NET


55,160,631

27,613,931

57,002,657

28,436,002


SERVICES

51,846,217

25,968,215

53,642,874

26,864,925


SALE OF ASSETS

2,273,844

1,141,813

2,311,356

1,132,613


INTERESTS






ROYALTIES






DIVIDENDS






LEASES






OTHER

1,040,570

503,903

1,048,427

438,464

COST OF SALES


29,857,052

15,023,222

31,055,642

15,659,615

GENERAL EXPENSES


11,348,313

5,744,476

11,203,535

5,826,661

PROFIT (LOSS) BEFORE OTHER INCOME AND EXPENSES, NET


13,955,266

6,846,233

14,743,480

6,949,726

OTHER INCOME (EXPENSE), NET


-1,028,617

-578,343

-553,908

-422,367

OPERATING PROFIT (LOSS) (*)


12,926,649

6,267,890

14,189,572

6,527,359

FINANCE INCOME


1,990,379

411,522

1,928,516

535,043


INTEREST INCOME

208,606

81,415

219,247

107,954


GAIN ON FOREIGN EXCHANGE, NET

1,781,773

330,107

1,709,269



GAIN ON DERIVATIVES, NET




427,089


CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS






OTHER FINANCE INCOME





FINANCE COSTS


4,445,803

1,889,887

4,338,734

1,787,246


INTEREST EXPENSE

1,537,656

737,734

1,808,235

880,436


LOSS ON FOREIGN EXCHANGE, NET




906,810


LOSS ON DERIVATIVES, NET

2,569,314

1,152,153

2,530,499



REPAYMENT OF EXPENSES FOR ISSUE






CHANGE IN FAIR VALUE OF FINANCIAL INSTRUMENTS






OTHER FINANCE COSTS

338,833




FINANCE INCOME (COSTS) NET


-2,455,424

-1,478,365

-2,410,218

-1,252,203

SHARE OF PROFIT (LOSS) OF ASSOCIATES AND JOINT VENTURES


39,068

32,190

75,263

55,257

PROFIT (LOSS) BEFORE INCOME TAX


10,510,293

4,821,715

11,854,617

5,330,413

INCOME TAX EXPENSE


3,591,367

1,657,044

3,764,737

1,760,428


CURRENT TAX

2,761,909

1,192,995

4,538,439

2,056,722


DEFERRED TAX

829,458

464,049

-773,702

-296,294

PROFIT (LOSS) FROM CONTINUING OPERATIONS


6,918,926

3,164,671

8,089,880

3,569,985

DISCONTINUED OPERATIONS






PROFIT (LOSS), NET


6,918,926

3,164,671

8,089,880

3,569,985

PROFIT (LOSS), ATTRIBUTABLE TO NON-CONTROLLING INTERESTS


12,996

16,788

1,709

1,933

PROFIT (LOSS), ATTRIBUTABLE TO OWNERS OF PARENT


6,905,930

3,147,883

8,088,171

3,568,052







BASIC EARNINGS (LOSS) PER SHARE


0.38

0.17

0.44

0.20

DILUTED EARNINGS (LOSS) PER SHARE






---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-04

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

- OTHER ITEMS OF COMPREHENSIVE INCOME (LOSS) (NET OF TAX) –

FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

(Thousands of Mexican Pesos)

Final printing

---


ACCOUNT

CURRENT YEAR

PREVIOUS YEAR

2Q 2011

2Q 2010

ACCUMULATED

QUARTER

ACCUMULATED

QUARTER

PROFIT (LOSS), NET

6,918,926

3,164,671

8,089,880

3,569,985

REVALUATION SURPLUS





ACTUARIAL EARNINGS (LOSS) FROM LABOR OBLIGATIONS





FOREING CURRENCY TRANSLATION

-94,813

-49,006

73,724

21,167

CHANGES IN THE VALUATION OF FINANCIAL ASSETS HELD-FOR-SALE





CHANGES IN THE VALUATION OF DERIVATIVE FINANCIAL INSTRUMENTS

-467,084

-146,562

279,670

872,330

CHANGES IN FAIR VALUE OF OTHER ASSETS





SHARE OF OTHER COMPREHENSIVE INCOME (LOSS) OF ASSOCIATES AND JOINT VENTURES





OTHER COMPREHENSIVE INCOME





TOTAL OTHER COMPREHENSIVE ITEMS

-561,897

-195,568

353,394

893,497

TOTAL COMPREHENSIVE INCOME

6,357,029

2,969,103

8,443,274

4,463,482

COMPREHENSIVE INCOME, ATTRIBUTABLE TO OWNERS OF PARENT

6,344,033

2,952,315

8,441,565

4,461,549

COMPREHENSIVE INCOME, ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

12,996

16,788

1,709

1,933


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-05

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

- INFORMATIONAL DATA –

FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

(Thousands of Mexican Pesos)

Final printing

---


ACCOUNT

CURRENT YEAR

PREVIOUS YEAR

2Q 2011

2Q 2010

ACCUMULATED

QUARTER

ACCUMULATED

QUARTER

OPERATING DEPRECIATION AND AMORTIZATION

8,265,473

4,128,981

8,471,766

4,253,371

EMPLOYEES PROFIT SHARING EXPENSES

1,019,759

559,112

1,192,425

656,985


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-06

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

- INFORMATIONAL DATA (12 MONTHS) -

FOR THE PERIODS OF SIX AND THREE MONTHS ENDED IN JUNE 30, 2011 AND 2010

(Thousands of Mexican Pesos)

Final printing

---


Informative data (12 Months)

YEAR

CURRENT

PREVIOUS

2Q 2011

2Q 2010

REVENUE NET (**)

111,720,082

116,292,471

PROFIT (LOSS) FROM OPERATION (**)

26,796,054

29,491,302

PROFIT (LOSS), ATTRIBUTABLE TO OWNERS OF PARENT(**)

14,006,265

17,548,065

PROFIT (LOSS), NET (**)

14,004,845

17,549,094

OPERATING DEPRECIATION AND AMORTIZATION (**)

16,714,500

17,029,614





(**) Information of the last twelve months.

---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-07

CONSOLIDATED STATEMENT OF CASH FLOWS

AT JUNE 30, 2011 AND 2010

(Thousands of Mexican Pesos)

Final printing

---


ACCOUNT

SUBACCOUNT

CURRENT YEAR

PREVIOUS YEAR

Amount

Amount

ACTIVITIES OF OPERATION




PROFIT (LOSS) BEFORE INCOME TAX


10,510,293

11,854,617

+(-) ITEMS NOT REQUIRING CASH


3,744,659

3,835,649

+ ESTIMATE FOR THE PERIOD

4,862

5,657


+ PROVISION FOR THE PERIOD

3,739,797

3,829,992


+(-) OTHER UNREALIZED ITEMS



+(-) ITEMS RELATED TO INVESTING ACTIVITIES


8,426,620

8,704,069

DEPRECIATION AND AMORTIZATION FOR THE PERIOD

8,465,688

8,779,332


(-)+ GAIN OR LOSS ON SALE OF PROPERTY, PLANT AND EQUIPMENT




+(-) LOSS (REVERSAL) IMPAIRMENT




(-)+ EQUITY IN RESULTS OF ASSOCIATES AND JOINT VENTURES

-39,068

-75,263


(-) DIVIDENDS RECEIVED




(-) INTEREST INCOME




(-) EXCHANGE FLUCTUATION




(-)+ OTHER INFLOWS (OUTFLOWS) OF CASH



+(-) ITEMS RELATED TO FINANCING ACTIVITIES


2,707,565

2,452,350


(+) ACCRUED INTEREST

1,537,656

1,808,235


(+) EXCHANGE FLUCTUATION

-1,738,238

-1,886,384


(+) DERIVATIVE TRANSACTIONS

2,569,314

2,530,499


(-)+ OTHER INFLOWS (OUTFLOWS) OF CASH

338,833


CASH FLOW BEFORE INCOME TAX


25,389,137

26,846,685

CASH FLOW FROM (USED IN) OPERATING ACTIVITIES


-10,505,376

-3,622,586


+(-) DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE

-681,929

-1,912,491


+(-) DECREASE (INCREASE) IN INVENTORIES

-665,923

3,306


+(-) DECREASE (INCREASE) IN OTHER ACCOUNTS RECEIVABLE

-1,569,498

-123,092


+(-) INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE

120,399

1,114,000


+(-) INCREASE (DECREASE) IN OTHER LIABILITIES

-2,654,109

1,875,505


+(-) INCOME TAXES PAID OR RETURNED

-5,054,316

-4,579,814

NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES


14,883,761

23,224,099

INVESTMENT ACTIVITIES




NET CASH FLOW FROM INVESTING ACTIVITIES


-5,695,957

-4,777,147


(-) PERMANENT INVESTMENTS




+ DISPOSITION OF PERMANENT INVESTMENTS




(-) INVESTMENT IN PROPERTY, PLANT AND EQUIPMENT

-5,693,187

-4,490,522


+ SALE OF PROPERTY, PLANT AND EQUIPMENT




(-) TEMPORARY INVESTMENTS




+ DISPOSITION OF TEMPORARY INVESTMENTS




(-) INVESTMENT IN INTANGIBLE ASSETS

-2,770

-3,801


+ DISPOSITION OF INTANGIBLE ASSETS




(-) ACQUISITIONS OF JOINT VENTURES


-282,824


+ DISPOSITIONS OF JOINT VENTURES




+ DIVIDEND RECEIVED




+ INTEREST RECEIVED




+(-) DECREASE (INCREASE) ADVANCES AND LOANS TO THIRD PARTS




+(-) OTHER ITEMS



FINANCING ACTIVITIES




NET CASH FLOW FROM FINANCING ACTIVITIES


-12,537,294

-21,868,910


+ BANK FINANCING




+ STOCK MARKET FINANCING

1,000,000

1,500,000


+ OTHER FINANCING




(-) BANK FINANCING AMORTIZATION

-595,628

-4,043,495


(-) STOCK MARKET FINANCING AMORTIZATION

-5,403,641

-13,794,140


(-) OTHER FINANCING AMORTIZATION




+(-) INCREASE (DECREASE) IN CAPITAL STOCK




(-) DIVIDENDS PAID

-4,643,927

-4,273,789


+ PREMIUM ON ISSUANCE OF SHARES




+ CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES




(-) INTEREST EXPENSE

-1,569,690

-2,015,532


(-) REPURCHASE OF SHARES

-1,339,731

-11,043


(-)+ OTHER INFLOWS (OUTFLOWS) OF CASH

15,323

769,089

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


-3,349,490

-3,421,958

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS




CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


7,493,465

14,379,768

CASH AND CASH EQUIVALENTS AT END OF PERIOD


4,143,975

10,957,810


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

FS-08

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Thousands of Mexican Pesos)

Final printing

---


CONCEPTS

CAPITAL STOCK

SHARES REPURCHASED

PREMIUM ON ISSUANCE OF SHARES

CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES

OTHER CAPITAL CONTRIBUTED

PROFITS OR LOSSES ACCUMULATED

OTHER ITEMS OF INCOME (LOSS) ACCUMULATED COMPREHENSIVE

EQUITY ATTRIBUTABLE TO OWNERS OF PARENT

NON-CONTROLLING INTERESTS

TOTAL EQUITY

RESERVES

RETAINED EARNINGS (ACCUMULATED LOSSES)

BALANCE AT APRIL 1st, 2010

5,473,815





1,094,763

32,849,395

733,201

40,151,174

42,090

40,193,264

RETROSPECTIVE ADJUSTMENTS












APPLICATION OF COMPREHENSIVE INCOME (LOSS) TO RETAINED EARNINGS












CONSTITUTION OF RESERVES












DECREED DIVIDENDS







-4,365,812


-4,365,812


-4,365,812

(DECREASE) INCREASE CAPITAL












REPURCHASE OF SHARES

-197






-10,846


-11,043


-11,043

(DECREASE) INCREASE IN PREMIUM ON ISSUE OF SHARES












(DECREASE) INCREASE NON-CONTROLLING INTERESTS










280,338

280,338

OTHER CHANGES












COMPREHENSIVE INCOME (1)







8,088,171

353,394

8,441,565

1,709

8,443,274

BALANCE AT JUNE 30th,2010

5,473,618





1,094,763

36,560,908

1,086,595

44,215,884

324,137

44,540,021

























BALANCE AT APRIL 1st, 2011

5,467,035





1,094,763

38,792,950

112,882

45,467,630

309,357

45,776,987

RETROSPECTIVE ADJUSTMENTS












APPLICATION OF COMPREHENSIVE INCOME (LOSS) TO RETAINED EARNINGS












CONSTITUTION OF RESERVES












DECREED DIVIDENDS







-4,740,518


-4,740,518


-4,740,518

(DECREASE) INCREASE CAPITAL












REPURCHASE OF SHARES

-25,339






-1,314,392


-1,339,731


-1,339,731

(DECREASE) INCREASE IN PREMIUM ON ISSUE OF SHARES












(DECREASE) INCREASE NON-CONTROLLING INTERESTS












OTHER CHANGES












COMPREHENSIVE INCOME (1)







6,905,930

-561,897

6,344,033

12,996

6,357,029

BALANCE AT JUNE 30th,2011

5,441,696





1,094,763

39,643,970

-449,015

45,731,414

322,353

46,053,767


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 1

CHIEF EXECUTIVE OFFICER REPORT

Final printing

---

Highlights

2nd Quarter 2011

Taking these factors into account, there were 15.254 million lines in service at June 30, a decrease of 3.1% compared with the previous year.

Regarding our commercial agreements with Dish, México TELMEX provides Dish with billing and collection services through the telephone bill to approximately 55% of their customers and provides support in the market for around of 35% of their services through our distribution network. It is important to highlight that TELMEX does not install or operates Dish services, as TELMEX has repeatedly communicated in its reports to the Securities and Exchange Commission (SEC) and the Bolsa Mexicana de Valores, S.A.B de C.V. (BMV) (Mexican Stock Exchange) which are available on our website.

TELMEX drives education and digital culture in the country and has benefited more than 2 million students, teachers and parents in cooperation with institutions and the governments of the 32 Mexican states. Additionally, through more than 600 Aulas Digitales TELMEX (TELMEX Computer Halls) and 3,500 Bibliotecas Digitales TELMEX (TELMEX Digital Libraries) and thanks to the high academic performance of students and teachers, the participants recently excelled in six national contests in the areas of logic-mathematics, history and Spanish, among others. These evaluations were organized by the Secretaría de Educación Pública (Mexico’s Education Ministry) and other government entities.








(1) Adjusted EBITDA: Defined as operating income plus depreciation and amortization and other expenses, net. Go to www.telmex.com in Investor Relations section where you can find the reconciliation of adjusted EBITDA to operating income.

(2) One ADR represents 20 shares.

(3) Net debt is defined as total debt less cash and cash equivalents and marketable securities.



Operating Results


Lines and local traffic

At June 30, 2011, TELMEX supported 12.354 million lines, a decrease of 1.9% compared with the same period of the previous year.


Taking these factors into account, there were 15.254 million lines in service at June 30, a decrease of 3.1% compared with the previous year.


During the second quarter, local calls decreased 8.9% compared with the same period of 2010, totaling 4.436 billion local calls. The decline reflected the lower number of billed lines due to the growth in cellular telephony services and competition from other operators, as well as customers’ changing consumption profiles.


Long distance

In the second quarter, domestic long distance (DLD) traffic decreased 7.5% compared with the same quarter of 2010, totaling 4.357 billion minutes, mainly due to the decrease in termination traffic with cellular telephony operators and other long distance operators.


In the quarter, outgoing international long distance (ILD) traffic increased 20.1% compared with the second quarter of 2010, totaling 407 million minutes. Among factors contributing to this increase were the inclusion of this service in the infinitum packages and the increase of termination traffic from cellular operators.


Incoming international long distance traffic increased 24.9% compared with the second quarter of 2010, totaling 2.258 billion minutes. The incoming-outgoing ratio was 5.5 times .


Interconnection

In the second quarter, interconnection traffic totaled 10.951 billion minutes, 0.8% lower than the same quarter of 2010, due to the 2.2% decrease in interconnection traffic with other local and long distance operators and the 8.3% decrease in traffic related to calling party pays services.


Internet access

Thanks to our customers’ preference, our high speed Internet access service infinitum at the end of June served 7.7 million broadband accesses, an increase of 10.4% compared with the same period of the previous year, reinforcing that infinitum continues to be the best connection because of its quality, service, price and high speed.



This growth has been supported by the sale of more than 83,000 computers in the second quarter, an increase of 21.1% compared with the same period of 2010. Since 1999, we have sold more than 3 million computers



Financial Results


The following financial information for 2011 and 2010 is presented in nominal pesos, according to International Financial Reporting Standards (IFRS).


Revenues: In the second quarter, revenues totaled 27.614 billion pesos, a decrease of 2.9% compared with the same period of the previous year. Revenues related to local and interconnection services showed decreases of 5.9% and 19.1%, respectively. Data services increased 5.4% and other revenues 4.8%, comprised of revenues from billing and collection and Tiendas TELMEX (TELMEX Stores).








Costs and expenses: In the second quarter of 2011, total costs and expenses were 21.346 billion pesos, 2.6% lower than the same period of the previous year, mainly due to a decrease in interconnection costs, the reduction in the amount paid to cellular telephony companies and lower charges for uncollectables.






Adjusted EBITDA (1) and operating income: Adjusted EBITDA (1) totaled 11.074 billion pesos in the second quarter of 2011, a decrease of 2.5% compared with the same period of the prior year. The adjusted EBITDA margin was 40.1%. Operating income totaled 6.268 billion pesos in the second quarter and the operating margin was 22.7%.


Financing cost: In the second quarter, financing cost produced a charge of 1.478 billion pesos. This was a result of: i) a net interest charge of 1.488 billion pesos related to recognition of the market value of interest rate swaps and to debt reduction, ii) a net exchange gain of 10 million pesos because of the second-quarter exchange rate appreciation of 0.1289 pesos per dollar and the 3.097 billion dollars in dollar-peso hedges in effect at June 30, 2011.


Net income: In the second quarter, net income was 3.148 billion pesos, 11.8% lower than the same period of the previous year. Earnings per share were 17.4 Mexican cents, 11.2% lower than the second quarter of 2010, and earnings per ADR (2) were 29.8 US cents, a decrease of 4.5% compared with the same period of the previous year.


Investments: In the second quarter of 2011, capital expenditures (Capex) were the equivalent of 217 million dollars, of which 65.1% was used for growth and infrastructure projects in the data business, connectivity and transmission networks.


Repurchase of own shares: During the second quarter, the company used 479.034 million pesos to repurchase 44.5 million shares of its own shares.


Debt: Total debt at June 30, 2011, was the equivalent of 5.725 billion dollars, 971 million dollars less than the amount registered in 2010. Of which, 71.4% is long-term, 53.2% has fixed rates taking interest rate swaps into consideration, and 55.1% is in foreign currency, equivalent to 3.153 billion dollars. To minimize risks from variations in the exchange rate, at June 30, 2011, we had dollar-peso hedges for 3.097 billion dollars.


Total net debt (3) was equivalent of 5.375 billion dollars at the end of quarter.



Mexico Local and Long Distance Accounting Separation



















Based on Condition 7-5 of the Amendments of the Concession Title of Teléfonos de México, the


commitment to present the accounting separation of the local and long distance services is presented




below for the second quarter of 2011 and 2010.





















Mexico Local Service Business











Income Statements











[ In millions of Mexican pesos ]
















%





%



2Q2011


2Q2010

Inc.


6 months 11


6 months 10

Inc.

Revenues











Access, rent and measured service

P.

9,633

P.

10,220

(5.7)

P.

19,305

P.

20,589

(6.2)

LADA interconnection


1,107


1,191

(7.1)


2,233


2,355

(5.2)

Interconnection with operators


289


398

(27.4)


606


789

(23.2)

Interconnection with cellular operators


2,075


2,540

(18.3)


4,212


5,001

(15.8)

Other


3,877


3,720

4.2


7,721


7,748

(0.3)

Total


16,981


18,069

(6.0)


34,077


36,482

(6.6)












Costs and expenses











Cost of sales and services


6,413


6,023

6.5


12,671


12,018

5.4

Commercial, administrative and general


4,379


4,403

(0.5)


8,726


8,915

(2.1)

Interconnection


959


1,630

(41.2)


2,208


3,232

(31.7)

Depreciation and amortization


2,307


2,369

(2.6)


4,616


4,728

(2.4)

Other expenses, net


418


291

43.6


714


477

49.7

Total


14,476


14,716

(1.6)


28,935


29,370

(1.5)












Operating income

P.

2,505

P.

3,353

(25.3)

P.

5,142

P.

7,112

(27.7)












Adjusted EBITDA (1)

P.

5,230

P.

6,013

(13.0)

P.

10,472

P.

12,317

(15.0)












Adjusted EBITDA margin (%)


30.8


33.3

(2.5)


30.7


33.8

(3.1)

Operating margin (%)


14.8


18.6

(3.8)


15.1


19.5

(4.4)












Mexico Long Distance Service Business











Income Statements











[ In millions of Mexican pesos ]
















%





%



2Q2011


2Q2010

Inc.


6 months 11


6 months 10

Inc.

Revenues











Domestic long distance

P.

3,550

P.

3,694

(3.9)

P.

7,056

P.

7,341

(3.9)

International long distance


1,438


1,340

7.3


2,733


2,783

(1.8)

Total


4,988


5,034

(0.9)


9,789


10,124

(3.3)












Costs and expenses











Cost of sales and services


1,136


1,081

5.1


2,291


2,262

1.3

Commercial, administrative and general


1,253


1,256

(0.2)


2,509


2,518

(0.4)

Interconnection to the local network


1,616


1,815

(11.0)


3,305


3,605

(8.3)

Depreciation and amortization


389


429

(9.3)


798


859

(7.1)

Other expenses, net


56


38

47.4


97


64

51.6

Total


4,450


4,619

(3.7)


9,000


9,308

(3.3)












Operating income

P.

538

P.

415

29.6

P.

789

P.

816

(3.3)












Adjusted EBITDA (1)

P.

983

P.

882

11.5

P.

1,684

P.

1,739

(3.2)












Adjusted EBITDA margin (%)


19.7


17.5

2.2


17.2


17.2

0.0

Operating margin (%)


10.8


8.2

2.6


8.1


8.1

0.0














---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of Mexican Pesos)

Final printing

---

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to unaudited condensed consolidated financial statements

For the six-month periods ended June 30, 2011 and 2010

(In thousands of Mexican pesos)



1. Reporting entity


Teléfonos de México, S.A.B. de C.V. and its subsidiaries (collectively “the Company” or “TELMEX”) provide telecommunications services, primarily in Mexico, including domestic and international long distance and local telephone services, data services, the interconnection of subscribers with cellular networks (calling party pays), as well as the interconnection of domestic long distance carriers’, cellular telephone companies’ and local service carriers’ networks with the TELMEX local network. TELMEX also obtains revenues from the sale of telephone equipment and personal computers.


The amended Mexican government concession under which TELMEX operates was signed on August 10, 1990. The concession runs through the year 2026, but it may be renewed for an additional period of fifteen years. Among other significant aspects, the concession stipulates the requirements for providing telephony services and establishes the basis for regulating rates.


The rates to be charged for basic telephone services are subject to a cap determined by the Federal Telecommunications Commission (COFETEL). During the last eleven years, TELMEX management decided not to raise its rates for basic services.


TELMEX has concessions in Mexico to operate radio spectrum wave frequency bands to provide fixed wireless telephone services and to operate radio spectrum wave frequency bands for point-to-point and point-to-multipoint microwave communications.


The foreign subsidiary has licenses for use of point-to-point and point-to-multipoint links in the U.S.A.


On May 11, 2010, América Móvil, S.A.B. de C.V. (América Móvil) launched two concurrent public exchange offers to acquire the outstanding shares of Carso Global Telecom, S.A.B. de C.V. (Carso Global Telecom) (TELMEX’s controlling stockholder) and Telmex Internacional, S.A.B de C.V.. Carso Global Telecom was the direct holder of 59.4% of the outstanding shares of TELMEX. On June 16, 2010, América Móvil completed the acquisition of 99.4% of the outstanding shares of Carso Global Telecom by means of a first public exchange offer, thus, América Móvil indirectly owned 59.1% of the outstanding shares of TELMEX by then. Upon completion of this transaction, TELMEX became a subsidiary of América Móvil. América Móvil launched an additional offer on November 19, 2010, which ended on December 17, 2010, increasing to 59.5% its indirect ownership of the outstanding shares of TELMEX.


At an extraordinary meeting held on April 4, 2011, the stockholders approved a corporate restructuring, through the creation of a subsidiary company that will provide telecommunications and interconnection services in rural areas, where fixed telephony competitors do not invest. The subsidiary will be named Telmex Social.


The restructuring is subject, if needed, to the approval of the Communications Ministry (Secretaría de Comunicaciones y Transportes, or SCT), as well as the authorization and confirmation of the rest of the corresponding authorities and governmental entities.


The corporate offices of the Company are located on Parque Vía 190, Colonia Cuauhtémoc, 06599 México D.F., México.



2. First-time Adoption of International Financial Reporting Standards (IFRS)


The Company, with the authorizations of its Board of Directors, Audit Committee, Mexican Stock Exchange and Mexican Banking and Securities Commission (BMV and CNBV), decided to adopt IFRS as of January 1, 2011, with a transition date as of January 1, 2010. In the following paragraphs, the effects of initial adoption to IFRS are explained and a reconciliation between Mexican Financial Reporting Standards (Mexican FRS) and IFRS is presented. Mexican FRS are the financial reporting standards under which the Company was obliged to prepare its financial information until December 31, 2010.


IFRS 1 "First-time Adoption of International Financial Reporting Standards" provides a number of optional exemptions from the general requirement for full retrospective application of the IFRSs, in specified areas where the cost of complying with them would be likely to exceed the benefits to users of financial statements.


It also establishes a number of mandatory exemptions that prohibit retrospective application of IFRS in some areas, particularly where retrospective application would require judgments by management about past conditions after the outcome of a particular transaction is already known.


TELMEX has applied the mandatory exemptions included in IFRS 1 regarding to retrospective application of other IFRS at the transition date, which relate to the following items:


  1. Accounting estimates

  2. Derecognition of financial assets and financial liabilities

  3. Hedge accounting

  4. Non-controlling interests

  5. Classification and measurement of financial assets


The optional exemptions adopted by the Company are set out below:


A) Deemed cost


In accordance with IFRS 1, “an entity may elect to measure an item of property, plant and equipment at fair value at the date of its transition to IFRS and use that fair value as its deemed cost at that date”.


“ A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to IFRS as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:


(a) fair value; or

(b) cost or depreciated cost under IFRS, adjusted to reflect, for example, changes in a general or specific price index”.


TELMEX has decided to use as deemed cost at the date of transition, the revalued amount of its plant, property and equipment performed under Mexican FRS, which includes effects of inflation through December 31, 2007 and subsequent additions at historical cost.


B) Employee benefits


Cumulative actuarial losses


In accordance with IAS 19, “Employee benefits”, an entity may elect to use a ‘corridor’ approach that leaves some actuarial gains and losses unrecognised. Retrospective application of this approach requires an entity to split the cumulative actuarial gains and losses from the inception of the plan until the date of transition to IFRSs into a recognised portion and an unrecognised portion.


However, a first-time adopter may elect to recognise all cumulative actuarial gains and losses at the date of transition to IFRSs, even if it uses the corridor approach for later actuarial gains and losses


TELMEX elected to apply the “corridor” approach retrospectively and therefore deferred the recognition of actuarial gains and losses in conformity with international standard, resulting in a decrease in net projected asset of P.1,216,051 at the date of transition to IFRSs.


Deferred employee profit sharing


NIF D-3, “Employee benefits”, requires the recognition of deferred employee profit sharing on financial statements while IFRS does not establish guidelines for its recognition. Therefore, the Company canceled the deferred employee profit sharing liability of P3,954,136 at the date of transition to IFRSs.


Termination benefits


NIF D-3 requires the recognition of actuarial provision for termination benefits of employment other reasons different of restructuring, while IFRSs don’t address this issue. Because of this, TELMEX canceled a termination benefits provision of P.159,377 at the date of transition to IFRSs.


C) Recognition of effects of inflation


IAS 29 "Financial reporting in hyperinflationary economies" requires the recognition of the effects of inflation on financial information when the entity operates in a hyperinflationary economic environment, which one of its features is that the cumulative inflation rate over three years approaches, or exceeds 100%.


The last three years in which Mexico was no longer a hyperinflationary economy was the period from 1996 to 1998, whereby the Company eliminated the inflation in the rest of its non-monetary assets and liabilities, as well as items of capital stock and legal reserve, recognised under Mexican FRS from January 1, 1999 to December 31, 2007.


D) Cumulative translation differences


In accordance with IFRS 1, a first-time adopter need not comply with the requirements of IAS 21 "The effects of changes in foreign exchange rates". TELMEX used this exemption therefore considered null the effect of translation of foreign entities at the date of transition to IFRSs, which at that time was of P.134,550, net of deferred taxes.


E) Risk of the party and counterparty


IAS 39, “Financial instruments: Recognition and Measurement”, requires that credit risk is taken into account when determining fair value of financial instruments. For the transition from Mexican FRS to IFRS, TELMEX adjusted the fair value of derivative assets and liabilities determined under Mexican FRS with the non performance risk. Therefore, the fair value of derivative assets and liabilities position is net of a credit valuation adjustment attributable to TELMEX’s “own credit risk” and derivative counterparty default risk, which at the date of transition amounted P.137,112.


F) Deferred tax


As a result of the exemptions as well as the differences described above, were affected the carrying value of certain assets and liabilities, therefore deferred taxes were recalculated using the guidelines of IAS 12 "Income taxes", resulting in an increase of P.661,053 in deferred tax liability at the date of transition to IFRSs.




Reconciliations of Equity reported under Mexican FRS to Equity under IFRSs (unaudited)

(In thousands of Mexican pesos)

Note

Mexican FRS

Effect of transition to IFRSs

Opening IFRS


Mexican FRS

Effect of transition to IFRSs

IFRSs


Mexican FRS

Effect of transition to IFRSs

IFRSs


2

As at January 1, 2010 (date of transition)


As at June 30, 2010


Year ended December 31, 2010

Assets












Current assets:













Cash and cash equivalents


P. 14,379,768


P. 14,379,768


P. 10,957,810


P. 10,957,810


P. 7,493,465


P. 7,493,465

Accounts receivable, net


20,425,556


20,425,556


23,401,184


23,401,184


17,648,533


17,648,533

Derivative financial instruments

E

12,225,550

( 137,113)

12,088,437


10,628,349

( 494,004)

10,134,345


6,957,018

( 261,119)

6,695,899

Inventories for sale, net


1,448,102


1,448,102


1,444,796


1,444,796


1,783,579


1,783,579

Prepaid expenses and others

C

3,303,275

4,662

3,307,937


3,479,425

11,302

3,490,727


3,121,994

15,858

3,137,852

Total current assets


51,782,251

( 132,451)

51,649,800


49,911,564

( 482,702)

49,428,862


37,004,589

( 245,261)

36,759,328








Plant, property and equipment, net


106,047,642


106,047,642


101,859,551


101,859,551


99,421,332


99,421,332

Licenses and trademarks, net

C

918,341

( 179,793)

738,548


1,251,918

( 168,798)

1,083,120


1,307,517

( 158,129)

1,149,388

Equity investments


1,775,380

( 30,807)

1,744,573


1,845,236

( 30,807)

1,814,429


1,392,042

1,392,042

Net projected asset

B

16,430,857

( 1,216,055)

15,214,802


13,743,868

( 1,074,708)

12,669,160


17,342,200

( 1,051,832)

16,290,368

Goodwill




118,101


118,101


103,289


103,289

Deferred charges and prepaid expenses, net

C

1,442,330

( 34,269)

1,408,061


1,172,710

( 27,441)

1,145,269


1,183,363

( 26,016)

1,157,347

Total assets


P. 178,396,801

( 1,593,375)

P. 176,803,426


P 169,902,948

( 1,784,456)

P. 168,118,492


P. 157,754,332

( 1,481,238)

P. 156,273,094








Liabilities and stockholders’ equity













Current liabilities:













Short-term debt and current portion of long-term debt


P. 19,768,894

P. 19,768,894


P. 3,790,149

P. 3,790,149


P. 11,951,532

P. 11,951,532

Accounts payable and accrued liabilities

E

14,245,612

( 87)

14,245,525


20,299,295

( 17,846)

20,281,449


17,377,010

( 14,242)

17,362,768

Taxes payable


2,211,626


2,211,626


2,029,073


2,029,073


2,443,268


2,443,268

Deferred revenues

C

1,104,175

( 4,123)

1,100,052


952,573

( 1,281)

951,292


917,377

( 1,284)

916,093

Total current liabilities


37,330,307

( 4,210)

37,326,097


27,071,090

( 19,127)

27,051,963


32,689,187

( 15,526)

32,673,661








Long-term debt


83,105,454


83,105,454


80,963,474


80,963,474


62,569,413


62,569,413

Labor obligations

B

4,113,513

( 4,113,513)


3,813,594

( 3,813,594)


3,516,686

( 3,516,686)

Deferred taxes

F

15,060,058

660,753

15,720,811


14,543,149

503,385

15,046,534


14,132,763

508,397

14,641,160

Deferred revenues

C

466,696

( 8,896)

457,800


527,610

( 11,110)

516,500


622,351

( 10,478)

611,873

Total liabilities


140,076,028

( 3,465,866)

136,610,162


126,918,917

( 3,340,446)

123,578,471


113,530,400

( 3,034,293)

110,496,107








Stockholders’ equity:







Capital stock

C

9,020,300

( 3,546,485)

5,473,815


9,019,971

( 3,546,353)

5,473,618


9,008,985

( 3,541,950)

5,467,035

Retained earnings:







Prior years

C

28,375,768

( 832,274)

27,543,494


23,999,242

( 832,406)

23,166,836


19,135,353

( 836,810)

18,298,543

Initial effect of IFRS adoption



6,400,664

6,400,664



6,400,664

6,400,664



6,400,664

6,400,664

Current year




8,233,608

( 145,437)

8,088,171


15,384,162

( 195,656)

15,188,506



28,375,768

5,568,390

33,944,158


32,232,850

5,422,821

37,655,671


34,519,515

5,368,198

39,887,713

Accumulated other comprehensive income items

B, D, E

883,225

( 150,024)

733,201


1,407,735

( 321,140)

1,086,595


386,109

( 273,227)

112,882

Controlling interest


38,279,293

1,871,881

40,151,174


42,660,556

1,555,328

44,215,884


43,914,609

1,553,021

45,467,630

Noncontrolling interest


41,480

610

42,090


323,475

662

324,137


309,323

34

309,357

Total stockholders’ equity


38,320,773

1,872,491

40,193,264


42,984,031

1,555,990

44,540,021


44,223,932

1,553,055

45,776,987

Total liabilities and stockholders’ equity


P.178,396,801

( 1,593,375)

P. 176,803,426


P. 169,902,948

( 1,784,456)

P. 168,118,492


P. 157,754,332

( 1,481,238)

P. 156,273,094



Reconciliations of Profit under Mexican FRS to Profit under IFRS (unaudited)


(In thousands of Mexican pesos)

Note

Mexican FRS

Effect of transition to IFRSs

IFRSs


Mexican FRS

Effect of transition to IFRSs

IFRSs


2

For the six months ended

June 30, 2010


For the year ended

December 31, 2010

Operating revenues:









Local service


P. 20,751,722


P. 20,751,722


P. 41,006,772


P. 41,006,772

Long distance service:









Domestic


6,203,344


6,203,344


12,264,837


12,264,837

International


2,833,330


2,833,330


5,646,278


5,646,278

Interconnection service


7,569,022


7,569,022


15,022,721


15,022,721

Data

C

16,286,084

( 628)

16,285,456


32,878,968

( 1,257)

32,877,711

Other


3,359,783


3,359,783


6,743,789


6,743,789



57,003,285

( 628)

57,002,657


113,563,365

( 1,257)

113,562,108

Operating costs and expenses:









Cost of sales and services

B, C

17,413,233

( 109,672)

17,303,561


34,710,580

( 131,040)

34,579,540

Commercial, administrative and

general expenses

B, C

10,949,564

( 53,595)

10,895,969


22,351,181

( 54,380)

22,296,801

Interconnection

C

5,280,315


5,280,315


10,561,053


10,561,053

Depreciation and amortization

B

8,790,917

( 11,585)

8,779,332


17,523,330

( 22,959)

17,500,371

Other expenses, net


553,908

553,908


565,366

565,366



42,434,029

379,056

42,813,085


85,146,144

356,987

85,503,131

Operating income


14,569,256

( 379,684)

14,189,572


28,417,221

( 358,244)

28,058,977






Other expenses (income), net

B

171,451

(171,451)


78,337

( 78,337)










Financing cost:









Interest income


( 219,247)


( 219,247)


( 583,761)


( 583,761)

Interest expense

C

3,016,152

( 738)

3,015,414


5,733,627

( 1,399)

5,732,228

Exchange gain, net


( 385,949)


( 385,949)


( 394,470)


( 394,470)



2,410,956

( 738)

2,410,218


4,755,396

( 1,399)

4,753,997






Equity interest in net income of affiliates


75,263


75,263


195,910


195,910










Income before taxes on profits


12,062,112

( 207,495)

11,854,617


23,779,398

( 278,508)

23,500,890

Provision for income tax

F

3,826,848

( 62,111)

3,764,737


8,407,940

( 82,849)

8,325,091

Net income


P. 8,235,264

( 145,384)

P. 8,089,880


P. 15,371,458

( 195,659)

P. 15,175,799










Distribution of net income:









Controlling interest


P. 8,233,608

( 145,437)

P. 8,088,171


P. 15,384,162

( 195,656)

P. 15,188,506

Noncontrolling interest


1,656

53

1,709


( 12,704)

( 3)

( 12,707)



P. 8,235,264

( 145,384)

P. 8,089,880


P. 15,371,458

( 195,659)

P. 15,175,799













3. Basis of presentation of financial statements and accounting rules


3.1 Basis of preparation


These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS 34) “Interim Financial Reporting”, issued by the International Accounting Standards Board (IASB). These are the Company’s first condensed consolidated interim financial statements prepared in conformity with IFRS for part of the period covered by the first IFRS annual financial statements and IFRS 1 “First-time Adoption of International Financial Reporting Standards has been applied. These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements.


In preparing these condensed consolidated interim financial statements the Company has applied IFRS and current interpretations, which are subject to changes issued by the IASB. Therefore, until the Company prepares its first complete set of financial statements under IFRS at December 31, 2011, there is the possibility that comparative consolidated financial statements be adjusted.


3.2 Basis of consolidation


The consolidated financial statements include the accounts of Teléfonos de México, S.A.B. de C.V. and those of the subsidiaries over which the Company exercises control. All the companies operate in the telecommunications sector or provide services to companies operating in this sector.


Subsidiaries are fully consolidated from the date of acquisition, being the date on which TELMEX obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as TELMEX, using consistent accounting policies.


All intercompany balances and transactions have been eliminated in the consolidated financial statements. Noncontrolling interest refers to certain subsidiaries in which the Company does not hold 100% of the shares.


Equity investments in affiliated companies over which the Company exercises significant influence is accounted for using the equity method, which basically consists of recognizing TELMEX’s proportional share in the net income or loss and the stockholders’ equity of the investee.


The results of operations of the subsidiaries and affiliates were included in TELMEX’s financial statements as of the month following their acquisition.



The principal subsidiaries included in the consolidated financial statements are listed below:


% equity interest at


Company


Country

June 30,

2011

December 31, 2010

Subsidiaries:




Integración de Servicios TMX, S.A. de C.V.

México

100%

100%

Alquiladora de Casas, S.A. de C.V.

México

100%

100 %

Cía. de Teléfonos y Bienes Raíces, S.A. de C.V.

México

100%

100 %

Consorcio Red Uno, S.A. de C.V.

México

100%

100 %

Teléfonos del Noroeste, S.A. de C.V.

México

100%

100 %

Uninet, S.A. de C.V.

México

100%

100 %

Telmex USA, L.L.C.

E.U.A.

100%

100 %


3.3 Translation of financial statements of foreign subsidiary


The financial statements of the foreign subsidiary are consolidated once the financial statements have been adjusted to conform to IFRS in the corresponding local currency, and are then translated to the reporting currency. All the assets and liabilities of the foreign subsidiary are translated to Mexican pesos at the prevailing exchange rate at year-end. Stockholders’ equity accounts are translated at the prevailing exchange rate at the time capital contributions were made and earnings were generated. Revenues, costs and expenses are translated at the historical exchange rate. Translation differences are recorded in stockholders’ equity in the line item “Effect of translation of foreign entities” under “Accumulated other comprehensive income items.”


3.4 Significant accounting policies and practices


The accounting policies applied by the Company in these consolidated interim financial statements are the same as applied in its financial statements at December 31, 2010, except for those who may be modified as a result of first-time adoption of IFRS.


a) Recognition of revenues


Revenues are recognized at the time services are provided. Local service revenues are related to new-line installation charges, monthly service fees, measured usage charges based on the number of calls made, and other service charges to subscribers. Local service revenues also include measured usage charges for prepayment plans, based on the number of minutes.


Revenues from the sale of prepaid telephone service cards are recognized based on an estimate of the usage of time covered by the prepaid card. Revenues from the sale of equipment are recorded when the product is delivered to the customer.


Revenues from domestic and international long distance telephone services are determined on the basis of the duration of the calls and the type of service used, which are billed monthly based on the authorized rates. International long distance and interconnection service revenues also include the revenues earned under agreements with foreign carriers for the use of the Company’s facilities in interconnecting international calls. These services are regulated by agreements with these operators, in which the rates to be paid are defined.



Data revenues include revenues from services related to data transmission through private and managed networks and revenues from Internet access.


b) Use of estimates


The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions in certain areas. Actual results could differ from these estimates. TELMEX based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of TELMEX. Such changes are reflected in the estimates and assumptions and the related effect in the financial statements when they occur.


c) Cash and cash equivalents


Cash at banks earns interest at floating rates based on daily bank deposit rates. Cash equivalents are represented by short-term deposits made for varying periods of between one day and three months, depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates. Such investments are stated at acquisition cost plus accrued interest, which is similar to their market value.


d) Derivative financial instruments and hedging activities


The Company is exposed to interest rate and foreign currency risks, which are mitigated through a controlled risk management program that includes the use of derivative financial instruments. The Company uses primarily cross-currency swaps and when necessary foreign currency forwards to offset the short-term risk of exchange rate fluctuations. In order to reduce the risks due to fluctuations in interest rates, the Company utilizes interest-rate swaps, through which it either pays or receives the difference between the net amount of either paying or receiving a fixed interest rate and the cash flow from receiving or paying a floating interest rate, based on a notional amount denominated in Mexican pesos or U.S. dollars. Most of these derivative financial instruments qualify and have been designated as cash flow hedges.


The Company's policy includes: i) formal documentation of all hedging relationships between the hedging instrument and the hedged position; ii) the objectives for risk management; and iii) the strategy for conducting hedging transactions. This process takes into account the relationship between the cash flow of the derivatives with the cash flows of the corresponding assets and liabilities recognized in the balance sheet.


The effectiveness of the Company’s derivatives used for hedging purposes is evaluated prior to their designation as hedges, as well as during the hedging period, which is performed at least quarterly based on recognized statistical techniques. Whenever it is determined that a derivative is not highly effective as a hedge or that the derivative ceases to be a highly effective hedge, the Company ceases to apply hedge accounting for the derivative on a prospective basis. During the six-month period ended June 30, 2011, there were no gains or losses recognized due to changes in the accounting treatment for hedges.



Derivative financial instruments are recognized in the balance sheet at their fair values, which are obtained from the financial institutions with which the Company has entered into the related agreements. The Company’s policy is to verify such fair values against valuations provided by an independent valuation agent contracted by the Company. The effective portion of the cash flow hedge’s gain or loss is recognized in “Accumulated other comprehensive income items” in stockholders’ equity, while the ineffective portion is recognized in current year earnings. Changes in the fair value of derivatives that do not qualify as hedges are immediately recognized in earnings.


The change in fair value recognized in earnings related to derivatives that are accounted for as hedges is presented in the same income statement caption as the gain or loss of the hedged item.


e) Allowance for doubtful accounts


The allowance for doubtful accounts is determined based on the Company’s historical experience, the aging of the balances and general economic trends, as well as an evaluation of accounts receivable in litigation seeking recovery. The allowance for doubtful accounts primarily covers the balances of accounts receivable greater than 90 days old.


The risk of uncollectibility of accounts receivable from related parties is evaluated annually based on an examination of each related party’s financial situation and the markets in which they operate.


f) Inventories


Inventories for sale are valued at average cost. The carrying value of inventories is not in excess of their net realizable value.


g) Plant, property and equipment


Plant, property and equipment are recognized at cost minus accumulated depreciation and any impairment losses. Cost includes purchase price plus expenses directly attributable to the asset in order to bring it to the location and condition to be operated in the intended manner.


The Company has decided to use as deemed cost at the date of transition, the revalued cost of property, plant and equipment determined in conformity with Mexican FRS at December 31, 2009 (which includes the effects of inflation through December 31, 2007).


Telephone plant and equipment are depreciated using the straight-line method based on the estimated useful lives of the related assets.


The carrying value of plant, property, plant and equipment is reviewed whenever there are indicators of impairment in the carrying value of such assets. Whenever an asset’s recovery value, which is the greater of the asset’s selling price and its value in use (the present value of future cash flows) is less than the asset’s net carrying amount, the difference is recognized as an impairment loss.


An item of plant, property and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.



The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.


The Company has not capitalized any financing costs since it has no significant qualifying assets with prolonged acquisition periods.


Inventories for the operation of the telephone plant are valued at average cost, which is not in excess of their net realizable value.


h) Leases


When the risks and benefits inherent to the ownership of the leased asset remain mostly with the lessor, they are classified as operating leases and rent expense is charged to results of operations when incurred.


Lease agreements are recognized as capital leases if (i) the ownership of the leased asset is transferred to the lessee upon termination of the lease; (ii) the agreement includes an option to purchase the asset at a reduced price; (iii) the term of the lease is substantially the same as the remaining useful life of the leased asset; or (iv) the present value of minimum lease payments is substantially the same as the market value of the leased asset, net of any future benefit or residual value.


i) Licenses and trademarks


TELMEX records licenses at acquisition cost. The amortization period is based on the terms of the licenses, which range from 5 to 20 years. Trademarks are recorded at their estimated fair values at the date of acquisition, as determined by independent appraisers, and are amortized using the straight-line method over a sixteen-year period.


j) Business combinations and goodwill


Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value of acquisition date and the amount of any noncontrolling interest in the acquiree. For each business combination, the acquirer measures the noncontrolling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs incurred are expensed and included in administrative expenses.


The subsequent acquisition of noncontrolling interest is considered a transaction between entities under common control and any difference between the purchase price and the carrying value of net assets acquired is recognized as an equity transaction.


Goodwill is initially measured as the excess of the acquisition price and the amount recognized for noncontrolling interest, as measured at their fair value, over the net identifiable assets acquired and liabilities assumed.


k) Accrued liabilities


Accrued liabilities are recognized whenever (i) the Company has current obligations (legal or assumed) resulting from a past event, (ii) when it is probable the obligation will give rise to a future cash disbursement for its settlement and (iii) the amount of the obligation can be reasonably estimated.



When the effect of the time value of money is significant, the amount of the liability is determined as the present value of the expected future disbursements to settle the obligation. The discount rate applied is determined on a pre-tax basis and reflects current market conditions at the balance sheet date and, where appropriate, the risks specific to the liability. When discounting is used, an increase in the liability is recognized as a finance expense.


Contingent liabilities are recognized only when it is probable they will give rise to a future cash disbursement for their settlement. Also, commitments are only recognized when they will generate a loss.


l) Labor obligations


The cost of pension, seniority premium and termination benefits (severance) are recognized periodically during the years of service of personnel, based on actuarial computations made by independent actuaries using the projected unit-credit method.


Actuarial (losses) gains are being amortized over a period of 11 years, which is the estimated average remaining working lifetime of Company employees.


m) Exchange differences


Transactions in foreign currency are recorded at the prevailing exchange rate on the day of the related transactions. Foreign currency denominated monetary assets and liabilities are valued at the prevailing exchange rate at the balance sheet date. Exchange differences from the transaction date to the time foreign currency denominated monetary assets and liabilities are settled, as well as those arising from the translation of foreign currency denominated balances at the balance sheet date are charged or credited to results of operations.


n) Taxes on profits


Current income tax


Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.


Deferred tax


Deferred taxes on profits are recognized using the asset and liability method. Under this method, deferred taxes on profits are recognized on all differences between the financial reporting and tax values of assets and liabilities, applying the enacted income tax rate effective as of the balance sheet date, or the enacted rate at the balance sheet date that will be in effect when the deferred tax assets and liabilities are expected to be recovered or settled.


The Company periodically evaluates the possibility of recovering deferred tax assets and, if necessary, creates a valuation allowance for those assets that do not have a high probability of being realized.



o) Earnings per share


Earnings per share are determined by dividing the controlling interest in net income by the weighted-average number of shares outstanding during the period. In determining the weighted-average number of shares outstanding during the period, shares repurchased by the Company have been excluded.


p) Concentration of risk


The Company’s principal financial instruments consist of senior notes, domestic senior notes, bank loans, derivative financial instruments and accounts payable. The Company has financial assets, such as cash and cash equivalents, accounts receivable and prepaid expenses that are directly related to its business.


The main risks associated with the Company’s financial instruments are cash flow risk, liquidity risk, market risk and credit risk. The Company performs sensitivity analyses to measure potential losses in its operating results based on a theoretical increase of 100 basis points in interest rates and a 10% change in exchange rates. The Board of Directors approves the risk management policies that are proposed by the Company’s management.


Credit risk represents the potential loss from the failure of counterparties to completely comply with their contractual obligations. The Company is also exposed to market risks related to fluctuations in interest rates and exchange rates. In order to reduce the risks related to fluctuations in interest rates and exchange rates, the Company uses derivative financial instruments as hedges against its debt obligations.


Financial instruments which potentially subject the Company to concentrations of credit risk are cash and cash equivalents, trade accounts receivable, debt and derivative financial instruments. Pension fund assets are subject to market risk. The Company’s policy is designed to not restrict its exposure to any one financial institution; therefore, the Company’s financial instruments are maintained in different financial institutions located in different geographical areas.


The credit risk in accounts receivable is diversified, because the Company has a broad customer base that is geographically dispersed. The Company continuously evaluates the credit conditions of its customers and does not require collateral to guarantee collection of its accounts receivable. In the event the collection of accounts receivable deteriorates significantly, the Company’s results of operations could be adversely affected.


A portion of excess cash is invested in time deposits in financial institutions with strong credit ratings.


q) Segments


Segment information is presented based on information used by the Company in its decision-making processes.


Local and long distance segment information differs from the information presented in the consolidated financial statements due to:








r) New accounting pronouncements


Amendments to standards applicable in 2011, which could affect TELMEX’s accounting policies:



The following are those new and revised standards issued, which the Company expects to be applicable at a future date when these are effective:



The Company is currently evaluating the impact of these new accounting pronouncements will have on its consolidated financial statements and notes.



  1. Plant, Property and Equipment


During the six-month period ended June 30, 2011, the Company made the following capital expenditures, before retirements:

1Q11

% of

Amount

Budget

% of


Apr-Jun

advance

exercised 2011

2011

advance

Data

P. 1,528,968

29.6

P. 2,462,305

P. 5,158,387

47.7

Internal plant

25,337

11.6

43,999

218,000

20.2

Networks

237,410

56.0

387,623

424,000

91.4

Transport networks

83,816

4.3

129,926

1,968,000

6.6

Systems

74,017

17.6

74,131

420,227

17.6

Other

576,647

22.6

826,341

2,547,000

32.4

Telmex USA

35,423

55.0

53,379

64,386

82.9

Total investment

P. 2,561,618

23.7

P. 3,977,704

P. 10,800,000

36.8









  1. Debt


Short-term and long-term debt consist of the following:

Weighted average interest rate at

Maturities from

Balance at


June 30, 2011

December 31, 2010

2011 through

June 30, 2011

December 31, 2010

Debt denominated in foreign currency:






Senior notes

5.5%

5.5%

2019

P. 11,036,282

P. 16,044,459

Bank loans

0.7%

0.8%

2018

20,194,965

21,665,623

Others

0.5%

0.6%

2022

6,099,327

6,364,863

Total debt denominated in foreign currency




37,330,574

44,074,945

Debt denominated in Mexican pesos:






Senior notes

8.8%

8.8%

2016

4,500,000

4,500,000

Domestic senior notes

6.3%

6.3%

2037

25,900,000

25,900,000

Bank loans

5.4%

5.5%

2012

46,000

46,000

Total debt denominated in Mexican pesos




30,446,000

30,446,000

Total debt




67,776,574

74,520,945

Less short-term debt and current portion

of long-term debt




19,384,204

11,951,532

Long-term debt




P. 48,392,370

P. 62,569,413


The above-mentioned rates are subject to market variances and do not include the effect of the Company’s agreement to reimburse certain lenders for Mexican withholding taxes. The Company’s weighted-average cost of debt at June 30, 2011 (including interest expense, interest rate swaps, fees and withholding taxes, and excluding exchange rate variances) was approximately 6.1% (6.6% at December 31, 2010).


Short-term debt and current portion of long-term debt consist of the following:

Balance at


June 30, 2011

December 31, 2010

Short term debt:



Bank loans

P. 46 ,000

P. 46 ,000

Others

5 ,919,450

6 ,178,550


5,965,450

6,224,550

Current portion of long-term debt:



Domestic Senior notes

9,300,000

4,500,000

Bank loans

4 ,118,754

1 ,226,982


13 ,418,754

5 ,726,982

Total

P. 19,384,204

P. 11,951,532


Senior notes:


At June 30, 2011, we had two outstanding senior notes denominated in US dollars, one for U.S.$554.8 million due in 2015 and the other for U.S.$377.4 million due in 2019 (equivalent, both together to P.11,036,282) and an outstanding senior note denominated in Mexican pesos for a total of P.4,500,000.



On February 2, 2011, América Móvil launched a private offer to exchange any and all outstanding senior notes of TELMEX with maturity in 2015 and 2019, for new senior notes of América Móvil. The offer expired on March 3, 2011. As a result of the offer, on March 8, 2011, U.S.$243.6 million of senior notes due in 2015 and U.S.$122.6 million of senior notes due in 2019 were exchanged for América Móvil senior notes. On March 10, 2011, TELMEX paid América Móvil U.S.$394.0 million, which includes a premium of U.S.$27.8 million, to extinguish the exchanged senior notes. The consideration paid by TELMEX was based on the same market conditions under which the TELMEX senior notes were exchanged by América Móvil.


Syndicated loans:


There are two syndicated loans, one of them has an outstanding tranche of U.S.$700 million due in August 2013, while the other has an outstanding tranche of U.S.$250 million due in June 2012. These loans bear interest at a specified margin over the London Interbank Offered Rate (LIBOR). At June 30, 2011, these credits are equal to P.11,246,955 and are included under Bank loans (debt denominated in foreign currency).


Domestic senior notes (Certificados bursátiles):


All domestic senior notes are denominated in Mexican pesos; some bear fix-rate interest, while others bear interest equal to a specified margin in respect of the Mexican interbank equilibrium interest rate (TIIE). At June 30, 2011, we had P.25,900,000 in outstanding domestic senior notes.


Others:


We have a loan with América Móvil for U.S.$500 million due in October, 2011. This loan bears interest with a 25-basis points margin over LIBOR. At June 30, 2011, this loan is equal to P.5,919,450.


Subsequent events:


On July 6, 2011, TELMEX entered into a loan agreement with América Móvil in the amount of P.2,000,000 maturing in July 2015. This loan bears interest with a 20-basis points margin over TIIE.


On July 7, 2011, TELMEX repaid domestic senior notes in a total amount of P.4,000,000, which was issued in July 2009.


Restrictions:


The above-mentioned debt is subject to certain restrictions with respect to maintaining certain financial ratios, as well as restrictions on selling a significant portion of groups of assets, among others. At June 30, 2011, the Company was in compliance with all these requirements.


A portion of the debt is also subject to early maturity or repurchase at the option of the holders in the event of a change in control of the Company, as so defined in each instrument. The definition of change in control varies from instrument to instrument; however, no change in control shall be considered to have occurred as long as Carso Global Telecom or its current stockholders continue to hold the majority of the Company’s voting shares.



Long-term debt maturities at June 30, 2011 are as follows:


Años

Importe

2012*

P. 3,309,071

2013

10,854,921

2014

8,165,995

2015

7,343,655

2016 and thereafter

18,718,728

Total

P. 48,392,370



* Includes maturities from July to December, 2012.


Derivative financial instruments and hedging activities:


At June 30, 2011 and December 31, 2010, the derivative financial instruments held by the Company are as follows:

June 30, 2011

December 31, 2010



Notional

Fair value

asset (liability)


Notional

Fair value

asset (liability)

Instrument

(in millions)

(in millions)

Cross currency swaps

U.S.$ 3,097

P. 3,443

U.S.$ 3,487

P. 6,696

Forwards dollar-peso



U.S.$ 40

( 21)

Interest-rate swaps in pesos

P. 16,649

( 1,873)

P. 16,649

( 1,526)

Total


P. 1,570


P. 5,149


The Company’s derivatives are acquired in over-the counter markets, mostly from the same financial institutions with which it has contracted its debt.


In March 2011, cross currency swaps in the equivalent of U.S.$351 million, which partially hedged the bonds with maturity in 2015 and 2019, were unwound; in addition, U.S.$40 million of cross currency swaps and U.S.$40 million of forward contracts became due. No new derivative instruments were contracted.


During the six-month period ended June 30, 2011, the change in the fair value of the cross currency swaps that offset the exchange gain on the foreign-currency denominated debt was a net charge of P.1,739,909 (net charge of P.1,323,320 in 2010).


During the six-month period ended June 30, 2011, the Company recognized in interest expense a net charge for interest rate swaps of P. 369,922 (net charge of P. 846,488 in 2010).


During the six-month period ended June 30, 2011, the ineffective portion of the cash flow hedges was a net expense of P. 459,482 (P. 360,691 in 2010), recognized in interest expense.


  1. Related Parties


The most relevant transactions with related parties were as follows:

For the six months ended

June 30,


2011

2010

Investment and expenses:



Construction services, purchase of materials, inventories

and fixed assets

P. 1,972,124

P. 1,245,886

Insurance premiums, fees for administrative and

operating services, security trading and others

1,234,572

1,485,474

Calling Party Pays interconnection fees and other

telecommunication services

2,364,048

3,570,211

Cost of termination of international calls

355,366

330,415




Revenues:



Sale of materials and other services

895,455

922,100

Sale of long distance and other telecommunications services

2,673,873

2,458,457

Revenues from termination of international calls

235,794

396,212



7. Stockholders’ Equity


  1. Capital stock


At June 30, 2011, capital stock is represented by 18,032 million shares issued and outstanding with no par value, representing the Company’s fixed capital (18,158 million at December 31, 2010).


In the six-month period ended June 30, 2011, the Company acquired 126.5 million Series “L” shares for P.1,339,731.


In the six-month period ended June 30, 2010, the Company acquired 1.0 million Series “L” shares for P.10,967 and 6,900 Series “A” shares for P.76.


The cost of the repurchased shares, in the amount that exceeds the portion of capital stock corresponding to the repurchased shares, is charged to retained earnings.


  1. Dividends


At a regular meeting held on April 28, 2011, the stockholders agreed to declare a cash dividend of P.0.55 per outstanding share, to be paid in four installments of P.0.1375 each in June, September and December 2011 and in March 2012.


At a regular meeting held on April 29, 2010, the stockholders agreed to declare a cash dividend of P.0.50 per outstanding share, to be paid in four installments of P.0.1250 each in June, September and December 2010 and in March 2011. In March 2010, the Company paid the fourth installment of P.0.1150 per outstanding share, which was authorized at the regular meeting held on April 28, 2009.


The cash dividends paid in 2011 and 2010 were P.4,643,927 and P.4,273,789, respectively.



8. Segments


TELMEX primarily operates in two segments: local and long distance telephone service. The local telephone service segment corresponds principally to local fixed-line wired service, including interconnection service. The long distance service segment includes domestic and international service. Other segments include long distance calls made from public and rural telephones, data services and other services. Additional information related to the Company’s operations is provided in Note 3. The following summary shows the most important segment information, which has been prepared on a consistent basis:

(Amounts in millions of Mexican pesos)


Local service

Long distance

Other segments

Adjustments

Consolidated total

June 30, 2011






Revenues:






External revenues

P. 28,494

P. 9,789

P. 16,878


P. 55,161

Intersegment revenues

5,583

412

P. ( 5,995)

Depreciation and amortization

4,616

798

3,052

8,466

Operating income

5,142

789

6,996

12,927

Segment assets

65,915

10,783

44,438

121,136






June 30, 2010






Revenues:






External revenues

P. 30,872

P. 10,124

P. 16,007


P. 57,003

Intersegment revenues

5,610

451

P. ( 6,061)

Depreciation and amortization

4,728

859

3,192

8,779

Operating income

7,112

816

6,262

14,190

Segment assets

63,931

10,365

36,116

110,412


Inter-segmental transactions are reported based on terms offered to third parties. Employee profit sharing, other expenses, financing cost, equity interest in net income of affiliates and the income tax provision are not allocated to each segment, because they are handled at the corporate level.


Segment assets include plant, property and equipment (excluding accumulated depreciation), construction in progress and advances to equipment suppliers, and inventories for operation of the telephone plant.


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 3

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Final printing

---


COMPANY NAME

PRICIPAL ACTIVITY

NUMBER OF SHARES

% OWNERSHIP

TOTAL AMOUNT

ACQUISITION COST

CURRENT VALUE

Grupo Telvista, S.A. de C.V.

Telemarketing in Mexico and U.S.A.

510,138,000

45.00

510,138

781,647

Centro Histórico de la Ciudad de México, SA de CV

Real State Services

16,004,000

12.79

80,020

102,659

TM and MS, L. L. C.

Internet portal (Prodigy MSN)

1

50.00

29,621

176,519

Hildebrando, S.A. de C.V.

Information Technology Services

462,768

17.63

155,737

237,656

Other Investments


-

-

-

123,575







TOTAL INVESTMENT IN ASSOCIATES




775,516

1,422,056


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 4

BREAKDOWN OF CREDITS

(Thousands of Mexican Pesos)

Final printing

---


CREDIT TYPE / INSTITUTION

FOREIGN INSTITUTION (YES / NO)

CONTRACT SIGNING DATE

EXPIRATION DATE

INTEREST RATE

MATURITY OR AMORTIZATION OF CREDITS IN NATIONAL CURRENCY

MATURITY OR AMORTIZATION OF CREDITS IN FOREIGN CURRENCY

TIME INTERVAL

TIME INTERVAL

CURRENT YEAR

UNTIL 1YEAR

UNTIL 2 YEAR

UNTIL 3 YEAR

UNTIL 4 YEAR

UNTIL 5 YEAR OR MORE

CURRENT YEAR

UNTIL 1YEAR

UNTIL 2 YEAR

UNTIL 3 YEAR

UNTIL 4 YEAR

UNTIL 5 YEAR OR MORE

BANKS

















FOREIGN TRADE

















EXPORT DEVELOPMENT C. (1)

YES

16/03/2006

22/07/2014

0.7873







82,720

64,370

128,740

91,910

15,075


MIZUHO CORPORATE BANK LTD (1)

YES

15/01/2007

10/03/2018

0.7443







374,902

374,903

749,805

749,805

749,804

1,460,068

NATIXIS (3)

YES

28/02/1986

31/03/2022

2.0000







12,678

12,678

25,356

25,356

25,356

78,453



































SECURED


































COMERCIAL BANKS


































BANAMEX (4)

NA

28/06/10

26/06/2012

5.4450

26,000

20,000











BANK OF AMERICA, N.A. (2)

YES

13/06/08

13/06/2014

0.5960










591,945



BBV ARGENTARIA (6)

YES

12/02/08

18/02/2014

0.5250










2,922,017



BBVA BANCOMER (2)

YES

30/06/06

30/06/2012

0.4960








2,959,725





CITIBANK, N.A. (2)

YES

11/08/06

11/08/2013

0.5710









5,524,820

2,762,410



CISCO SYSTEMS (3)

YES

25/04/07

30/09/2014

4.5000







118,388

118,390

189,422

130,228

35,518






































































OTHER



















































TOTAL BANKS





26,000

20,000





588,688

3,530,066

6,618,143

7,273,671

825,753

1,538,521



CREDIT TYPE / INSTITUTION

FOREIGN INSTITUTION (YES / NO)

CONTRACT SIGNING DATE

EXPIRATION DATE

INTEREST RATE

MATURITY OR AMORTIZATION OF CREDITS IN NATIONAL CURRENCY

MATURITY OR AMORTIZATION OF CREDITS IN FOREIGN CURRENCY

TIME INTERVAL

TIME INTERVAL

CURRENT YEAR

UNTIL 1YEAR

UNTIL 2 YEAR

UNTIL 3 YEAR

UNTIL 4 YEAR

UNTIL 5 YEAR OR MORE

CURRENT YEAR

UNTIL 1YEAR

UNTIL 2 YEAR

UNTIL 3 YEAR

UNTIL 4 YEAR

UNTIL 5 YEAR OR MORE

STOCK MARKET


































LISTED STOCK EXCHANGE (MEXICO AND / OR FOREIGN)


































UNSECURED

















CERT. BURSAT TELMEX 02-4(3)

NA

31/05/2002

31/05/2012

10.2000


300,000











CERT. BURSAT TELMEX 06 (5)

NA

21/09/2006

15/09/2011

4.8598

500,000












CERT. BURSAT TELMEX 07 (3)

NA

23/04/2007

16/03/2037

8.3600






5,000,000







CERT. BURSAT TELMEX 07-2 (4)

NA

23/04/2007

16/04/2012

4.7450


4,500,000











CERT. BURSAT TELMEX 08 (3)

NA

21/04/2008

05/04/2018

8.2700






1,600,000







CERT. BURSAT TELMEX 09 (4)

NA

10/07/2009

07/07/2011

5.5850

4,000,000












CERT. BURSAT TELMEX 09-2 (4)

NA

10/07/2009

04/07/2013

5.7950




4,000,000









CERT. BURSAT TELMEX 09-3 (4)

NA

03/11/2009

30/10/2014

5.7950





4,000,000








CERT. BURSAT TELMEX 09-4 (4)

NA

03/11/2009

27/10/2016

6.0950






2,000,000







8 3/4 SENIOR NOTES PESOS (3)

YES

31/01/2006

31/01/2016

8.7500






4,500,000







5 1/2 SENIOR NOTES (3)

YES

27/01/2005

27/01/2015

5.5000











6,568,494


5 1/2 SENIOR NOTES (3)

NA

12/11/2009

15/11/2019

5.5000












4,467,788



































SECURED



















































PRIVATE PLACEMENTS


































UNSECURED



















































SECURED


































TOTAL STOCK MARKET LISTED IN STOCK EXCHANGE AND PRIVATE PLACEMENT





4,500,000

4,800,000


4,000,000

4,000,000

13,100,000





6,568,494

4,467,788



CREDIT TYPE / INSTITUTION

FOREIGN INSTITUTION (YES / NO)

CONTRACT SIGNING DATE

EXPIRATION DATE

INTEREST RATE

MATURITY OR AMORTIZATION OF CREDITS IN NATIONAL CURRENCY

MATURITY OR AMORTIZATION OF CREDITS IN FOREIGN CURRENCY

TIME INTERVAL

TIME INTERVAL

CURRENT YEAR

UNTIL 1YEAR

UNTIL 2 YEAR

UNTIL 3 YEAR

UNTIL 4 YEAR

UNTIL 5 YEAR OR MORE

CURRENT YEAR

UNTIL 1YEAR

UNTIL 2 YEAR

UNTIL 3 YEAR

UNTIL 4 YEAR

UNTIL 5 YEAR OR MORE

OTHER CURRENT AND NON-CURRENT LIABILITIES WITH COST


































OTHER CURRENT LIABILITIES WITH COST

NO

12/11/2010

20/10/2011








5,919,450








































TOTAL OTHER CURRENT AND NON-CURRENT LIABILITIES WITH COST











5,919,450








































SUPPLIERS


































OTHER

NO

-

-

-

2,553,046












OTHER

YES

-

-

-







2,543,390























TOTAL SUPPLIERS





2,553,046






2,543,390








































OTHER CURRENT AND NON-CURRENT LIABILITIES


































OTHER

NO

-

-

-

13,789,999

1,910,993

116,315

109,541

109,541

650,913







OTHER

YES

-

-

-







227,959























TOTAL OTHER CURRENT AND NON-CURRENT LIABILITIES





13,789,999

1,910,993

116,315

109,541

109,541

650,913

227,959








































GENERAL TOTAL





20,869,045

6,730,993

116,315

4,109,541

4,109,541

13,750,913

9,279,487

3,530,066

6,618,143

7,273,671

7,394,247

6,006,309


A.- Interest rates:

The credits breakdown is presented with an integrated rate as follows:

  1. 6 months USD Libor rate plus margin

  2. 3 months USD Libor rate plus margin

  3. Fixed Rate

  4. TIIE rate plus margin

  5. TIIE rate plus margin

  6. JPY LIBOR plus margin

B.- The following rates were considered:

- Libor at 6 months in US dollars is equivalent to a 0.3980 at June 30, 2011.

- Libor at 3 months in US dollars is equivalent to 0.2460 at June 30, 2011.

- TIIE at 28 days is equivalent to 4.8450 at June 30, 2011.

- TIIE at 91 days is equivalent to 4.8798 at June 31, 2011.

- Libor at 3 months in JPY is equivalent to 0.1950 at June 30, 2011.

C.- The suppliers' Credits are reclassified to Bank Loans because in this document, Emisnet, Long-Term opening to Suppliers' does not exist.

D.- Liabilities in foreign currency were exchanged at the prevailing exchange rate at the end of the reporting period, which at June 30, 2011. were as follows:


CURRENCY

AMOUNT

E.R.

DOLLAR (USD)

2,891,204

11.84

EURO (EUR)

10,502

17.13

JAPANESE YEN (JPY)

19,891,200

0.15


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 5

MONETARY FOREIGN CURRENCY POSITION

(Thousands of Mexican Pesos)

Final printing

---


FOREIGN CURRENCY POSITION

DOLLARS (1)

OTHER CURRENCIES

THOUSAND PESOS TOTAL

THOUSANDS OF DOLLARS

THOUSAND PESOS

THOUSANDS OF DOLLARS

THOUSAND PESOS







MONETARY ASSETS

147,629

1,747,772

-

-

1,747,772







LIABILITIES

3,125,080

36,997,506

262,221

3,104,417

40,101,923

SHORT-TERM LIABILITIES POSITION

1,079,633

12,781,669

2,355

27,884

12,809,553







LONG-TERM LIABILITIES POSITION

2,045,447

24,215,837

259,866

3,076,533

27,292,370













NET BALANCE

- 2,977,451

- 35,249,734

- 262,221

- 3,104,417

- 38,354,151


FOREIGN CURRENCY USED:


Assets and Liabilities in foreign currency were exchanged at the prevailing exchange rate at the end of the reporting period.

At the end of the quarter the exchange rates were as follows:


CURRENCY

E.R.

DOLLAR (USD)

11.84

EURO

17.13

JAPANESE YEN

0.15


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 6

DEBT INSTRUMENTS

(Thousands of Mexican Pesos)

Final printing

---

Notes:

FINANCIAL LIMITED BASED IN ISSUED DEED AND/OR TITLE

Part of the long-term debt is subject to certain restrictive covenants with respect to maintaining certain financial ratios and the sale of assets, among others.

A portion of the debt is also subject to early maturity or repurchase at the option of the holders in the event of change of control of the Company, as defined in the related instruments. The definition of change of control varies from instrument to instrument; however, no change in control shall be considered to have occurred as long as Carso Global Telecom, S.A.B. de C.V. (TELMEX's controlling company) or its current stockholders continue to hold the majority of the Company's voting shares.


CURRENT SITUATION OF FINANCIAL LIMITED

At June 30, 2011, the Company has complied with such restrictive covenants.


---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANNEX 7

DISTRIBUTION OF REVENUE BY PRODUCT

Final printing

---


MAIN PRODUCTS OR PRODUCT LINE

SALES

MARKET SHARE %

MAIN

VOLUME

AMOUNT

TRADEMARKS

CUSTOMERS

NATIONAL INCOME






LOCAL SERVICE

-

19,444,667

-



LONG DISTANCE SERVICE

-

7,329,840

-



INTERCONNECTION

-

6,209,262

-



DATA

-

17,225,976

-



OTHERS

-

3,247,935

-















EXPORT INCOME






INTERNATIONAL CONNECTION

-

1,258,346

-



DATA

-

69,840

-



OTHERS

-

1,156

-





















INCOME OF SUBSIDIARIES ABROAD






LONG DISTANCE SERVICE

-

308,286

-



OTHERS

-

65,323

-















T O T A L


55,160,631




---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

ANALYSIS OF PAID CAPITAL STOCK

Final printing

---


SERIES

NOMINAL VALUE ($)

VALID COUPON

NUMBER OF SHARES

CAPITAL SOCIAL

FIXED PORTION

VARIABLE PORTION

MEXICAN

FREE SUSCRIPTION

FIXED

VARIABLE

A

0.00432

0

376,906,182

0

0

376,906,182

1,627

0

AA

0.00432

0

7,839,596,082

0

7,839,596,082

0

33,848

0

L

0.00432

0

9,814,997,736

0

0

9,814,997,736

42,377

0

TOTAL



18,031,500,000


7,839,596,082

10,191,903,918

77,852



---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

DERIVATIVE FINANCIAL INSTRUMENTS

Final printing

---

Quarterly Report of Derivative Financial Instruments

I. Executive Summary


As of June 30, 2011, Teléfonos de México, S.A.B. de C.V. (“Telmex” or the “Company”) had cross currency swap agreements in the equivalent of U.S.$3,097 million, which have hedged the exchange rate and interest rate risks related to the bonds with maturity in 2015 and 2019 for a total amount of U.S.$959 million and loans with maturities from 2011 to 2018 for a total amount of U.S.$2,138 million. These hedges allowed us to fix the exchange rate of our debt on a weighted average exchange rate of P.10.7382 Mexican pesos per US dollar and an average interest rate of 28-day TIIE less a specified margin, as well as to set a fixed rate of 8.57% for the bond maturing in 2015.


In March 2011, cross currency swaps in the equivalent of U.S.$351 million, which partially hedged the bonds with maturity in 2015 and 2019, were unwound, since the Company acquired U.S.$366 million of such bonds from América Móvil, S.A.B. de C.V. to extinguish them.


At June 30, 2011, the Company had interest rate swaps in Mexican pesos for P.16,649 million to hedge the floating rate risk in local currency, fixing it at an average of 8.48%.


These transactions have been carried out based on the policies, strategies and guidelines of the Company.


II. Qualitative and Quantitative Information


i. Management discussion on the policies for using derivative instruments


The policies for using derivative instruments indicated below, are part of the Financial Risk Management Policies approved by the Board of Directors, which establish the general guidelines for the identification, management, measurement, monitoring and control of financial risks that may affect the operation or expected results of Telmex.


The Audit Committee, as a delegated body of the Board of Directors, is responsible to analyze and define the strategy to hedge or mitigate risks related to exchange rate and interest rate fluctuations of the Company’s debt, assess the Management’s results in handling derivative instruments according to the established policies and inform the Board of Directors for their knowledge and, if appropriate, ratification.


Objective to enter into derivative transactions and selected instruments


With the purpose of reducing the risks related to the variations of exchange rate and interest rate, the Company uses derivative instruments associating the hedges with the debt. The derivative instruments that have been selected are, mainly:


(a) instruments for purchasing US dollars at a specified future time (forwards);

(b) instruments that involve the exchange of principal and interest from one currency to another (cross currency swaps); and

(c) instruments to fix the floating interest rates of the debt (interest rate swaps).


The Company uses these instruments in a conservative manner, without any speculative purpose.


Hedge strategies


When the market conditions are favorable, the Company’s Management determines the amounts and goal parameters under which the hedge agreements are contracted. This strategy seeks to reduce the risk exposure of abnormal market fluctuations in the main variables that affect our debt, including exchange rate and interest rate, to maintain a solid and healthy financial structure. Most of our derivative instruments have been designated and qualify as cash flow hedges.


Trading markets and eligible counterparties


The derivative instruments are traded in over-the-counter-markets, i.e. out of an institutionalized exchange market. The financial institutions and counterparties with which the Company enters into such derivative instruments are considered to have a proven reputation and solvency in the market, which allows us to balance our risk positions with such counterparties.


It is a policy of the Company to try to avoid the concentration of more than 25% (twenty five per cent) of the total derivatives position in a single counterparty.


Also, the Company only uses derivative instruments that are of common use in the markets, and therefore, can be quoted by two or more financial institutions to assure the best conditions in the negotiation.


Policies for the appointment of calculation and valuation agents


Given that the Company uses derivative instruments of common use in the market, it appoints a third independent party that is responsible to provide the market price of such instruments. These prices are compared by the Company with the prices provided by the financial intermediaries; and, in certain transactions, the counterparty is able to act as valuation agent under the applicable documentation if it is a financial institution with a proven reputation.


Main terms and conditions of the agreements


It is a policy of the Company that the amount, date and interest rate conditions of the debt to be hedged, if possible, have to coincide with the terms of the hedges, that is usual for this type of transactions in the different markets where it operates.


All the transactions with derivative instruments are made under the ISDA Master Agreement (International Swap Dealers Association) standardized and duly executed by the legal representatives of the Company and the financial institutions, and in the case of counterparties in México, pursuant to the uses and practices of the market in our country.


Margin policies, collaterals and lines of credit


In some cases, the Company has entered into an accessory agreement to the ISDA Master Agreement with the financial institutions, the Credit Support Annex, which sets forth an obligation to grant collaterals for margin calls in case the mark to market value exceeds certain credit limits (threshold amount).


The Company has the policy to keep a close watch of the volume of the transactions entered into with each financial institution in order to avoid, if possible, any margin call.


Processes of levels of authorization required by type of negotiation


All derivative instrument transactions are executed by the Chief Financial Officer, the Assistant Director of Budget and Financial Planning or the Treasury Operation Manager, who are the only individuals registered with the financial institutions for such purposes.


Existence of an independent third party that reviews such processes


Both, the fulfillment of the Corporate Governance Guidelines and the measurement of effectiveness of the derivative instruments, to comply with the International Financial Reporting Standards, are discussed with the independent auditors that validate the reasonable accounting application of the effect of such instruments in the financial statements of the Company.


ii. Generic description of the valuation techniques and accounting policies


As previously stated, derivative instruments are carried out by the Company only for hedging purposes. The measurement of the effectiveness of the hedges is made in a prospective and retrospective manner. For the prospective valuation, we use statistic techniques that allow us to measure in what proportion the change in the value of the hedged debt (primary position) is compensated by the change in the value of the derivative instrument. The retrospective valuation is made by comparing the historic results of the debt flows with the flows of the respective hedges.


The effectiveness of the Company’s derivatives used for hedging purposes is evaluated prior to their designation as hedges, as well as during the hedging period, which is performed at least quarterly. Whenever it is determined that a derivative is not highly effective as a hedge or that the derivative ceases to be a highly effective hedge, the Company ceases to apply hedge accounting for the derivative on a prospective basis. At June 30, 2011, there were no gains or losses recognized due to changes in the accounting treatment for hedges.


Derivative financial instruments are recognized in the balance sheet at their fair values. The effective portion of the cash flow hedge’s gain or loss is recognized in “Accumulated other comprehensive income items” in stockholders’ equity, while the ineffective portion is recognized in current year earnings. Changes in the fair value of derivatives that do not qualify as hedges are immediately recognized in earnings.


The change in fair value recognized in earnings related to derivatives that are accounted for as hedges is presented in the same income statement caption as the gain or loss of the hedged item.


At June 30, 2011, our cross currency swaps position is deemed to be highly effective, with an effectiveness factor of approximately 94.9%


Also, P.11,649 million of our interest rate swaps are deemed to be highly effective, with an effectiveness factor of approximately 95.6%, while the remaining P.5,000 million were considered ineffective.


Adjustments due to early adoption of International Financial Reporting Standards


Beginning in 2012, Mexican issuers with securities listed on a Mexican securities exchange will be required to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Issuers may voluntarily report using IFRS before the change in the reporting standards becomes mandatory. Telmex will be presenting financial statements in accordance with IFRS for the fiscal year ending December 31, 2011, with an official IFRS “adoption date” as of December 31, 2011 and a “transition date” to IFRS of January 1, 2010.


International Accounting Standard 39, Financial Instruments: Recognition and Measurement, requires that credit risk is taken into account when determining fair value of financial instruments. For the transition from Mexican Financial Reporting Standards to IFRS, Telmex adjusted the fair value of derivative assets and liabilities determined under Mexican FRS with the non performance risk. Therefore, the fair value of derivative assets and liabilities position is net of a credit valuation adjustment attributable to Telmex’s “own credit risk” and derivative counterparty default risk. Non performance risk amounted P.112 million at June 30, 2011 (P.247 million at December 31, 2010).


iii. Management discussion on internal and external liquidity sources to meet the requirements related to derivative instruments


It is estimated that the Company’s cash generation has been enough to service debt and the established derivative instruments to hedge the risks associated with such debt.


iv. Changes in the exposure to the main identified risks and its management


The identified risks are those related to the variations of the exchange rate and interest rate. Given the direct relationship between the hedged debt and the derivative instruments and that they do not have any variables that could affect or terminate the hedge in advance, the Company does not foresee any risk that such hedges could differ from the original purpose for which the hedges were contracted.


In March 2011, cross currency swaps in the equivalent of U.S.$351 million, which partially hedged the bonds with maturity in 2015 and 2019, were unwound; in addition, U.S.$40 million of cross currency swaps and U.S.$40 million of forward contracts became due. No new derivative instruments were contracted.


During the six-month period ended June 30, 2011, the change in the fair value of the cross currency swaps that offset the exchange gain of the foreign-currency denominated debt was a net charge of P.1,740 million (net charge of P.1,323 million in the same period of 2010).


Additionally, in the six-month period ended June 30, 2011, the Company recognized in interest expense a net expense for interest rate swaps of P.370 million (net expense of P.846 million in the same period of 2010).


During the six-month period ended June 30, 2011, the ineffective portion of cash flow hedges was a net expense of P.459 million (net expense of P.361 million in the same period of 2010), recognized in interest expense.


During the first semester of 2011, no margin calls had been required. To date, there has not been any breach in the terms and conditions of the respective agreements.


v. Quantitative information


Derivative instruments summary at June 30 and March 31, 2011.

Figures in thousands of Mexican Pesos and US Dollars


Type of Derivative

Purpose of Hedging, Negotiation or Others

Notional Amount

Value of Underlying Asset Variable of Reference

Fair Value

Maturity Amounts per year

Collateral / Lines of Credit (*)

Current Quarter

Previous Quarter

Current Quarter

Previous Quarter

Current Quarter

Previous Quarter


Exchange Rate Hedges (Principal and interests)

Cross Currency Swap

Hedging

US Dollar

US Dollar

TIIE

TIIE

MXN

MXN



2,850,320

2,850,320

4.8450

4.8450

2,564,806

2,951,055

(1)




EXCHANGE RATE

EXCHANGE RATE







11.8389

11.9678






Cross Currency Swap

Hedging

YEN

YEN

TIIE

TIIE





19,891,200

19,891,200

4.8450

4.8450

878,475

846,956

(2)




EXCHANGE RATE

EXCHANGE RATE







0.1469

0.1445






Exchange Rate Hedges (Interests only)

Interest Rate Swap

Hedging

MXN

MXN

TIIE

TIIE

MXN

MXN



16,649,250

16,649,250

4.8450

4.8450

(1,873,497)

(1,197,552)

(3)


Total






1,569,785

2,600,459





(*) Of our hedge agreements, 59% of the total hedge amount include margin calls, when the market value exceeds the amounts of the lines of credit that we have in the amount of USD$425 million.

(1) These swaps hedge the debt position in US dollars, with the obligation of paying floating rate in Mexican pesos at an average of TIIE less a specified margin and with an average life of 3 years.

(2) These swaps hedge debt position in Yens with the obligation of paying $2,000 million in Mexican pesos (equivalent to USD$247 million) at a floating rate and with maturity in February 2014.

(3) These agreements hedge debt position in Mexican pesos at a floating rate, fixing it at an average of 8.48% and with an average life of 6 years.


III. Sensitivity Analysis


In the case of the Company, the sensitivity analysis for changes in the fair value of derivative financial instruments that are in the correlation range of 80% to 125% of effectiveness is not presented, since they are carried out for hedging purposes and therefore, any change in variables (i.e. exchange rates and interest rate) that affect the cash flows of the hedged debt (primary position) would be offset by the changes in the cash flows of the derivative instruments.


Sensitivity analysis for potential losses in fair value considering scenarios of hypothetical, instantaneous and unfavorable changes in interest rates is presented for derivative financial instruments deemed ineffective.


A hypothetical decrease in the value of the underlying asset (interest rate) of 10%, 25% and 50%, would result in an additional charge to the Company’s income statement as follows:


Sensitivity Analysis

Underliying Asset Changes

(figures in million)




At June 30, 2011

Additional Potential Loss (Pesos)

Type of Derivative

Purpose of Hedging/ Negotiation

Type of Currency

Notional Amount

Value of Underlying Asset

Fair Value (Pesos)

Variation in the value of underlying asset







- 10%

- 25%

-50.00%

Cross currency swap (1)

Hedging

US Dollar

2,850

4,845%

E.R. 11.8389

2,565


-


-


-

Cross currency swap (1)

Hedging

YEN

19,981

4,845%

E.R. 0.1469

878

-

-

-

Interest rate swap (1)

Hedging

Peso

11,649

4.845%

(1,433)

-

-

-

Interest rate swap (2)

Hedging

Peso

5,000

4.85%

(440)

(168)

(432)

(907)

Total





1,570

(168)

(432)

(907 )


(1) Hedges deemed as highly effective (a sensitivity analysis is not applicable).

    (2) Hedges deemed as ineffective.



---


MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

BMV: TELMEX, NYSE: TMX, NASDAQ: TFONY, QUARTER: 2 YEAR: 2011

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

GENERAL INFORMATION

Final printing

---

ISSUER GENERAL INFORMATION

COMPANY:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

INTERNET PAGE:

TELEFONOS DE MEXICO, S.A.B. DE C.V.

PARQUE VIA 198, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 12 12

www.telmex.com

ISSUER FISCAL INFORMATION

TAX PAYER FEDERAL ID:

FISCAL ADDRESS:

ZIP:

CITY:

TME 840315KT6

PARQUE VIA 198, COL. CUAUHTEMOC

06599

MEXICO, D.F.

OFFICERS INFORMATION

POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

CHAIRMAN OF THE BOARD

CHAIRMAN OF THE BOARD

LIC. CARLOS SLIM DOMIT

AV. SAN FERNANDO No.649, COL. PEÑA POBRE

14060

MEXICO, D.F.

53 25 98 01

55 73 31 77

slimc@sanborns.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

CHIEF EXECUTIVE OFFICER

CHIEF EXECUTIVE OFFICER

LIC. HECTOR SLIM SEADE

PARQUE VIA 190 - 10 TH . FLOOR OFFICE 1004, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 15 86

55 45 55 50

hslim@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

CHIEF FINANCIAL OFFICER

CHIEF FINANCIAL OFFICER

ING. ADOLFO CEREZO PEREZ

PARQUE VIA 190 - 10TH. FLOOR OFFICE 1016, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 57 80

52 55 15 76

acerezo@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

DISTRIBUTION OF CORPORATE INFORMATION DELEGATE

COMPTROLLER

LIC. ROLANDO REYNIER VALDES

PARQUE VIA 198 - 5TH. FLOOR OFFICE 502, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 92 92

57 05 62 31

rreynier@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

DISTRIBUTION OF BUYBACK INFORMATION DELEGATE

SHAREHOLDER SERVICES MANAGER

LIC. MIGUEL ANGEL PINEDA CATALAN

PARQUE VIA 198 - 2ND. FLOOR OFFICE 202, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 53 22

55 46 21 11

mpineda@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

IN-HOUSE LEGAL COUNSEL

LEGAL DIRECTOR

LIC. SERGIO F. MEDINA NORIEGA

PARQUE VIA 190 - 2ND. FLOOR OFFICE 202, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 14 25

55 46 43 74

smedinan@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

DISTRIBUTION OF FINANCIAL INFORMATION DELEGATE

COMPTROLLER

LIC. ROLANDO REYNIER VALDES

PARQUE VIA 198 - 5TH. FLOOR OFFICE 502, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 92 92

57 05 62 31

rreynier@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

DISTRIBUTION OF MATERIAL FACTS DELEGATE

SHAREHOLDER SERVICES MANAGER

LIC. MIGUEL ANGEL PINEDA CATALAN

PARQUE VIA 198 - 2ND. FLOOR OFFICE 202, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 53 22

55 46 21 11

mpineda@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

INVESTOR INFORMATION RESPONSIBLE

INVESTORS RELATIONS MANAGER

LIC. ANNA DOMINGUEZ GONZALEZ

PARQUE VIA 198 - 7TH. FLOOR OFFICE 701, COL. CUAUHTEMOC

06599

MEXICO, D.F.

57 03 39 90

55 45 55 50

ri@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

SECRETARY OF THE BOARD OF DIRECTORS

LEGAL DIRECTOR

LIC. SERGIO F. MEDINA NORIEGA

PARQUE VIA 190 - 2 ND . FLOOR OFFICE 202, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 14 25

55 46 43 74

smedinan@telmex.com


POSITION BMV:

POSITION:

NAME:

ADDRESS:

ZIP:

CITY:

TELEPHONE:

FAX:

E-MAIL:

PAYMENT RESPONSIBLE

COMPTROLLER

LIC. ROLANDO REYNIER VALDES

PARQUE VIA 198 - 5 TH . FLOOR OFFICE 502, COL. CUAUHTEMOC

06599

MEXICO, D.F.

52 22 92 92

57 05 62 31

rreynier@telmex.com

---

MEXICAN STOCK EXCHANGE

Index

SIFIC/ICS

STOCK EXCHANGE CODE: TELMEX QUARTER: 1 YEAR: 2010

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.

BOARD OF DIRECTORS

Final printing

---

BOARD OF DIRECTORS

DIRECTORS

ALTERNATE DIRECTORS

CARLOS SLIM DOMIT.- PRESIDENT

JOSÉ HUMBERTO GUTIÉRREZ OLVERA Z.

ANTONIO COSÍO ARIÑO

ANTONIO COSÍO PANDO

ANTONIO DEL VALLE RUIZ

- - - - - - - - - - - - - - - - - - - - - -

LAURA DIEZ BARROSO DE LAVIADA

- - - - - - - - - - - - - - - - - - - - - -

AMPARO ESPINOSA RUGARCÍA

- - - - - - - - - - - - - - - - - - - - - -

ELMER FRANCO MACÍAS

MARCOS FRANCO HERNAIZ

DANIEL HAJJ ABOUMRAD

- - - - - - - - - - - - - - - - - - - - - -

ROBERTO KRIETE ÁVILA

- - - - - - - - - - - - - - - - - - - - - -

JOSÉ KURI HARFUSH

EDUARDO TRICIO HARO

ÁNGEL LOSADA MORENO

JAIME ALVERDE GOYA

FRANCISCO MEDINA CHÁVEZ

- - - - - - - - - - - - - - - - - - - - - - - -

JUAN ANTONIO PÉREZ SIMÓN.- VICEPRESIDENT

- - - - - - - - - - - - - - - - - - - - - - - -

MARCO ANTONIO SLIM DOMIT

EDUARDO VALDÉS ACRA

PATRICK SLIM DOMIT

OSCAR VON HAUSKE SOLÍS

HÉCTOR SLIM SEADE

JORGE A. CHAPA SALAZAR

FERNANDO SOLANA MORALES

- - - - - - - - - - - - - - - - - - - - - - - -

MICHAEL J. VIOLA

- - - - - - - - - - - - - - - - - - - - - - - -

MICHAEL BOWLING

- - - - - - - - - - - - - - - - - - - - - - - -

RAFAEL KALACH MIZRAHI

- - - - - - - - - - - - - - - - - - - - - - - -

RICARDO MARTÍN BRINGAS

JORGE C. ESTEVE RECOLONS

EXECUTIVE COMMITTEE
DIRECTORS

ALTERNATE DIRECTORS
1.- CARLOS SLIM DOMIT.- President

1.- OSCAR VON HAUSKE SOLÍS
2.- JUAN ANTONIO PERÉZ SIMÓN

2.- ANTONIO COSÍO ARIÑO
3.- HÉCTOR SLIM SEADE

3.- DANIEL HAJJ ABOUMRAD
4.- MICHAEL J. VIOLA

4.- MICHAEL BOWLING
AUDIT COMMITTEE

CORPORATE PRACTICES COMMITTEE
1.- RAFAEL KALACH MIZRAHI.- President

1.- JUAN ANTONIO PÉREZ SIMÓN.- President
2.- JOSÉ KURI HARFUSH

2.- JAIME ALVERDE GOYA
3.- ANTONIO COSÍO ARIÑO

3.- ANTONIO COSÍO PANDO


---

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: July 19, 2011.

TELÉFONOS DE MÉXICO, S.A.B. DE C.V.




By: /s/ __________________

Name: Adolfo Cerezo Pérez
Title: Chief Financial Officer


Ref: TELÉFONOS DE MÉXICO, S.A.B. DE C.V. - SECOND QUARTER 2011, JULY 19, 2011.